Nike Inc. exceeded analysts’ expectations for its second-quarter profits as the company combated higher costs and weaker margins with a 20 percent increase in its footwear and apparel businesses.
For the three months ended Nov. 30, the Beaverton, Ore.-based sports gear giant boosted its net income 2.6 percent to $469 million, or $1 a diluted share, 6 cents better than the 94 cents expected, on average, by analysts. Year-ago profits came to $457 million, or 94 cents.
Total revenues moved up 18.4 percent to $5.73 billion from $4.84 billion, but a 23.9 percent increase in cost of sales, to $3.28 billion, lowered gross margin 260 basis points to 42.7 percent of sales from 45.3 percent a year ago. The firm said that higher product costs “more than offset the positive effects of growing sales in our direct-to-consumer operations, price increases and ongoing product cost reduction initiatives.” Selling and administrative expenses declined to 31.8 percent of sales from 33.3 percent in the second quarter of last year.
Nike’s closely watched futures orders metric, reflecting footwear and apparel scheduled for delivery through April, totaled $8.9 billion, 13 percent above the 2010 mark.
In the quarter, footwear sales rose 19.6 percent to $3.09 billion, surpassed on a percentage basis by apparel’s 20.9 percent expansion to $1.68 billion. By region, growth was strongest in Greater China, up 34.9 percent to $650 million; emerging markets, up 25.6 percent to $948 million, and its largest market, North America, ahead 21.5 percent to $2.07 billion.
Operating income grew 1.8 percent to $621 million, with double-digit improvement in North America, China and emerging markets offsetting a double-digit descent in Europe.
Company executives delivered mixed messages about Europe, with bullish expectations for its involvement with the Summer Olympics in London and European Championships tempered by concerns about general economic conditions and the potentially erosive effects of currency fluctuation. Donald Blair, chief financial officer, said he expects Nike’s gross margin to remain under pressure and finish the current fiscal year down about 160 basis points from fiscal 2011, a steeper drop than forecast earlier. In addition to currency issues, he cited the promotional tenure of business during the just concluded quarter.
“We expected improvement in discounts [in the second quarter] but they came out about flat,” he told analysts on the company’s late afternoon conference call.
However, with the strength of Nike’s brands and modification in input pressures, he added that he expects the firm to resume year-on-year margin growth “over time.”
Blair also projected that revenue increases in the back half of Nike’s fiscal year would be slightly above the 13 percent growth in futures orders. Year-to-date revenues were up 17.9 percent, to $11.81 billion from $10.02 billion. Net income rose 9.6 percent to $1.11 billion, or $2.36 a diluted share, from $1.02 billion, or $2.08.
The company made frequent reference to the strength of its category strategy, with the executives noting the strength of its basketball products despite the NBA lockout. Although highly confident about its plans for the Olympics, European Championships and the National Football League apparel license it takes over from Reebok next year, Blair noted that those programs had not yet begun to affect it future order position.
Taking the final spot on the mens’ portion of New York Fashion Week calendar next month will be none other than @tomford. Though he’s shown his men’s wear in New York in the past, this will mark the first time the designer has shown his men’s collection alone during New York Fashion Week: Men’s. His runway show will debut on February 6 at the Park Avenue Armory. #wwdfashion
London-based couture house @ralphandrusso has certainly been in the spotlight, having its dresses worn by @beyonce, Angelina Jolie, Meghan Markle in her engagement photos and more. For couture, Tamara Ralph focused on ornamentation — think: feathers with chain mail, jet embroidery and clusters of pearls and crystals. See the rest of the collection on WWD.com #wwdfashion #couture (📷: @giovanni_giannoni_photo)
Minnie Mouse celebrated her 90th birthday by getting her own star on the Hollywood Walk of Fame. For her celebratory luncheon, @coach’s creative director @stuartvevers dressed her in a custom made prairie dress, complete with Vever’s take on the polka dot – black sequined versions – under a cropped motorcycle jacket. The designer also put his own mark on Minnie’s classic red shoes, infusing the color with sparkles and adding some Coach crystals. “We chose colors that were very Minnie and also represented quintessential Coach elements,” said Vevers. #wwdfashion #nationalpolkadotday (📷: George Chinsee)
@nickjonas is unveiling his first-ever apparel collection through a partnership with John Varvatos. The limited-edition capsule, which makes its debut in spring, also marks the first time the designer has collaborated with anyone on a line. “The process in working with Nick is amazing. It’s inspiring to be around someone who is not only connected with the trade that they do, but also with what’s happening in the environment around him, and how that connects to what we do with style,” said Varvatos. (RG: @johnvarvatos) #wwdfashion
@margotrobbie steps out onto the red carpet wearing @miumiu. The actress is nominated for “Outstanding Performance by a Female Actor in a Leading Role” in “I, Tonya” at the #SagAwards. (📷: Stewart Cook) #wwdfashion
For @massimogiorgetti of @msgm, the Nineties are his favorite decade. “They had a huge impact on my personal growth. What I like of the Nineties is that they are not so precise in terms of style as other decades…there was actually a bit of everything,” he said. As seen on MSGM’s Spring 2018 show: tie-dye and a bit of grunge, two styles that are synonymous with the decade #wwdfashion #wwddecades (📷: @kukukuba)