Nike Sales Rise 4.8% -- 2nd Update

By Sara Germano And Tess Stynes 

Nike Inc. recorded a 4.8% increase in quarterly sales though continued pressure from a stronger dollar weighed on revenue growth and future orders.

Nike derives most of its income from North America, but more than half of its sales are further afield, where economic and foreign-exchange pressures weighed on its performance.

World-wide orders of Nike apparel and footwear for delivery from June through November grew 2% from a year earlier, including currency changes. That is well below the 11% increase that the company reported for the year-earlier period but unchanged from the last quarter. Excluding currency fluctuations, future orders rose 13% from a year ago.

Revenue rose to $7.78 billion in the three months ended May 31, from $7.43 billion a year earlier. Excluding the impact of a stronger dollar, sales improved 13%.

Shares rose 2.4% to $107.73 in recent after-hours trading Thursday.

Nike has benefited from cultural trends that favor its products, including the rise of athletically styled footwear and clothes among consumers that aren't necessarily planning a workout, known as athleisure.

The company also reaped rewards from a push to attract more female consumers, such as opening women's-only retail concept stores in Shanghai and London and hosting women's-only road races. Wholesale orders for Nike women's wear rose 15% to $5.7 billion from a year ago.

The athleisure trend has also affected the broader running-shoe market, where sales of lower-priced, fashion-focused shoes are driving growth, more so than technical models targeted at athletes. Nike brand president Trevor Edwards said the company has strengthened sales in its midtier running-shoe category, after expressing some weakness last quarter.

Total sales of running products, the company's largest category, grew 5% to $4.9 billion for the year.

Overall, Nike reported a 24% increase in profit to $865 million as tax costs fell and margins improved. Gross margin rose to 46.2% from 45.6%, mostly on higher prices and continued growth in its higher-margin direct-to consumer business.

Nike spends billions of dollars each year on what it calls demand creation expense, including marketing and sports endorsements for high-profile athletes and teams, which tends to fluctuate around marquee events. In the period, Nike reduced such spending by 6.5% to $819 million, largely due to increased spending for last summer's World Cup.

That figure is likely to grow ahead of next year's Summer Olympics, an event which is typically a launchpad for new designs, like the Flyknit shoes introduced ahead of the 2012 London Olympics.

Another upcoming expense: the company will begin outfitting the National Basketball Association starting in the 2017-2018 season, in an eight-year deal valued at more than $1 billion, according to a person familiar with the matter. The company already maintains a lock on more than 90% of the U.S. basketball shoe market, between its Nike and Jordan brands.

Chief Executive Mark Parker said the company could invoke the use of three of its brands--Nike, Jordan, and Converse--into its deal with the NBA.

Write to Tess Stynes at [e-mail]

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