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NIKE'S THIRD QUARTER EARNINGS DOWN 70%; MORE CUTS EXPECTED
Published March 19, 1998
Nike yesterday reported revenues and earnings for the company's third quarter ended February 28, 1998. Third quarter net income totaled $73.1M or $0.25 per share compared to $237.1M, or $0.80 per share from the same period one year earlier. Third quarter revenues were $2.22B, down 8% from $2.42B last year. Nike also reported that its fourth quarter '98 earnings will be reduced by an estimated restructuring charge of between $125-$175M. Included in the charge will be costs associated with the anticipated reduction in the company's global workforce of approximately 1,600 positions, or 7% of the workforce. Nike reported that U.S. footwear revenues declined 18% to $800.4M, compared to $980.4M last year. Nike Chair Phil Knight: "The actions we announce ... as difficult as they are to undertake as they impact our human assets -- will result in a leaner and more competitive Nike as we move into fiscal 1999." Nike said that measures taken, combined with efforts to maintain an efficient cost structure in the U.S. and Asia Pacific, are expected to result in projected reduced spending in excess of $100M in '99. Gross margins for this year, however, will be negatively impacted by approximately $100M (Nike). HOW IT'S PLAYING: CNBC's Felicia Taylor called the earnings report "right on line with street estimates," with earnings down nearly 70%. Nike stock gained 1 3/4 per share on Wednesday, closing at 44 1/8 ("The Edge," CNBC, 3/18). In N.Y., David Bank reports that Nike attributed the U.S. "shortfalls to an intense price war, as sneaker makers tried to move inventory off the shelves." Nike said sales also fell in Asia, with the "biggest trouble spot" being South Korea where sales fell 52% (WALL STREET JOURNAL, 3/19). In the lead story of the N.Y. TIMES' "business section," Sharon King writes under the sub-head, "In Footwear Wars, Nike Lags, Adidas and Other Surge." King: "While outside factors conspired against Nike, management made its own missteps: a surge in inventory, an increase in prices, a lackluster ad campaign, a failure to hit upon a new big idea." King adds that recently, Nike "seems to have become too big, too comfortable and too establishment for the young, energetic consumer" (N.Y. TIMES, 3/19). The AP's William McCall said that Nike "has become viewed by many shoe-buying teens as a synonym for corporate America, and their views are beginning to show up on the bottom line" (AP/Mult., 3/19).