Nike shares drop on profit margin pressure

AP News
Posted: Mar 23, 2012 12:13 PM
Nike shares drop on profit margin pressure

Nike shares fell Friday, a day after the world's largest maker of athletic shoes and clothing reported better-than-expected results, but said its gross profit margin declined for the fifth straight quarter because of high costs.

THE SPARK: Nike Inc. reported net income rose 7 percent while revenue rose 15 percent to $5.85 million. Both measures rose above analyst expectations. But the company said gross margin _ the amount of each dollar in revenue a company actually keeps _ edged down due to continued high costs for things like material, labor and freight. CEO Mike Parker said cost pressure was easing, but would not fall to prior lows in the short term.

THE BIG PICTURE: An analyst said that "impressive" revenue growth was tempered by continued margin pressure.

"Margins are expected to remain surprisingly choppy as high inventory and continued input cost increases pressure gross margin, and event-driven marketing drives (expenses) higher," said Susquehanna Financial Group analyst Christopher Svezia. Upcoming events include the London Olympics and the European soccer championships, both in June.

THE STOCK: After initially gaining after the market closed Thursday, shares fell $3.19, or 2.9 percent, to $107.74 during midday trading. Before Friday the stock had risen 15 percent since the beginning of the year and was near an all-time high.