Nike Q1 Earnings Rise Slightly, Top Estimate

(RTTNews) - Nike Inc. (NKE | Quote | Chart | News | PowerRating), the world's largest athletic shoes and apparel maker, said Tuesday after the markets closed that its first quarter profit rose slightly from last year, as lower expenses offset falling revenue and shrinking margins. The company's quarterly earnings per share also came in above analysts' expectations.

The Beaverton, Oregon-based company reported net income for the first quarter of $513.0 million or $1.04 per share, compared to $510.5 million or $1.03 per share for the year-ago quarter.

On average, 15 analysts polled by Thomson Reuters expected the company to earn $0.97 per share for the first quarter.

Gross margins for the quarter decreased to 46.2% from 47.2% a year ago, mainly due to unfavorable exchange rates and product markdowns taken to manage inventories.

First quarter selling and administrative expenses fell 17% to $1.5 billion from $1.9 billion last year due to lower demand creation spending and lower personnel costs following restructuring efforts completed last fiscal year.

Revenues for the first quarter fell 12% to $4.80 billion from $5.43 billion in the same quarter last year. Excluding changes in currency exchange rates, first quarter revenues fell 7% from a year earlier. Thirteen analysts had a consensus revenue estimate of $4.90 billion for the first quarter.

Footwear sales fell 10% to $2.6 billion, while apparel sales dropped 16% to $1.3 billion in the first quarter.

First quarter North America revenues declined 5% to $1.8 billion from $1.9 billion in the prior year quarter. North America footwear revenues fell 4% to $1.2 billion, while apparel revenues slipped 9% to $379.8 million and equipment revenues declined 5% to $98 million. North America region earnings before interest and taxes increased 10% to $411 million in the first quarter due to lower selling and administrative expenses and improved gross margins.

First quarter revenue for Western Europe dropped 18% to $1.1 billion from $1.3 billion a year ago. Excluding changes in currency exchange rates, revenue would have decreased 8%. Western Europe earnings before interest and taxes fell 11% to $289 million.

First quarter revenue for Central and Eastern Europe fell 33% to $286 million. Excluding currency changes, revenue in Central and Eastern Europe was down 23%. First quarter earnings before interest and taxes fell 35% to $82 million.

Revenue for Greater China fell 16% to $416 million in the first quarter from $496 million last year. Excluding currency changes, revenue for Greater China fell 17%. First quarter earnings before interest and taxes increased 7% to $149 million mainly driven by lower demand creation spending.

Japan revenues for the were essentially flat with last year at $186 million. Excluding currency changes, Japan revenues fell 10%. Japan first quarter earnings before interest and taxes fell 7% to $35 million.

Emerging markets revenue declined 8% to $422 million in the first quarter from $458 million a year earlier. Excluding currency changes, revenue from the emerging markets increased 9%. Emerging markets first quarter earnings before interest and taxes jumped 39% to $101 million due to lower selling and administrative expenses.

The company's other business revenue, which includes Cole Haan, Converse Inc., Hurley International LLC, NIKE Golf, and Umbro Ltd., fell 5% to $604 million in the first quarter. Excluding currency changes, revenue fell 3%. Other business earnings before interest and taxes were flat to last year at $87 million.

In an effort to make the brand more competitive, Nike had announced in March that it planned to re-orgainze its Nike Brand into a new model consisting of six geographies, with reduced management layers.

Worldwide future orders for Nike brand athletic footwear and apparel, scheduled for delivery from September 2009 to January 2010, fell 6% from last year to $6.2 billion. Excluding the effect of changes in currency exchange rates, orders would have declined 4%.

By region, futures orders for the North America region were down 4%; Western Europe fell 8%, Central and Eastern Europe dropped 28%, Greater China decreased 6%, Japan slipped 3% but emerging markets futures orders rose 10%.

At the end of first quarter, global inventories stood at $2.3 billion, down 7% from a year ago.

During the first quarter, the company repurchased 289,250 shares of its common stock for about $15 million and ended the quarter with cash and short-term investments at period-end were $3.6 billion, up 40% from $2.6 billion a year ago..

Nike has been taking strategic measures to control costs by cutting jobs, freezing hiring and managing inventory in light of the current economic downturn. As part of the realignment initiative to boost competitiveness, Nike said in May that it would eliminate about 1,750 jobs or 5% of its 35,000 strong global workforce, including 500 jobs at its World Headquarters near Beaverton, Oregon.

Nike shares, which have traded in a range of $38.24 to $67.44 over the past year, closed Tuesday's regular trading session at $60.09, up $1.09 or 1.85%. The stock is currently gaining $2.64 or 4.39% in after hours trading.

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