Nike quarterly net profit down 5 per cent on charge

LOS ANGELES - Nike Inc., the world's top athletic shoe maker, said today its quarterly net profit fell 5 per cent on a one-time charge, and its shares fell after hours as the company posted a decline in future orders for Latin America that disappointed some investors.

Nike, whose signature swoosh has been splashed on soccer stars at the World Cup in Germany, said net income in the quarter ended May 31 fell to US$332.8 million ($553.15 million), or US$1.27 per share, compared to US$349.5 million, or US$1.30 per share, in the year-ago period. Total sales rose 8 per cent to US$4 billion from US$3.7 billion a year earlier.

Excluding the charge for a previously-announced arbitration ruling on its Converse brand shoe, Nike's net profit rose 4 per cent and earnings per share were US$1.39 per share, meeting Wall Street analysts' average expectations, according to Reuters Estimates.

Nike said that the one-time charge negatively affected earnings per share by 12 cents.

One analyst said some investors had been hoping that the company's earnings would beat expectations, and that a decline in futures orders for the Americas region, one of Nike's top performers, was worrying.

"There were bullish expectations that they'd blow through the quarter's earnings results and have stronger forward order momentum, that clearly is not the case," said Susquenna Financial analyst John Shanley, explaining the after-hours share fall.

Beaverton, Oregon-based Nike, whose primary rivals are Germany's Adidas-Salomon and Puma, enjoys strong demand in the US, its No. 1 market, but has struggled recently amid dwindling demand in Europe and Asia, where a consumer shift to lower-priced footwear has led to increased promotions and pressured gross margins.

In the United States, sales rose 10 per cent, while European sales rose 2 per cent, led by apparel sales. In Asia, sales rose 4 per cent.

The company said that futures orders for athletic footwear and apparel scheduled for delivery between June through November were up 5 per cent over the same period last year.

Although Shanley said that 10 per cent increase in futures orders for Asia were stronger than anticipated -- noting that "growth in China must be spectacular" -- he called a 1 per cent decline in the Americas region a disappointment. Investors would be looking for clarification on what was behind the drop, he said, as well as more information about Nike's Japanese business.

Sales of Nike's other subsidiary brands, such as Converse, Hurley and the upscale Cole Haan shoe label, rose 13 per cent in the quarter. Last week, Nike named former Gap Inc. executive Lee Bird to head those businesses. The company also last week announced a US$3 billion stock buy-back program.

Rising expenses were behind a drop in gross margins to 43.8 per cent compared to 45.2 per cent in the year-ago quarter, Nike said.

Nike shares trade at 15 times 2007 earnings estimates, slightly above the SIG Footwear Athletic Index which includes smaller rivals such as K-Swiss Inc. and Wolverine World Wide. Shares also trade at a premium to Adidas, with a forward-looking price-to-earnings ratio of nearly 12, and Puma, at nearly 15.

Shares fell to US$81.88 in after-hours trade on Inet after closing at US$83.63 on the New York Stock Exchange.

- REUTERS