• Wed
  • Jul 23, 2014
  • Updated: 8:47pm
BusinessCompanies

Nike warns of currency pressures on profits

Maker of sports shoes and apparel expects slowing sales in China amid intense rivalry

PUBLISHED : Saturday, 22 March, 2014, 1:30am
UPDATED : Saturday, 22 March, 2014, 5:07am

Nike warned Wall Street on Thursday that growing pressures from weaker currencies in key emerging markets would take a toll on its profit this quarter and into the next financial year.

The maker of sports shoes and apparel also said sales in China would be unchanged or even fall slightly this quarter, reawakening concerns that it is having trouble finding its bearings in that market after signs of progress in recent quarters.

Chief financial officer Donald Blair told analysts that the devaluation of developing-market currencies against the US dollar "will be a significant drag on next year's reported revenue, gross margin and profit growth".

Nike gets about 30 per cent of its revenue from emerging markets, China and Eastern and Central Europe.

Still, the fundamentals of the company's business were solid, with strong demand for its merchandise heading into the World Cup soccer tournament in June and July.

Orders for Nike-branded shoes and clothing scheduled for delivery between March and July, a gauge of demand Nike calls "futures orders", rose 14 per cent globally, excluding the impact of currency fluctuations, led by a 30 per cent jump in Western Europe.

The company also reported better-than-expected profit for its third quarter to February, helped by a surge in revenue in Western Europe, where it competes with Adidas.

Nike has been spending heavily on marketing before the World Cup.

Revenue rose 12.7 per cent year on year to US$6.97 billion in the third quarter, above the US$6.69 billion analysts were expecting.

In China, where Nike has grappled with the lingering effects of excess inventory and intense competition from rivals cutting prices in recent years, sales rose 7 per cent.

"They continue to produce items that resonate with shoppers globally," Edward Jones analyst Brian Yarbrough said. "They're gaining share in each of their markets." Still, the poor forecasts for China were worrisome, he said.

Nike earned US$685 million in its financial third quarter, compared with US$866 million a year earlier.

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