Nike's Profit Rises on Stronger Demand in U.S. and China -- Update

By Sara Germano 

Nike Inc.'s quarterly profit rose 7% amid stronger demand in the U.S. and China, and executives defended the company's performance amid heightened sportswear competition.

In recent months, the world's largest sportswear maker has taken steps to drive more direct sales, improve its online sales apps and adjust pricing on some of its marquee products, such as its signature basketball shoes. Still, the company has been dogged by concerns that rivals Adidas AG and Under Armour Inc., as well as so-called athleisure sellers, are sapping demand for its products.

"I think there's a misconception that growth in our lifestyle business comes at the expense of growth in our performance business. The reality is they fuel each other," Nike Chief Executive Mark Parker said Tuesday.

The company acknowledged that sales in its basketball division fell short of expectations, particularly in two lines of its signature basketball shoes. Nike said it addressed the problem with new designs and lower prices, brand President Trevor Edwards said, and expects the division's growth to resume in the second half of the fiscal year. "To be clear, basketball is back," he said.

Last year, Foot Locker Inc. CEO Dick Johnson cited two Nike signature basketball shoes -- those for LeBron James and Kevin Durant -- which lagged behind in sales in part because of higher prices. At the time, they were selling for close to $200 apiece. Some versions of the shoes now appear with a suggested retail price of about $150.

Nike executives also said they are working on developing a faster supply chain, which they are calling the "express lane," aiming to bring products to market in weeks instead of months.

Nike's profit for the fiscal second quarter ended Nov. 30 rose to $842 million, or 50 cents a share, from $785 million, or 45 cents a share, a year earlier. Revenue increased 6.4% to $8.18 billion. Excluding currency impacts, the company said, the top line improved 8%.

Gross margin shrank 1.4 percentage points to 44.2%, as higher average selling prices were more than offset by higher product costs, unfavorable changes in foreign exchange rates and higher off-price sales.

The company reported its futures orders, or wholesale orders set for delivery over the next six months, are flat compared with the comparable year-before period. At the company's first quarter report in September, Nike reported a rise in futures of 5%. Nike says that its growth in sales direct to consumers will lessen its reliance on the metric, which has long been used as a proxy to measure demand for swoosh products by Wall Street.

Nike shares, which have fallen 17% this year through Tuesday's close, rose 1.5% after hours to $52.52.

--Anne Steele contributed to this article.

Write to Sara Germano at [e-mail]

(END) Dow Jones Newswires

December 20, 2016 19:54 ET (00:54 GMT)

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