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Nike Shares Hit All-Time High on Strong Q1

North America and Europe carry results past analysts’ expectations.

The Nike store at Scottsdale Quarter.

Strength in North America and Europe and from the Converse brand allowed Nike Inc. to beat earnings expectations for the first quarter and sent shares to all-time highs in after-hours trading.

This story first appeared in the September 27, 2013 issue of WWD.  Subscribe Today.

The company broke out results for the Converse brand for the first time, reporting an 18.2 percent increase in quarterly revenue, to $494 million, and a 36.3 percent leap in operating profit, to $169 million. Nike said it would continue to seek expansion for the brand in the direct-to-consumer channel and, in the words of Nike’s president and chief executive officer Mark Parker, “unlock growth in apparel.”

Net income for the three months ended Aug. 31 was $780 million, or 86 cents a diluted share, 37.6 percent above the year-ago level of $567 million, or 61 cents. Revenues rose 7.7 percent to $6.97 billion from $6.47 billion in the prior-year quarter. Gross margin was lifted 120 basis points to 44.9 percent of sales from 43.7 percent.

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On average, analysts expected earnings per share of 78 cents and revenues of $6.96 billion. Additionally, Nike’s closely watched future orders metric came in 8 percent above the year-ago mark, a figure that rose to 10 percent at constant currency. Inventories grew more slowly than sales, profits or future orders, moving up 6.4 percent to $1.05 billion.

Investors voiced their approval with the results, sending shares up $4.16, or 5.9 percent, to $74.50 in post-market trading following the disclosure of the results. They closed the regular trading session at $70.34, up 2.1 percent. The after-hours levels represent the highest for the Beaverton, Ore.-based firm since it completed its initial public offering in 1980.

In addition to the strength at Converse, the results were derived from strong, albeit single-digit, increases in both footwear and apparel, with the former category increasing 7.2 percent to $3.98 billion and the latter up 5.8 percent to $2.02 billion. Led by a 9.2 percent advance in North America, to $1.01 billion in sales, apparel grew in all regions with the exception of Japan, where sales were down 20.9 percent to $53 million while declining a more modest 1 percent at constant currency.

Nike logged mixed results in China, where the company is undergoing what Trevor Edwards, the new president of the Nike brand, called “a strategic reset.” Total revenues declined 0.5 percent, to $574 million, as apparel’s 8.8 percent increase, to $197 million, was insufficient to offset footwear’s 4.5 percent decline, to $341 million. However, operating income rose 3 percent, to $170 million, and advance orders in the market were up the same percentage.

“In our own Nike…doors, comp growth was up over 20 percent,” Edwards said. “The knowledge we’ve gained from these early successes can and will be leveraged across the entire market.” However, he cautioned that “the results in China will not always be linear.”