Earnings Shortfall Hurts Nike Sneaker Giant’s Shares Fall 13 Percent In Value
Nike Inc. shares fell 13 percent after the company said fiscal fourth-quarter earnings will be much less than expected, largely because of a surprise delay in orders by European retailers.
The company said it would earn 51 cents to 56 cents a share for the quarter ending Saturday, less than the 71-cent average estimate of 13 analysts polled by IBES International Inc.
Nike’s troubles in Europe startled investors because the maker of athletic shoes since March had said its business was on track, amid persistent concern that U.S. sales were slowing. Even those assurances were off the mark: Nike Thursday said canceled orders and product shortages in the U.S. reduced its sales.
“Certainly I’m surprised. I thought business was so strong in Europe that it would cover any small glitches,” said John Hayes, an investment officer at Independence Investment Associates Inc., which held 1.7 million shares as of March.
Nike shares fell $8.62-1/2 to $55.12-1/2 on trading of 19.7 million, seven times its three-month daily average of 2.8 million, ranking it the second mostactive U.S. issue. Since setting a record high of $76.37-1/2 on Feb. 19, the stock has fallen 27 percent.
Nike officials said the individual problems weren’t unusual or significant enough to warrant telling investors earlier.
“When you add them all up, it becomes a significant issue on the top line and converts down to earnings per share,” said Chief Financial Officer Bob Falcone in a conference call.
The announcement also raises questions whether the world’s biggest athletic shoe maker will be able to meet Chairman Philip Knight’s goal of becoming as dominant in Asia and Europe as it is in the U.S. Nike hopes that its expansion overseas - led by endorsers such as Michael Jordan, Tiger Woods and the Brazilian national soccer team - will offset slowing demand in the U.S.
“Like any company moving overseas, it takes a while to get used to the new markets,” Hayes said.
Shares of other shoe makers fell as well. No. 2 Reebok International Ltd.’s shares fell $1.50 to $39.75.
Revenue for the quarter will be $150 million to $200 million lower than expected, officials for Beaverton, Ore.-based Nike said.
European sales will be about $100 million less than expected because of changes in how products are ordered and shipped.
Half of the drop is from retailers cutting orders to be shipped immediately and shifting those deliveries to later dates. The company wants more retailers to order goods at least six months before they’re put on the shelves so that it can better control production and forecast sales.
Future demand in Europe still looks strong, the company said, noting that orders for delivery at least six months from now rose 10 percentage points during the quarter.
The remaining $50 million sales shortfall in Europe came from Nike pushing back the timing of some shipments.
“These are all new and they appear to be one-time issues,” said Hambrecht & Quist analyst Shelly Hale Young.
In the U.S., Nike had $30 million in canceled orders and $30 million to $35 million in lost sales because it couldn’t make enough clothing to keep up with demand.
Earnings will also be hurt in part by a pretax charge of $18 million, or 4 cents after tax, to close a Bauer Inc. hockey-equipment plant and move those operations overseas.
The quarter’s problems don’t change the company’s outlook for fiscal 1998, Falcone said, noting that U.S. shoe and clothing sales should rise 7 percent to 12 percent and international sales should increase 35 percent next year.
One investor wasn’t as upbeat. “We’re looking for a catalyst in terms of improving fundamentals - we don’t see that,” said Dan Kapusta, assistant portfolio manager at Banc One Investment Advisors Corp., which held 325,000 shares in March.
The earnings shortfall is a rarity for Nike, which IBES said has beaten estimates for at least the past six quarters.
Nike’s shares have declined since February, primarily on concerns of a slowdown in U.S. shoe sales.