Sports goods giant Nike said it missed Wall Street estimates during the fourth quarter, suffering its first profit decline in more than three years

Nike, which has been ploughing money into the World Cup football tournament, said quarterly earnings dipped to US$332.8m compared to $349.5m last year. Excluding the charge for a previously-announced arbitration ruling on its Converse brand shoe, net profit grew 4%.

Revenue growth, however, was better than predicted at 8%, leading to a total of $4bn compared to $3.7bn a year ago. This topped analyst forecasts of 6.5%. The contrast between profit and revenue was seen clearly within Europe, where Nike saw 10% growth thanks to football-related goods but pre-tax income fell 10% on advertising spending.

Although Nike has retained its strong grip on its domestic US market, and reiterates it has seen "strong growth" there as well as in Latin America, China and Russia, parts of Europe and Asia appear to be disillusioned with its hi-tech shoes and clothing.

The company said it was now "working hard" to improve flagging sales in Japan, France and the UK. It has already made some progress to cut down on excess inventory in such places, it said in a conference call.

Some critics suggest it would do well to follow smaller rival Puma's lead and concentrate more on affordable lifestyle and fashion apparel in such markets as these. But despite hints it might be heeding advice to offer more low-cost offerings, CEO and president Mark Parker insists the company "feels great" about the performance apparel possibilities in the marketplace, with Nike Pro doing "extremely well".

It did, however, concede that lifestyle and fashion had a particular importance within the Converse and Jordan businesses, which have more of a 'street' feel than the core Nike brand.

For the full fiscal year, Nike's revenues grew 9% to $15.0bn, compared to $13.7bn last year. Net income increased 15% to $1.4bn, compared to $1.2bn last year. The company offset a decline in gross margin with tight overhead management, it told investors.

Parker said: "With deeper focus on discrete segments of our business, strong connections with consumers through global initiatives such as Joga Bonito, and compelling product innovations such as Air Max 360, we delivered very strong earnings growth and record revenues for the year.

"The Nike brand has never been stronger," Parker said, adding that the company strengthened its leadership in categories including basketball and football.

Parker told investors it was the third straight year the company had beaten its growth targets. He said: "while I'm proud of what we did last year, I'm also proud of how we did it," citing factors such as portfolio management, investment and product innovation.

"Our brands have never been stronger", he added, and claimed he has "never been more confident" in future prospects for the company.

The company reported worldwide futures orders for athletic footwear and apparel, scheduled for delivery from June 2006 until November 2006, totalling $6.6bn, 5% higher than last year.

By Rebecca Danton.

 

ANALYSIS:  Merrill Lynch Research report

While we have written recently of an eventual slowdown in Nike's US business, and think that remains likely at some point, we think Nike can continue to gain share from traditional athletic brands like Reebok and K-Swiss.

These share gains could conceivably extend beyond this year, given the long lead times in this sector and depending on adidas' efforts to stabilise Reebok.

While Europe looks to remain challenging near term (especially the UK), management sounded more upbeat about Japan.