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Nike sees weaker Q4 net
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May 29, 1997: 7:57 p.m. ET
Dismal forecast comes one day after stock jumps on Buffett speculation
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NEW YORK (CNNfn) - One day after Nike Inc.'s stock raced higher, the world's leading athletic footwear maker gave investors an unpleasant surprise, forecasting fourth-quarter profits well below Wall Street's expectations. And the warning sent Nike shares spiralling.
The Beaverton, Ore.-based company said Thursday it expects earnings for the quarter ending May 31 to fall between 51 and 56 cents a share, below the consensus estimate of 69 cents. Results were adversely affected by weaker-than-anticipated revenue and the shutdown of a manufacturing facility at its Bauer Inc. hockey equipment subsidiary, Nike said in a statement.
The news caused Nike shares to plummet 8-5/8 to close at 55-3/8 on the New York Stock Exchange.
Nike said the problems at the Bauer plant will result in a one-time, pre-tax charge to its earnings of $18 million. The charge will lower net income by 4 cents a share.
A slightly higher cancellation of U.S. orders, product shortages and delays in European orders are also expected to lower revenues, the company indicated.
At a Thursday morning conference call with analysts Nike officials said the company doesn't expect further financial impact as a result of its plant closure.
They added the company doesn't anticipate the revenue shortfall to continue in the near term.
"We don't see any fundamental change" in the business, officials told analysts on the call. The company said it expects revenue growth in fiscal 1998 in excess of 15 percent.
The dim outlook comes one day after Nike shares soared 3-7/8 to 64 amid speculation that investment guru Warren Buffett was considering a stake in the company. Company officials told CNNfn they have no reason to believe he is interested.
To be sure, even if Buffett were to confirm the purchase of a stake, the market would be hard pressed to stem the selling, traders said.
"Ultimately, stocks trade on psychology and also fundamentals...and I think earnings in this case will be a little more important than Mr. Buffett buying," said William Mattison, head trader at Gerard Klauer Mattison. (191K WAV) or (191K AIFF)
Brett Barrakett, footwear and apparel analyst at Salomon Brothers, said despite the stock's wild ride, he still views it as a good buy. (115K WAV) or (115K AIFF)
Faye Landes, apparel analyst at Smith Barney, believes Nike has a problem with oversaturation.
"I have a feeling what we are seeing today in terms of the company's announcement is the beginning of something, not the end. There is going to be a lot of shakeout here as the retailers in the United States as well as overseas -- but primarily here -- process the fact that sales haven't quite met their expectations," she said.
Fourth-quarter and year-end results are due out in early July.
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Nike Inc.
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