Growth in all geographic markets but Japan and tight cost controls helped Nike Inc. expand its third-quarter profits more than expected despite continuing pressure on margins.
In the three months ended Feb. 29, the Beaverton, Ore.-based athletic footwear and apparel giant expanded net income 7.1 percent to $560 million, or $1.20 a diluted share, above the $1.17 analysts’ estimate as well as the year-ago mark of $523 million, or $1.08. Total revenues were up 15.1 percent, to $5.85 billion from $5.08 billion, as Nike brand footwear sales rose 16.7 percent, to $3.35 billion, and apparel volume was up 12.2 percent to $1.46 billion.
Gross margin fell 200 basis points to 43.8 percent of sales from 45.8 percent a year ago, but the effect on the bottom line was muted by a decline in selling, general and administrative expenses to 30.8 percent of sales from 32.2 percent a year ago.
The company’s closely watched global futures orders for the Nike brand, for footwear and apparel scheduled for delivery through July, were $9.4 billion, 15 percent above the year-ago level. That figure was reduced by 3 percentage points by unfavorable foreign currency translation, Nike said.
Charlie Denson, president of Nike brand, noted that, on a constant currency basis, “We grew revenues in every geography except for Japan, which is still recuperating from that devastating event last year, and all seven of our key categories increased [revenues], with five growing a double-digit rates.”
The brand’s direct-to-consumer revenue increased over 20 percent, he said, including a more than 25 percent boost in online sales.
Operating income for the Nike brand rose in all markets except Japan, where it dropped 22.6 percent to $24 million, and Western Europe, where it was down 8.6 percent to $149 million. In descending order of profitability, North America was up 18.4 percent to $496 million, Greater China up 28.2 percent to $273 million, emerging markets up 24.3 percent to $215 million, and Central and Eastern Europe up 1.7 percent to $60 million.
Mark Parker, president and chief executive officer, said he expects unemployment, debt and currency issues to remain a problem through the current fourth quarter and beyond. “While some raw material costs are starting to ease, we have not seen them retreat to their previous levels,” he said. “For other input costs such as labor, upward pressure continues. That said, I believe there is some stability easing into the broader marketplace as consumer confidence moves higher in most parts of the world.”
For the year to date, net income rose 8.8 percent to $1.67 billion, or $3.56 a diluted share, as revenues added 17 percent to hit $17.66 billion.
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