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A hint of caution about the upcoming fiscal year slowed the pace of Nike Inc.’s third-quarter victory lap.
The Beaverton, Ore.-based sports footwear and apparel giant topped Wall Street estimates for profits, sales and futures orders and boosted its gross margin as its Nike brand sales topped $6.5 billion, its Nike footwear sales in the period expanded 14.5 percent and its apparel sales grew 9.7 percent.
But even with futures orders — covering bookings between now and July — up 14 percent on a constant currency basis and 12 percent overall, Nike’s management tamped down expectations for the fiscal year’s final quarter and the year ahead, projecting fourth-quarter revenues to grow at a high-single-digit rate, below the double-digit futures orders level.
Donald Blair, chief financial officer, sounded a cautious note about next year’s prospects as well, even as he provided initial guidance for currency-neutral revenue growth “at or slightly above our high-single-digit target range. That said, this year’s devaluation of developing market currencies will be a significant drag on next year’s reported revenue, gross margin and profit growth. In addition, we remain committed to investing in the strategies that are driving our growth.”
Nike now expects growth in its earnings per share to be “somewhat below” the midteens target range in the coming fiscal year, according to Blair.
He said foreign exchange headwinds, particularly in Argentina, affected third-quarter results, but the impact in the fourth quarter appears to be a “little stronger.” Nike has exposure in the currency market because, while it sources about two-thirds of its product with the U.S. dollar, the other third is purchased in foreign currencies, putting gross margin at risk at times of higher volatility.
“When you operate in 190 countries, the volatility is something that goes with the territory,” he said.
The less-than-optimistic signals on upcoming profits sent Nike shares down 3.6 percent, to $76.40, in after-hours trading following a smaller increase upon the numbers’ release just after the markets closed. They ended the trading day at $79.27, up 0.2 percent.
Third-quarter results easily surpassed estimates. In the three months ended Feb. 28, net income declined 20.9 percent to $685 million, or 76 cents a share, 4 cents above the consensus estimate of analysts and against year-ago profits of $966 million, or 95 cents. Stripping out discontinued operations, such as the divested Cole Haan and Umbro brands, net income rose 3.5 percent from the prior-year level of $662 million, or 73 cents.
Revenues jumped 12.7 percent to $6.97 billion from $6.19 billion, with Nike brand revenues up 12.4 percent, to $6.55 billion, and Converse sales ahead 16.3 percent to $420 million. Within the Nike segment, footwear sales were up 14.5 percent, to $4.22 billion, and apparel turnover expanded 9.7 percent to $1.89 billion.
Gross margin grew 40 basis points to 44.2 percent of revenues while inventories stood at $3.83 billion, 11.7 percent higher than a year ago.
Mark Parker, chief executive officer, noted that the company has made substantial investments in product development and marketing in advance of its involvement with the FIFA World Cup, which begins in Brazil June 12. He promised “more amazing products to come” before the event.
Year-to-date net income rose 10.2 percent, to $2 billion, or $2.20 a diluted share, while revenues for the first nine months were $20.37 billion, 9.4 percent better than in the comparable period last year.