Nike's Stock Hit Despite 10% Revenue Increase
Shares of world sporting goods giant Nike (NYSE: NKE) traded down over four percent in the pre-market on Friday, despite the fact that the company reported a revenue increase of ten percent in the first quarter of the 2013 fiscal year.
The first quarter held many important events for Oregon-based Nike: the Track and Field Trials, 2012 Summer Olympics and the European Football Championships. On the heels of these events, demand creation expenses rose to $891 million, up 29 percent.
“We had a strong first quarter and a great start to the fiscal year,” said Mark Parker, president and chief executive officer of NIKE Inc. “We'll continue to make strategic investments across our portfolio of businesses to capture our full potential over the long term and drive shareholder value.”
Global inventories were up 10 percent, and worldwide futures orders were up six percent. As expected, first quarter Diluted EPS came in below the prior year, down 10 percent to $1.23.
“Although our underlying revenue growth was very strong, unfavorable currency translation, lower gross margin and planned demand creation investments reduced our bottom line,” said Parker.
If adjusted to not include Cole Haan and Umbro, soon-to-be divested businesses, the diluted earnings per share would be 1.27 percent, down 9 percent. More profitable lines owned by the Nike brand include Converse, Hurley and Jordan.
The divestiture was announced in May 2012, and began immediately. Cole Haan is a luxury handbag and footwear company based in New York. It was acquired in 1988. Umbro is a soccer footwear brand acquired in 2008 based in Manchester, UK.
The businesses are expected to be divested at the end of the 2013 fiscal year.
In contrast to the business segments being divested, Nike is focusing on Western Europe and China.
Western Europe's earnings before taxes were up; however, Nike brand President Charlie Denson said during an earnings call with analysts, “There's more opportunity for us to align more closely with our retail partners across the region to improve merchandise assortments and in-store presentation. That said, there are still a lot of questions on currency and debt. And we continue to monitor our business and the broader economic landscape to appropriately manage risk."
In China, Denson said, consumers' taste is becoming more discerning, yet the economy is softening, creating an excess inventory. “Choppy waters for sure,” he said.
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