Nike Inc reported lower net income than expected for its third quarter as the athletic shoe and clothing company struggled with higher costs for materials, labor and freight.
The news shocked investors, who are used to Nike consistently outperforming Wall Street’s expectations. The company’s shares plunged in after-hours trading on Thursday.
Nike’s net income rose 5 percent to US$523 million, or US$1.08 per share, from US$497 million, or US$1.01 per share, in the same period a year earlier. Its revenue rose 7 percent to US$5.08 billion as sales rose in most markets around the globe.
The company, which is based in Beaverton, Oregon, warned investors last December that rising costs would cut into its profit margins in the second half of the year even as revenue rose. However, analysts had anticipated stronger margins. On average, they forecast earnings of US$1.12 per share on revenue of US$5.17 billion, according to FactSet.
Nike executives said higher costs would continue to hurt its profitability into next year. It plans to raise prices on a broad array of products beginning this spring and control its costs, but those moves may not pay off until much later.
“Whatever may be unknown in the global economy, you can be absolutely certain that we’ll continue to invest in our single biggest competitive advantage: Our fixation on innovation that benefits consumers and shareholders,” Nike chief executive Mark Parker said.
Company leaders said sales rose in nearly every market worldwide, in part with the introduction of new products.
However, that growth was uneven: Revenue rose 9 percent in North America and 21 percent in China, but fell 2 percent in Western Europe and 8 percent in Japan. Excluding the impact of currency fluctuations, revenue rose in all markets except Japan, where Nike has long struggled with sluggish sales.
Japan is a relatively small market for Nike, however.
Nike said demand would continue to grow around the globe. It said orders for the upcoming season, which many investors look to for insight into the company’s near-term strength, rose 11 percent.
“While the headwinds we face are the same for everyone, the competitive advantages we have are ours alone,” Parker said.
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