Nike’s golden Olympics summer could turn into a bronze winter as orders slip
Despite a strong performance at the Rio Olympics, Nike is looking nervously over its shoulder.
Solid Q1 revenue and earnings growth may have beat analysts’ forecasts late Tuesday, but the US sportswear giant’s shares sank 2.6% in after-hours, as weak North America future orders pointed to an expected slowdown in its own back yard at the expense of rivals.
It forecast September-January worldwide orders to rise 7% on a constant currency basis, the lowest in five quarters and short of the 8% analysts had expected.
But orders in Nike’s biggest market, North America, heavily missed expectations, rising only 1%, much lower than the 5% analysts had expected, as rivals adidas, Under Armour and Puma continue to make up ground.
But Q1 was deemed a success: “Fuelled by an incredible summer of sport, Nike delivered strong global growth and led the industry through disruptive innovation,” said chief executive Mike Parker.
Indeed, Nike athletes won 189 medals. “Everywhere you looked in Rio, you could feel Nike’s support of athletes,” Parker said.
That performance boosted revenues 7.7% for the quarter ended August 31 to the tune of $9.1bn, which was around $200m higher than expected, and above analysts’ $8.87bn call.
Strong global demand drove double-digit currency-neutral revenue growth internationally, and 6% revenue growth in North America.
It said women’s sportswear was the “standout growth category” while direct-to-consumer revenue rose 22%, with nike.com growing 49% in constant currency.
Net income rose 5.9% to $1.25bn/73 cents per share. Analysts had expected a profit of 56 cents per share and revenue of $8.87bn.
But the heavy cost of brand marketing at the Olympics saw related costs also rise significantly. The company said its ‘demand creation expense’, which includes a hefty marketing budget, was $1bn, up 25% on investments in key sports events.
Nike’s profit margin also declined, down 200 basis points to 45.5% despite higher average selling prices for its footwear and apparel. Those higher prices were more than offset by “a higher off-price mix and the impact of exiting the golf equipment business,” it said. Inventories at the end of August were also up 11%.
Parker was in an upbeat mood Tuesday, adding he was “confident that Nike is positioned for major growth thanks to innovation and its close connection to athletes… It’s a great time to be in the business of sports and, as the market leader, it’s a great time to be Nike.”
* Nike said on a conference call that it would now issue a forecast for its future orders during the earnings call, moving away from a long tradition of announcing it in the earnings release.