Nike falls after tepid forecast raises concerns about growth

Nike Inc. fell after its annual forecast missed analysts’ estimates, raising concerns about growth at the world’s largest sporting-goods maker.

Sales will increase by a high single-digit percentage during the next fiscal year, the company said on a conference call on Tuesday. Analysts had projected a rate of about 10 per cent for that period. Earnings will rise in the low teens, Nike said, compared with an estimate for growth of about 15 per cent.

Nike is facing challenges on multiple fronts. The strong US dollar is hurting sales overseas, and competition from Under Armour Inc. is adding more pressure at home. The Oregon-based company also is coping with sluggishness in some overseas economies after years of strong growth. Still, its business in China is booming, bucking a broader slowdown in that country.

The shares declined as much as 5.8 per cent to $61.15 (Dh224) on Wednesday. Nike had gained 3.8 per cent this year through the close on Tuesday.

Revenue missed analysts’ estimates in the company’s third fiscal quarter, hurt by currency headwinds. Sales rose 7.7 per cent to $8.03 billion in the period, which ended on February 29, the company said. Analysts estimated $8.2 billion. Excluding currency shifts, sales would have gained 14 per cent last quarter.

Futures orders in emerging markets — an indicator of sales in those economies — were up 14 per cent, excluding currency effects. Analysts had estimated 16.1 per cent.

High hopes

Expectations were high, so they have to nail it or blow it out — and they didn’t, said Brian Yarbrough, an analyst for Edward Jones. Any hiccup can cause this kind of reaction in the stock.

Even as sales grew more slowly than predicted last quarter, profit beat estimates. Earnings climbed to 55 cents a share in the period — helped by a lower tax rate from more earnings coming outside the US, where levies are lower. Analysts predicted an average of 49 cents, according to data compiled by Bloomberg. The results marked the 15th straight quarter that Nike has beaten profit projections, dating back to the middle of 2012.

In North America, futures orders rose 10 per cent, excluding currency effects. Analysts estimated 11.6 per cent. The company said it’s making good progress on reducing excess inventory in the region by selling items through its outlet stores and other discount chains.

They grew 17 per cent worldwide by that measure, exceeding a projection of 16.1 per cent.

More competitive

The US market is becoming more competitive, said Chen Grazutis, an apparel and footwear analyst for Bloomberg Intelligence. Under Armour has seen success pushing into footwear, and adidas AG is putting more resources into the region, he said.

Nike’s China business continued to roll along, despite economic growth in that region slowing down. Sales rose 23 per cent, and orders advanced 28 per cent — by far the best performance of any Nike geographic division.

The quarter was mixed, but more positive than negative, Grazutis said. What they’re doing in China is very impressive.