Nike Profit Rises 15% on Sales of High-Priced Shoes

Looks like we’re contributing to Nike’s profit increase.

Story by Andria Cheng

June 27 (Bloomberg) — Nike Inc., the world’s biggest athletic-shoe maker, said fourth-quarter earnings rose 15 percent, beating analysts’ estimates, spurred by sales of high- priced Air Jordan and Shox sneakers.

Net income increased to $349.5 million, or $1.30 a share, from $305 million, or $1.13, a year earlier, Beaverton, Oregon- based Nike said today in a statement. Sales climbed 6.7 percent to $3.72 billion, helped by a decline in the U.S. dollar which added 3 percentage points to the gain.

Revenue rose 19 percent in Asia and 3 percent in the U.S., driven by demand for the company’s most expensive shoes, including the $175 Air Jordan XX and $140 Nike Shox Bomber sneakers. Chief Executive Officer Bill Perez, who took over in December from Nike founder Phil Knight, said today the company’s earnings were also boosted by the acquisition of the Converse brand.

“The shoes they’ve been putting out there have been selling,” said Philadelphia-based Jim Wright of Delaware Management, which manages more than $100 billion in assets including 752,165 Nike shares. “Converse has been a real home run for them.”

Shares Rise

Nike was expected to earn $1.27 a share, the average estimate of 14 analysts surveyed by Thomson Financial. Among 16 analysts tracked by Bloomberg, 12 recommend buying the shares and four have “hold” ratings. Nike has exceeded analysts’ estimates the prior four quarters.

Shares of Nike rose $1.36, or 1.5 percent, to $90.70 at 8:14 a.m. in trading before the open of U.S. stock markets. They fell 75 cents to $89.35 in New York Stock Exchange composite trading on June 24. The stock has dropped 1.5 percent this year.

Worldwide orders of shoes and clothing for delivery between June and November, a gauge of future sales, climbed 9.5 percent to $6.3 billion. Orders rose 9 percent in the U.S., where Nike gets more than one-third of its sales. In Asia, they increased 11 percent. In Europe, they climbed 7 percent and surged 25 percent in the Americas region.

Gross margin, or the portion of sales left after subtracting the cost of goods sold, widened to 45.2 percent from 43.8 percent a year earlier. Selling, general and administrative expenses in the quarter ended May 31 increased to 30.6 percent of sales from 29.8 percent a year earlier.

U.S. Sales

The company said total U.S. sales climbed 3 percent to $1.3 billion, led by a 7 percent shoe sales gain to $907.2 million. Apparel sales fell 7 percent to $335.9 million. Sales of Nike brand equipment, including socks, jumped 17 percent to $84.3 million.

Sales in Asia rose 19 percent to $535 million, led by a 16 percent shoe sales gain to $269.8 million. Apparel sales jumped 21 percent to $210.6 million.

In Europe, they rose 4 percent and would have declined 3 percent without the benefit of foreign currency translations. Nike generates more than half of its sales outside of the U.S., which overtook U.S. as a bigger sales generator in 2003.

Sales of non-Nike brands, including Converse, Hurley and Cole Haan, increased 6 percent to $529.2 million, led by gains in Converse canvas sneakers and Cole Haan dress and casual line of shoes.

Jordan Sales

Demand for athletic shoes priced at $100 or more rose 18 percent in the U.S. last year to almost $600 million, the Sporting Goods Manufacturers Association said, citing research firm NPD Group. Overall sales of athletic shoes climbed 3.1 percent to $16.4 billion.

“Jordan product sold better than it’s ever sold,” Foot Locker Chief Executive Matthew Serra said on a conference call in May. “There’s clearly a trend back to the high-end marquee category.”

Nike’s Free line of running shoes, Shox Bomber sneakers and the $125 LeBron James basketball shoes also sold well.

A fashion trend for jeans also helped demand for sneakers, analysts including Robert Samuels of J.P. Morgan Securities Inc. said.

Nike bought Converse in September 2003, in part to benefit from consumers looking for classic-styled footwear such as Chuck Taylor canvas shoes. Nike acquired Official Starter Properties LLC for $43 million last year to sell to discount stores including Wal-Mart Stores Inc., the world’s largest retailer.

Nike has placed the Starter brand in about 500 Wal-Mart stores, Nike spokeswoman Joani Komlos said.

Starter “has the potential to become a multibillion dollar business,” he wrote.

Nike tomorrow will host its first analyst meeting since Perez took over. Perez, 57, said in March that he wanted to have clearly defined priorities for the company when its new fiscal year began on June 1.

“We are hoping that Mr. Perez will share his views on the long-term growth and profit opportunities for Nike,” wrote Lehman Brothers analyst Robert Drbul in a June 20 report.

Perez was the former chief executive of household products maker S.C. Johnson & Son Inc. The 67-year-old Knight, who remains chairman, built Nike into the world’s biggest athletic-shoe maker after starting out in 1972 selling sneakers from his car.