Nike sees strong demand, better margins in spring

Nike Running collection 2012 / Photo: Nike
Nike Inc headed into the spring quarter with strong demand and improving margin trends, as the top sportswear retailer forecast a strong year with plans to cash in on the Olympics.

The Beaverton, Oregon-based company saw future orders for delivery from March through July rise 15% even as rival Adidas expects a slowdown in sales growth in 2012.

Futures orders, which indicate demand, are a closely-watched metric for Nike products.

On a conference call with analysts, the company was upbeat about its prospects for the upcoming Olympics and European Championship, somewhat in contrast to Adidas, which disappointed investors when it stuck to forecasts for a slowdown in sales growth in 2012.

"The running category continues to post strong results as we head into the home stretch of the fiscal year. Road races are seeing capacity levels and we are heading into the Summer Olympics," Charlie Denson, president of the Nike Brand said on a conference call with analysts.

Apart from the Olympics, the big sportswear brands are courting soccer fans ahead of the UEFA European championships in Poland and Ukraine that starts in June.

"Nike has a very strong product cycle within the running category, which is pretty much the largest category in footwear," said Matt Arnold, consumer discretionary analyst for Edward Jones.

"It is about lightweight running, not just any running, and Nike was pretty much at the forefront of creating that category. So not only did they start the product cycle, they are harnessing it to the full potential," he said.

Nike has posted eight consecutive quarters of double-digit sales growth in the running category.

Shares of the company rose to $112.01 in late trading after closing at $110.99 Thursday on the New York Stock Exchange.

Nike earned $560 million, or $1.20 a share for the third quarter ended Feb. 29, compared with $523 million, or $1.08 a share last year.

Analysts, on average, were expecting earnings of $1.17 a share, according to Thomson Reuters I/B/E/S.

Revenue rose 15 percent to $5.8 billion, with a 17 percent rise in North America, its biggest market.

Margins at the company, which have been under pressure from high product costs, fell 2 percentage points. But that was better than the 2.6 percentage point drop in the second quarter. Nike said it expects margins to be down 1 percentage point in the current quarter.

"Investors are looking at stabilization over the next couple of quarters," Edward Jones analyst Arnold said.

Arnold added that as in-store prices increase, comparisons ease and costs moderate, Nike should be able to stabilize margins soon.

"There is clearly not a demand issue here, so if they could get margins to point at the same direction as revenue, we could see more acceleration of earnings from here," he said.

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