Nike’s strong earnings fail to impress Wall Street

The world’s largest apparel company, Nike Inc., today announced earnings for the fourth quarter of 2010.

Net income also increased significantly by over 50-percent in the quarter to $522-million ($1.06 per share) compared to the same period last year.

The company posted strong earnings, with total revenue up 8-percent year-over-year to $5.1-billion, excluding currency charges, but still failed to meet Wall Street analyst expectations.

 The earnings are aggregated across all Nike brands, including Umbro and the Converse brand.

It is important to consider the strong growth numbers considering in Q4 2009, Nike incurred a loss of impairment on goodwill on its balance sheet in the amount of $241-million net of tax, and also a separate $145-million net of tax restructuring charge.

The company also said future orders increased materially by 7-percent over Q4 2009, to $8.8-billion in footwear and apparel orders scheduled to be delivered June through November of this year.

Despite the strong earnings, the company warned of a significant increase in future expected costs, including freight, labor, inflation, and currency volatility; particularly the expected appreciation of China’s currency the yuan as the country tries to down play Western concerns it is manipulating its currency to maintain an international competitive export advantage with an undervalued currency.

Nike CFO Don Blair today said in a conference call some of these costs would, “put significant pressure on top and bottom line results for fiscal 2011.”

The company previously said emerging markets would play a critical role in future growth and earnings. This quarter was no exception, with total growth across emerging markets being reported at 30-percent over the same period last year.

The Chinese market grew by 19-percent in the quarter YoY alone, with other emerging markets like Brazil and South America performing well as well.

The Japanese market saw the biggest decline in future orders of -17-percent.

The Nike stock (NYSE:NKE) is trading about 3.75-percent down to $69.80 per share as at 11:11 am today.

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Peggy holds a Bachelor Arts degree with honors in Economics from York University in Toronto, Canada. She is a Certified Management Accountant (CMA). She has also passed Level I of the Chartered Financial Analyst (CFA) Program. She is also a realtor. Write to [email protected]
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