Nike CEO Mark Parker

Nike CEO Mark Parker

When sporting goods giant Nike starts fretting about the cost of doing business, you know it's serious.

Furthermore, the company is vowing to hike its prices this year in a move that will resonate across the entire industry.

Reporting its third quarter results this week, Oregon-based Nike saw rising input costs eat away at margins.

The powerhouse sportswear firm still saw quarterly profit rise 5% to $523m on the back of a 7% increase in sales. And futures orders, an important measure of upcoming demand, are up 9%.

But gross margins declined as higher production and transport costs offset favourable currency trends and cost-cutting efforts during the quarter. And Nike expects the heightened input costs to continue too.

"Higher cost for materials, labour and freight are here, as predicted, and are evidenced in our third-quarter margins," Nike CEO Mark Parker told analysts. "While no one has a crystal ball, we do know that higher cost will continue to affect our profitability in the near term."

The question on many investors lips is whether Nike will increase prices to protect its eroding margins. And according to company CFO Don Blair, the answer is yes.

Blair says: "On the pricing side, we intend to raise prices across a wide range of footwear and apparel styles to help mitigate the overall impact of higher input costs.

"In the past, we've taken a fairly surgical approach to pricing. Beginning in spring 2012, we'll take more significant price increases across a broader range of styles."

Beyond price, Nike is using its scale to improve the efficiency of its supply chain, by placing larger orders with a smaller list of suppliers. However, this isn't without its difficulties either.

Blair adds: "While inventory for the third quarter grew significantly to support strong demand, we continue to experience capacity shortages for some technical products.

"However, as a result of the work we've done to consolidate our supplier base, our factory partners had the financial and operational ability to build capacity and reduce product costs.

"To address the current shortages, our suppliers have added new footwear and apparel production lines over the last nine months and have committed to significant additional capacity expansion through the next fiscal year."

Nike boss Parker must have seen prices and costs ebb and flow for 30 years since joining the company as a footwear designer in the 1970s.

However, the current surge in input costs is such that for the show to continue, even brands as robust as Nike must increase the price of a ticket.