Nike profit tops targets but margins disappoint some

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Sept 25 – Nike Inc beat Wall Street estimates for first-quarter profit on Tuesday, but a small rise in gross margins was not enough for some investors and analysts, who drove down shares of the sportswear giant by 3 percent after hours.

“I think where the market might be slightly disappointed is around the gross margins … it is slightly weaker than expected,” MainFirst Bank analyst John Guy said.

Nike gross margins rose 50 basis points to 44.2 percent in the reported quarter, in-line with average analysts’ estimate, according to Thomson Reuters I/B/E/S.

“The numbers are good, but they weren’t wow enough,” said Jeff Auxier, founder & portfolio manager, Auxier Asset Management.

The company’s demand creation expense, or costs related to advertising and promotion, rose 13 percent to $964 million in the reported quarter.

However, the company’s direct-to-consumer model helped sales in North America rise 6 percent, its second straight rise, showing signs of recovery after competition from rivals Adidas AG and Under Armour eroded sales in three out of the last four quarters.

Revenue rose 9.7 percent to $9.95 billion, beating estimates of $9.94 billion.

The company’s net income rose to $1.09 billion, or 67 cents per share, in the first quarter ended Aug. 31, from $950 million, or 57 cents per share, a year earlier.

Analysts had expected the company to earn a profit of 63 cents per share. (Reporting by Nivedita Balu in Bengaluru; Editing by Shounak Dasgupta)

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