China failed Nike
03.10.2012 2480

China failed Nike

Profit Nike Inc. in the 1st financial quarter fell by 12%. Profit pressure was exerted by marketing expenses of the world's largest manufacturer of sports goods, as well as a slowdown in China's economic growth.

Shares fell in price by 2,1% to $ 93,81 in the hours after the end of the regular trading session on 27 September. Securities crashed by about 30% in almost 5 months from when they rose to record highs in May. The lower margins offset the impact of Nike’s efforts to increase revenue.

Nike has recently started grappling with some of its problems. The company has been striving to improve margins for about 2 years now, making it difficult for it to continually innovate to create products that appeal to the public. In the last reporting period, the gross margin declined by 0,8% to 43,5%. The company itself predicted that the margin would decline by 1%.

Higher materials and labor costs offset the effects of rising prices and steps to reduce production costs. In addition, margin was pressured by a decline in sales towards less profitable businesses, as well as a shift to Converse direct sales in China.

Inventories increased by 9,8%, which is much lower than the rapid growth by 20% in the comparable quarter last year.

Nike overheads jumped 18%. In particular, there was a 29% increase in “spending on demand stimulation” to promote products on the market and maintain the company's reputation at the Olympic Games and at the European Football World Cup. All of this kept the pressure on the company's profits.

Worldwide orders for future periods - a key indicator of growth - increased by 6-8% unadjusted for currency fluctuations. A year earlier, this indicator showed a significant increase - by 16%, the current figures indicate the weakest percentage growth in orders in more than two years. Analysts predicted only a decrease in the potential for growth in orders for future periods during the year, but Thursday's results signal a slower-than-expected growth.

A particularly strong slowdown in sales growth is observed in China. Nike sales in this country increased by 8%, or by 7%, excluding changes in exchange rates. For the first time in more than 2 years, both indicators were in the 0-9% range, while demonstrating a moderate improvement over the same period a year earlier.

Analysts note the stability of Nike's position in China, but the company faces problems due to the slowdown in the country's economy, intensive advertising of local brands and an increased tendency to buy casual clothes.

Nike's revenue growth was strong, especially in the company's largest sales market, North America, where sales grew 23%.

In the quarter ending August 31, Nike posted $ 567 million, or $ 1,23 per share, versus $ 645 million, or $ 1,36 per share a year earlier. Based on the results of the Cole Haan and Umbro businesses that the company plans to sell, earnings were $ 1,27 per share. Analysts polled by Thomson Reuters expected it to be at $ 1,12.

Revenue grew by 9,7% to $ 6,7 billion, or by 15% excluding currency fluctuations. In June, Nike predicted sales growth at the top of the 0-9% range. At that time, this forecast was lower than Wall Street estimates. About this writes asiareport.ru.

Profit Nike Inc. in the first financial quarter fell by 12%. Profits were under pressure from marketing costs for the world's largest sporting goods manufacturer, as well as a slowdown in the economic ...
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