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Nike trips up in Q2
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December 18, 1997: 5:24 p.m. ET
Order slowdown, troubles in Asia behind lower-than-expected earnings
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NEW YORK (CNNfn) - Athletic apparel maker Nike Inc. Thursday reported disappointing second-quarter earnings and warned rough times may lie ahead.
The Beaverton, Ore.-based company earned $141 million, or 48 cents a share, in the quarter ended Nov. 30, well below the Wall Street estimate of 55 cents tracked by First Call Research Network.
In after-hours trade Nike (NKE) fell 1-13/16 to 41-1/2. Earlier, the stock had lost 1-9/16 to close in New York at 41-3/4.
Nike said revenues grew 7 percent to $2.26 billion from $2.21 billion a year ago, but profits were hurt by inventory-clearing discounts.
"Despite the revenue growth in the second quarter, earnings were negatively impacted by lower gross margins resulting from a higher percentage of close-out sales in the U.S., Europe and Asia Pacific regions," the company said in a statement.
As a further indicator that bad news may lie ahead, Nike said worldwide futures orders for athletic apparel and footwear scheduled for delivery between December and April 1998 -- a key barometer of the company's near-term growth -- totaled $4.2 billion, down one percent from last year.
The decline marks a sharp reversal from previous quarters when future orders were up as much as 66 percent.
"The slowdown in futures orders clearly signals that revenue growth in the second half of fiscal 1998 will be below our previous expectations. This is largely a result of the slowdown in the Asia Pacific market, where we now anticipate more moderate revenue growth in fiscal 1998 after increasing 84 percent on a constant dollar basis in fiscal 1997," said Nike Chairman Phil Knight.
Knight said gross margins will continue to be strained through fiscal 1998 because of a higher level of close-out sales.
"The slower growth in revenues and continued pressure on margins will result in negative earnings comparison for at least the next two quarters, with fiscal 1998 earnings per share likely to be in the $2 to $2.15 range," Knight said
Analysts had expected the company to report a profit of about $2.60 a share for the fiscal year ending May 31.
Nike's disappointing performance is the latest setback for the athletic shoe industry.
Last week, rival footwear maker Reebok International Ltd., said it was lowering its estimates for fiscal 1997 because of slower retail sales of branded athletic footwear.
The company said it expects income for the full year ending Dec. 31, 1997, prior to special items, to be in the range of $2.25-$2.35 per share, up from $2.00 per share in fiscal 1996.
Reebok (RBK) said it expected the generally weaker market conditions to extend through the first half of 1998 as retailers work through their current inventory issues. 
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Nike Inc.
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