Posted in the China Forum


Port Moody, Canada

#1 Mar 22, 2013
3/21/2013 @ 6:16PM |1,612 views

Nike Forgets China And Takes Off As Margins Expand On U.S. Strength

Nike had a good quarter, despite weakness in China

Shares in Nike rallied in post-market trading on Thursday, after the company posted better than expected profits and, most importantly, expanding margins. Nike is still in the process of drawing down excess inventory in China, and saw futures orders grow 6%. Profits took a hit due to negative currency effects.

Nike’s fiscal third quarter profit grew 16% to $662 million, which took diluted EPS to 73 cents, well above the 67 cent consensus estimate. The stock took off after falling more than 2% during the trading day, and by 6:11 PM in New York was up 8.1% to $57.95.

Revenue grew 9% to $6.19 billion, slightly below Wall Street’s average forecast, but investors seem to have picked up on Nike’s improving margins. Gross margin expanded 30 basis points to 44.2%, as pricing action and easing material costs more than offset higher labor costs and larger discounts, particularly in Greater China, where Nike is “work[ing] to manage marketplace inventory.”

Port Moody, Canada

#2 Mar 22, 2013
China, along with Japan, where Nike’s weak spots, with revenue declining 10% and 6% in each of those geographies respectively. The company’s strongest growth came from its largest market, North America, where revenue surged 18%. In Western Europe, despite a recession and a never-ending sovereign debt crisis, revenue managed to rise 8%, while emerging markets recorded 6% growth and Central/Eastern Europe gained 13%.

Nike’s marketing costs pushed its “demand creation expense” up 5% to $618 million. Futures orders totaled $9.9 billion, 6% higher than a year ago, while inventories grew 4% to $3.3 billion. The company announced negative currency effects took $19 million off earnings in the quarter.

Being able to grow margins in the context of heavy discounts in Greater China and a revenue mix that shifted toward lower margin geographies is a great feat for Nike. Several companies are seen, to a certain extent, as proxies for growth in China and across the world. Starbucks, Yum! Brands, and even McDonald’s give investors a peak into the state of the global consumer. Nike’s solid numbers are an indication of resilience despite tepid economic growth.


Port Moody, Canada

#3 Mar 22, 2013

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