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Nike Inc. Net Slips in First Quarter

A higher tax rate, lower gross margins and an increase in expenses hurt the bottom line.

Nike Inc. saw first-quarter income fall as increased costs hurt the bottom line.

For the three months ended Aug. 31, the company said net income fell 12 percent to $567 million, or $1.23 a diluted share, from $645 million, or $1.39, a year ago. The company had higher selling, general and administrative expenses for the quarter, as well as a higher tax rate of 27.5 percent versus 24.3 percent last year.

Revenues rose 10 percent to $6.67 billion from $6.08 billion. Nike brand revenues rose 16 percent, with growth in all key categories and every geography except Japan, the company said.

The firm said gross margin for the quarter slipped to 43.5 percent from 44.3 percent.

Calling the first-quarter results a “solid start to the year,” Mark Parker, president and chief executive officer, told Wall Street analysts in a conference call after the markets closed that “SG&A expenses were higher, up 18 percent, as we invested in a remarkable array of product innovations and inspiring moments over the summer of sports.”

Parker was referring in part to what he called the “U.S. Open of surfing at Huntington Beach [Calif.], as well as the Summer Olympics in London.”

He also said the company is investing for growth in China. “By any objective measure, we’re the undeniable leader for our industry in China. Our brand is the most connected and we deliver the innovative products consumers want. We don’t take our leadership position for granted, and we know we have to earn it every day and we do. I feel very good with our competitive position in China, and I’m confident in the enormous potential for our business in this market,” he said.

In May, the company said it was divesting its Cole Haan and Umbro businesses.

North American sales contributed to the bulk of the company’s revenues, with the division up 23 percent to $2.71 billion from $2.2 billion. While footwear sales rose 20 percent to $1.73 billion, it was apparel sales that saw the biggest gain at a 26 percent increase to $795 million. Sales in Western Europe fell 5 percent to $1.17 billion from $1.23 billion. Footwear sales fell 2 percent to $714 million, while apparel sales decreased 8 percent to $382 million.

Sales in Central and Eastern Europe inched up 2 percent to $342 million. Sales of footwear slipped 1 percent to $178 million, while sales of apparel items rose 9 percent to $134 million. In Greater China, sales rose 8 percent to $572 million, with footwear sales showing gains of 13 percent to $356 million and apparel sales rising 1 percent to $178 million. In Japan, sales fell 6 percent to $183 million. Footwear sales were up 3 percent to $106 million as apparel sales fell 15 percent to $61 million. The emerging markets saw a sales increase of 8 percent to $867 million, with footwear sales up 7 percent to $604 million and apparel sales increasing 16 percent to $211 million.

As of the end of the quarter, worldwide futures orders for Nike brand athletic footwear and apparel scheduled for delivery from September through January totaled $8.9 billion. That represents a 6 percent gain compared with orders for the same period a year ago.

Shares of Nike fell 3.2 percent to $92.95 in after-hours trading.