Nike Q1 Profits Fall 12% To $567M; Focus Remains On Profitablity Of China

Nike in the quarter that ended Aug. 31 reported that its profit “fell 12 percent to $567 million compared to $645 million the same period last year,” according to Allan Brettman of the Portland OREGONIAN. Diluted earnings per share decreased 10% to $1.23 compared to $1.36 last year. Company execs spent “significant time Thursday explaining to stock analysts why Nike's performance fell short of expectations in its fiscal first quarter and why some of the same can be expected in the near future.” But they also “made clear two other points." The growth in China "has been greater than the company could have ever expected and the potential for more growth remains." Nike also reported that revenues increased 10% to $6.7B compared to $6.08B in its Q1 last year. Worldwide futures orders were up 6%. Drags on profitability included "demand creation expense" -- the money the company “spends on marketing and advertising.” In a year that included the London Games and the UEFA Euro 2012, Nike spent $891M on marketing and advertising, "nearly 30 percent more than the year before.” Globally, North American revenue “stood out" -- 23% higher than the same quarter last year. That could be attributed in part “to the addition of NFL merchandise to the product mix in the inaugural year of Nike's sponsorship of on-field league apparel.” Brettman notes Nike President & CEO Mark Parker’s “focus, and those of two other Nike executives, was on China.” Some of the issues in China are that inventory levels “are too high in the country, futures orders were down 5 percent for the first quarter, revenue was down 4 percent and Nike apparel designers still need to figure out the shapes of the Chinese body.” In addition, Nike Brand President Charlie Denson said that the Chinese economy “appears to be slowing” (Portland OREGONIAN, 9/28).

FACTS & FIGURES: The AP’s Mae Anderson noted Nike’s results “beat expectations but shares fell 3 percent in aftermarket trading as investors worried about a slower pace of future orders.” The company is “facing high costs for materials and labor, as well as an uncertain economy in Europe” (AP, 9/27). At presstime, Nike shares were trading at $95.21, down 0.82% from yesterday's close of $96(THE DAILY).

STRETCH IT OUT: Lululemon Athletica CEO Christine Day Thursday appeared on CNBC’s “Squawk Box," with co-host Becky Quick noting shares of the high-end retailer are “up more than 250 percent since its IPO” in ’07. Day said, “We feel really good about where we are in the market right now and very confident in our sales plan and very confident in our product and the guest reaction to it.” Quick mentioned “rumors” that hedge fund manager David Einhorn “is looking at Lululemon and may bring it up at the Value Investing Conference next week.” Day replied, “We've heard that rumor a couple of times. It's always interesting to hear what he thinks about our business, but the reality is we have a tremendous amount of confidence in our business and we're not really concerned.” Day added, “We're in a fortunate position to be able to continue to invest in our product with the way that we do our margins -- vertical integrated retail -- so all of those things give us a competitive advantage to invest at a level that the more price conscious brands can't do and our guests recognize the difference in that product” (“Squawk Box,” CNBC, 9/27).