Nike defies sales stagnation with China a standout

Pedestrians walk past a sportswear store of Nike in Shanghai, March 8, 2013.[Photo/IC]

Nike Inc posted second-quarter results that showed the footwear and athletic-apparel giant remains largely immune to the shopper malaise that has plagued much of retail.

The world's largest sporting-goods maker posted profit of 90 cents a share, topping analysts' average estimate of 86 cents, as it continued to reap the rewards of a dominant brand and the ongoing fashion shift toward casual, sporty attire. It also defied concerns about slowing economic growth in China, with revenue there gaining 24 percent to $938 million.

Orders for the Nike brand for the next four months rose 20 percent. Analysts expected a 13.6 percent gain. Net income increased 20 percent to $785 million, while sales rose 4.1 percent to $7.69 billion. Analysts estimated $7.81 billion.

"Overseas markets have great potential for Nike," said Paul Swinand, an analyst at Morningstar Inc. "Investors should take a read on Chinese consumers from future orders: There is room to purchase new Western goods in people's budgets. That highlights the potential for long-term middle-class growth."

Nike executives said at a conference call after the earnings release that the company's gross margin may narrow by 0.5 percentage point in the current quarter as it works to clear out inventory in North America to make way for new products.

The earnings report is Nike's first since it announced a goal of increasing annual sales to $50 billion by fiscal 2020, up from $30.6 billion in its most recent fiscal year. The target implies an annual growth rate of 10.3 percent, slightly higher than the past two years. The company expects about one-third of those gains to come from its online business. That trend played out last quarter, with sales through its websites surging 49 percent.

In the most recent quarter, Nike's China unit was the standout. Footwear sales there gained 30 percent to $600 million, while apparel revenue rose 15 percent to $306 million.