Shares of Nike Inc, the world's largest athletic-shoe maker, fell 6.8 percent after the company said a feud with Foot Locker Inc, its biggest customer, was hurting orders.
Orders for shoes and clothing for delivery to US stores between June and November dropped 10 percent from the same period a year earlier, Beaverton, Oregon-based Nike said yesterday.
Analysts had forecast a decline of as much as 4 percent. Worldwide orders also rose less than analysts estimated.
Chief executive officer Phil Knight stopped shipping popular sneakers such as Nike Shox NZ to Foot Locker in retaliation for last year's move by the chain's CEO Matthew Serra to give more shelf space to shoes costing US$120 and under. Nike said US shoe orders would have risen excluding the impact of the dispute. Nike has been replacing some of the lost sales with other retailers including Finish Line Inc.
"Expectations were for some sequential improvement from last quarter especially with management saying they'd anticipated a rebound," said Matt Spitznagle, an analyst at Northern Trust Corp, which oversees US$320 billion, including 2.1 million Nike shares as of March.
Nike fell US$3.85 to US$53.08 at 4:16pm in New York Stock Exchange composite trading, its largest one-day drop since September 2001. New York-based Foot Locker declined 40 cents to US$13.10.
Fourth-quarter net income rose 18 percent to US$246.2 million, or US$0.92 a share, the company said late yesterday. Profit was 1 cent less than the average estimate of analysts surveyed by Thomson Financial. Sales rose 11 percent to US$2.99 billion in the quarter ended May 31, helped by a rise in the euro. Nike's US shoe sales fell 3 percent in the period.
Nike recently signed basketball players LeBron James, Kobe Bryant and Carmelo Anthony to endorsement contracts and will introduce marketing campaigns and products tied to the athletes to help boost sales.
The contracts, which some analysts have estimated at a total of US$150 million including the seven-year, US$90 million one for James, are part of Nike's strategy to sign star athletes to help promote its products. The on-court success of Michael Jordan, who led the Chicago Bulls to six championships, helped build Nike into the world's top sneaker maker with introductions of higher-priced so-called marquee shoes.
Nike said annual marketing spending will stay at about 11 percent of total sales.
"Nike is well-positioned to generate excitement in the basketball category as well as the overall industry," said Lehman Brothers analyst Robert Drbul in a report. Drbul kept his "overweight" rating on Nike and reduced his profit estimate by US$0.10 to US$3.10, while cutting his rating on Foot Locker to "equal weight" from "overweight."
Relying on marquee products to boost sales may carry risks sometimes, analysts said. Foot Locker's decision to lower Nike orders came partly after initial demand for the US$200 Air Jordan XVII shoes didn't meet expectations, analysts have said.
Worldwide orders for the June-to-November period rose 4.4 percent to US$4.9 billion. Some analysts had forecast a gain of as much as 8 percent.
Foot Locker has said its orders of Nike products may fall as much as US$400 million this year. Nike needs to find more retailers to carry its products until it patches up its relationship with Foot Locker, analysts said.
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