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Nike Net Up, Shares Down

Nike Inc. delivered another robust quarter Monday, with profits rising 15 percent on a 6.7 percent sales gain.

NEW YORK — Nike Inc. continued to sprint in the fourth quarter with a 15 percent rise in profits, but its apparel sales lost some zip in the U.S. and Europe.

The lag in activewear sales, a more cautious outlook for the first quarter of the current year and concern about business in Japan and some European regions caused the athletic giant’s shares to slide $3.58 Monday to close at $85.77 on the New York Stock Exchange.

Nike expects high-single-digit sales growth in 2006, but first-quarter revenues will be at the low end of the 7 to 9 percent projected growth range, Donald Blair, Nike’s chief financial officer, said on a call with analysts Monday.

Nike’s fourth-quarter profits climbed to $349.5 million, or $1.30 a share, from $305 million, or $1.13, and exceeded analysts’ expectations of $1.27. Results were aided by higher gross margins and strong sales in Asia and South America, as well as robust global footwear sales. Gross margins were 45.2 percent of revenues in the quarter, up from 43.8 percent last year helped by tight cost controls.

Nike’s total revenues rose 6.7 percent to $3.72 billion from $3.49 billion in the quarter. While the company saw strength in nearly every product sector and region in the fourth quarter, apparel was a slight disappointment in the U.S. and Europe. Apparel revenues slipped 7 percent in the U.S to $335.9 million, and were down 4 percent in Europe, the Middle East and Africa, or EMEA, to $366.1 million.

For the year, profits surged 28.1 percent to $1.21 billion, or $4.48, from $945.6 million, or $3.51. Revenues grew 12 percent to $13.74 billion, from $12.25 billion, and were up in all regions and product categories.

“The strength of the Nike brand around the world, the breadth of our Nike Inc. portfolio and the quality of our management team contributed to another year of consistent, profitable growth for our shareholders,” said William D. Perez, Nike’s new president and chief executive officer, in a statement Monday. “The Nike brand is exceptionally strong, driving full-year revenue gains across all regions and product lines, while Converse and Cole Haan led the growth in our portfolio of other businesses.”

Perez, who took the Nike helm in late December, did not participate in a conference call with analysts on Monday, but is scheduled to meet with investors today in New York along with a number of other company executives.

Blair said during the call that Nike is seeing growth on the women’s side of the business, although he declined to give specifics, and he also noted comp-store sales at NikeTown stores were up 11 percent in the quarter. He attributed the fall in U.S. apparel sales in the fourth quarter to “changes in the timing of shipments, the decline in sales of licensed apparel and lower at-once orders.”

John Shanley, an analyst with Susquehanna Financial Group, said the company’s performance in Japan and some concern over the European business contributed to the decline in the share price on Monday.

Shanley said Nike “needs to do a better job with the styling of some its apparel.” Brands like Under Armour are being embraced as fashion labels, and retailers are also pumping up their own private label offerings, which may be hurting Nike’s apparel sales, he said. Reebok has had similar problems with its branded merchandise.

Shanley was optimistic about prospects for the U.S. “We expect that heightened consumer demand for technical/performance footwear, particularly the brand’s higher-priced, limited-availability products, will continue to help drive Nike’s sales growth momentum in the U.S.,” he wrote in a report Monday.

By region, in the U.S., revenues for the year were $5.13 billion, and apparel sales edged up 2 percent to $1.46 billion from $1.43 billion. Blair noted that high-single-digit growth in branded apparel offset declines in licensed apparel due to the expiration of Nike’s NBA license. Sales at the company’s subsidiaries rose 22 percent to $1.7 billion for the year.

Sales in Asia continued to outpace the U.S., especially in China, where business nearly doubled for the year, Blair said. Some analysts have said the company needs to look internationally to grow the Nike brand since it is already mature in the U.S. Revenues in the U.S. grew 3 percent to $1.33 billion for the quarter, and were up 19 percent to $535 million in the Asia Pacific region. EMEA revenues grew 4 percent to $1.1 billion in the quarter, while in the Americas region, which includes South America, revenues were up 20 percent to $201.1 million.

Japan “remains challenging,” and overall constant dollar revenues there fell slightly in the fourth quarter, Blair said.

Sales at Nike subsidiaries group, including Cole Haan, Exeter Brands Group LLC, Hurley, Nike Golf, Converse and Bauer Nike Hockey, grew 6 percent to $529.2 million in the quarter. Nike has continued to aggressively build up this segment of its business and Nike executives have said often that the company wants to continue to acquire new brands and expand into new product segments and distribution channels. To that end, the company last August acquired Official Starter Properties, owner of the Starter brand, as a way to extend its business into the mass channel including Wal-Mart. Nike has renamed this business Exeter Brands Group LLC.

Nike’s footwear sales were driven by performance products, which have a higher selling price, Blair noted.

Looking ahead, Nike reported that worldwide future orders for athletic footwear and apparel scheduled for delivery from June through November 2005 totaled $6.3 billion, a 9.5 percent increase over the same period last year. Blair said on the call that the company expects selling, general and administrative costs to be lower as a percentage of revenue in fiscal 2006.