Nike's surprise miss spooks investors
NEW YORK (MarketWatch) --
Nike (NKE) stock fell 9.4% at $87.78, becoming the day's biggest decliner on the S&P 500 Index (SPX) . For the first half of this year, the stock dropped 8.9%, compared to the 17% increase of the S&P Retail Index.
Late on Thursday, the company said that profit fell 7.6% to $549 million, or $1.17 a share, from $594 million or $1.27 in last year's fiscal quarter. Revenue for the period ended May 31 rose 12% to $6.5 billion.
Analysts surveyed by FactSet had estimated profit would be $1.37 a share on sales of $6.51 billion.
It's "a rare miss for Nike," said UBS analyst Michael Binetti, who added he's "disheartened to hear" that the company's gross-margin recovery will be pushed out again after three straight quarters of missing its own targets.
Nike said its results were hurt by lower gross margins, higher expenses and a charge to restructure its Western European businesses.
Inventories jumped 23%, raising concerns that the shoemaker may have to discount products if demand doesn't pan out.
"Nike becomes a much trickier stock from here," according to ISI Group analyst Omar Saad. Sales "may no longer be enough for investors to overlook the company's perplexing ongoing margin pressure."
Saad also said the margin miss makes him "a little concerned that this highly sophisticated, dominant, global consumer company does not have as good a handle on its costs as one would hope."
For the year, Nike forecast per-share profit to rise in the high single digits, short of its long-term goal of a midteens growth, as lower euro and other currencies are expected to dent translated overseas sales.
Orders in China, a $2.5 billion market, rose 2% in the fourth quarter, slowing from a 20% increase in the fiscal third quarter.
Gross margin narrowed 1.5 percentage points to 42.8%, after price increases weren't enough to offset cost inflation. Nike also expanded investments in its digital business and suffered an unexpected customs assessment in an emerging-market territory.
Selling, general and administrative expenses jumped 12%, including a 23% increase in marketing spending to support product launches, as well as this year's European Football Championship and the summer Olympic Games in London.
Orders of products for delivery between June and November rose 7%. They would have been up 12% excluding currency impacts, also missing expectations and slowing from the third quarter's 18% rate.
"We'll see continued uncertainty in the global economy," said Chief Executive Mark Parker. "Commodities and labor costs will continue to fluctuate; currency pressure is increased, especially in Europe and the emerging markets. China's economy is expected to grow more slowly than we've seen over the past five years."
Nike was cut to neutral from buy by both D.A. Davidson and Sterne Agee.
Still, while Nike shares tumbled, one of its customers,
Most of those companies are still heavily concentrated in North America, where Nike's orders rose a still robust 15%, boding well for the sector, analysts said.
Even though the company's results disappointed, many analysts said they still are bullish on Nike as it introduced its Flyknit technology, unveiled uniforms for 32 National Football League teams and rolled out updates of signature shoes for athletes such as LeBron James.
In China, the shoe and sportswear maker would benefit once it tailors designs to local markets and adjusts its apparel-sizing issues there, analysts said.
"We continue to own [Nike stock] as there's a lot to be excited about over the next several years," said Robert Samuels at Benchmark. In China, "the brand remains very well positioned to continue taking share."