Blog: Nike knock-back
Leonie Barrie | 26 June 2008
What’s not to like about Nike’s results I thought when they landed on my desk this-morning. After all, fourth quarter profit was up 12% to $490.5m, sales rose 16% to $5.1bn, and while the strongest sales growth was seen in Asia Pacific, Europe and the Americas (up 39%, 19% and 30% respectively) a rise of 4% in the US surely wasn’t too bad given the current economic climate.
But that’s not how the market sees it at all. Nike Inc shares today saw their biggest drop since 2001 over fears of a slowdown in growth in the US and Europe, and concerns that high levels of marketing spending around the Euro 2008 soccer championships and Beijing Olympic Games will eat into profits.
Indeed, futures orders for the US were flat to last year and in Europe rose by just 4%, while selling, general and administrative expenses (SG&A) increased to 33.1% of fourth quarter revenue from 29.0% last year.
Nike also admitted in a conference call with analysts that spending to reposition and build its newly acquired Umbro soccer brand will dilute earnings per share by as much as $0.10 this year.
But Nike argues that international markets are where most of its future growth is going to come from, and that promoting itself here will help boost market share and reduce its dependence on the US. Around one-third of Nike’s sales come from the Nike brand in the US – which leaves two-thirds coming from its other regions and subsidiaries.
It says the real story is in the milestone performances over the past year, when revenue from China, EMEA and the Americas each surpassed the $1bn mark for the first time.
And while spending on building its brands here may hurt in the short term, this surely has to be a strategy and an investment that must be pursued for the company’s success in the long run.
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