Nike profit tops estimates

Nike Inc's quarterly profit beat Wall Street's expectations, as margins increased and world-wide future demand for its apparel and shoes rose, sending its shares up 8 percent. Global orders for Nike-branded shoes and clothing scheduled for delivery from March through July 2013, known as futures orders, rose 6 percent compared to orders reported for the same period last year. In North America, the company's biggest market, orders increased 11 percent.
The company also saw a turnaround in future demand in Greater China, with orders rising 4 percent, after falling in the previous two quarters. "They turned China much faster than we thought," said Brian Yarbrough, consumer discretionary analyst for Edward Jones. Yarbrough said this turnaround was important as China is among Nike's highest margin markets. Lower shipping costs and high price tags help the company make more money on their products in that region, he said.
"In China, we are seeing progress against our strategy to reset the marketplace but we still have more to do before we can capture its long-term growth potential," Nike Chief Executive Mark Parker said on a conference call with analysts. Nike had been stuck with excess inventory in China and was finding it difficult to tackle intense competition and frequent promotional sales by local brands. Distributors and retailers were also wary of an uncertain global economy.
Shares of the Beaverton, Oregon-based company rose to $57.93 Thursday in extended trade. They closed at $53.60 on the New York Stock Exchange. Paul Swinand, an analyst with Morningstar, said one of the biggest challenges for Nike is to grow in its more mature markets. He said strong demand in North America shows it is able to do that. Nike also posted its first growth in gross margins in around two years, with margins rising 30 basis points in the quarter. High costs of raw material and labour pressured the company's margins over the past couple of years and Nike had been fighting it by raising prices on merchandise.
"Gross margin benefited from the combination of pricing actions and easing material costs, which more than offset higher labour costs," the company said. For the third quarter ended February 28, the company earned $662 million, or 73 cents a share, compared with $569 million, or 61 cents a share last year. Analysts, on average, expected earnings of 67 cents a share, according to Thomson Reuters I/B/E/S. Revenue rose 9 percent to $6.2 billion.