How Did Nike’s Fourth Quarter Surprise?

Nike Inc. (NYSE:NKE) has exceeded analysts’ expectations after its fiscal fourth-quarter profit results revealed a net income increase of 22 percent. The world’s leading designer, marketer, and distributor of athletic footwear, apparel, equipment, and accessories has experienced a market surge of 12 percent to $2.7 billion in North America, offsetting the lack of revenue generated from its operations in Western Europe and China.

“Net income in the quarter ended May 31 rose 22 percent to $668 million, or 73 cents a share, from $549 million, or 59 cents, a year earlier,” the Beaverton, Oregon-based Nike said in a statement. Forbes reports this 22 percent jump translates to an earnings per share of 76 cents, two pennies above Wall Street’s estimate.

Revenue rose 7 percent to $6.7 billion, which is just above the $6.66 billion consensus estimate. According to an average of five estimates compiled by Bloomberg, analysts had projected a gain of just 8.8 percent. However Nike’s gains reversed slightly yesterday as management delivered disappointing first-quarter guidance reporting revenues are expected to grow in the mid- to high- single-digits, while gross margins should remain flat. The stock was trading at $63.14 by 2 p.m. today in New York.

Although demand for Nike’s products has increased in North America, one of the company’s fastest-growing markets, China, was not so taken. Chinese consumers have shunned the apparel, forcing Nike to sell at heavily discounted prices. Chinese sales fell 1 percent, which is the third quarterly decline in a row. According to Forbes, revenue in China came in flat as a consequence stuck at $669 million. Western Europe, marred in recession, saw sales also decline 1 percent to $1 billion while in Japan revenues tanked 11 percent to $214 million.  Futures orders were up 8 percent while inventories rose 7 percent to $3.4 billion.

Nike believes the 1 percent drop in China is a result of discounted products and the country’s slowing economy. The company replaced its top China-based executive in May and said it is working with its retail partners in China to improve the presentation of its products. “We still have a lot of work to do,” Chief Financial Officer Don Blair said during a conference call. “Sales in fiscal 2014 will increase by a high single-digit percentage, with more growth coming in the second half of the year,” Blair added.

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