Nike’s stock prices fall by more than five percent, despite an increase in futures orders. Investors expected more and reacted negatively to projections for the next few quarters. Nike representatives remain optimistic and explain how the rising costs of air freight and shipping have affected their predictions for next year.
“We had a great second quarter. Almost every brand, category and geography delivered growth,” said Mark Parker, President and CEO of NIKE, Inc. “We continue to outperform the market thanks to our innovative product, compelling brands and strong marketplace management. That’s good for athletes and consumers, good for our industry, and it’s good for our shareholders. Going forward, we’re in the enviable position of having far more opportunities than challenges. I’m confident our strategies can continue to deliver sustainable, profitable growth.”
Nike, Inc. also reports that, “As of the end of the quarter futures orders for NIKE Brand athletic footwear and apparel, scheduled for delivery from December 2010 through April 2011, totaled $7.7 billion, 11 percent higher than orders reported for the same period last year with minimal impact from changes in foreign currency exchange rates compared to the prior year.”
However, Nike was hit with a decrease in their share value this month because investors expected higher numbers on future orders. Rising costs for shipping and transportation combined with an increased cost in commodities have led Nike to expect lower profit margins than they would like. “You can expect, given the strong demand for our brand and products, for us to continue to air freight select product as we work with our manufacturing partners to expand capacity,” said Charlie Denson, president of Nike, Inc.
Nike Vice President and Chief Financial Officer Don Blair expects strong gross margin headwinds to last for only a few quarters. “The combination of rapidly recovering demand and reductions in supply have driven higher costs for inputs, such as labor and cotton, as well as higher transportation costs as companies work to meet demand,” Blair said. He also reports that Nike has been able to avoid discounting by keeping smaller inventories and concentrating on reducing their own costs. He explains that these strategies have helped to outweigh the higher ocean shipping, ocean freight, and air shipping costs. Blair says that Nike will continue to manage the marketplace and their inventories so that the rising costs of shipping and transportation will hopefully be offset by other adjustments.