Nike Beats, Future Orders Down

Nike Inc. (NKE - Analyst Report), a leading global sportswear and equipment supplier, has recently reported better-than-expected results for the first quarter of fiscal 2010, with net income of $513.0 million or $1.04 per share compared to $510.5 million or $1.03 per share in the year-earlier quarter. The earnings also exceeded the Zacks Consensus Estimate by 5 cents.

Total revenues decreased 12% during the quarter to $4.8 billion compared to $5.4 billion in the year-ago period, primarily due to the continued economic downturn that led to a cut in consumer discretionary spending. Excluding changes in currency exchange rates, revenue declined 7% year over year. Revenue fell across all geographic regions, including the key U.S. and Chinese markets.

However, stringent cost-cutting measures and lower taxes have more than offset the decline in revenue. Nike has streamlined its operations and reduced global workforce by 5% or approximately 1,750 jobs. Selling and administrative expenses decreased 17% during the quarter due to lower marketing and personnel costs. Furthermore, Nike paid a tax rate of 24.7% during the quarter compared to 28.5% in the year-earlier quarter.

Gross margin decreased marginally to 46.2% compared to 47.2% in the year-ago quarter. The decrease in gross margin was primarily due to unfavorable exchange rates and product markdowns. Global inventories declined 7% year over year to $2.3 billion due to prudent inventory management policies. At quarter's end, cash and short-term investments totaled $3.6 billion, 40% higher than $2.6 billion reported in the year-earlier quarter.

During the quarter, Nike repurchased 289,250 shares for approximately $15 million as part of its four-year, $3 billion share repurchase program announced in 2006. By the end of the first quarter of fiscal 2010, the company had repurchased 49.5 million shares for approximately $2.7 billion.

Nike reported a decrease in future orders scheduled for delivery from September 2009 through January 2010, which declined 6% year over year to $6.2 billion. Future orders measure customer orders scheduled to be delivered in the coming season and is a widely used metric to gauge the performance of retailers. Nike had earlier anticipated its future orders to decline by over 5% during the quarter.

However, Nike remained upbeat about its performance in the coming quarters. The company stressed that it was gradually gaining market share and was in a strong position to benefit when the global economy improved. The strong quarterly results further surged Nike’s shares by 4.4% to $62.75 in after-hours trading after closing on the New York Stock Exchange.