Unfortunately, Nike will not end up meeting my forecast that I placed well over a month ago. The reason why? Well, after the bell yesterday, Nike announced its bad fourth-quarter earnings news, which was definitely not what I had expected.
Nike's earnings dropped 5% to $332.8M ($1.27 a share), from $349.5M ($1.30 a share), last year. Excluding the $52.5M settlement between its Converse subsidiary and a former licensee, Nike earnings would have been $1.39 per share, which would have still been three pennies off the average estimates of $1.42 by analysts. Nike says that its gross margin declined to 43.8% from 45.2%, mainly hurt by higher oil prices. Add to that, Nike has also been losing market share.. most notably a cut in it's lead in the European and Japanese market to Adidas.
However, amongst all the bad news, revenue growth was better than expected at 8%, versus analysts' forecasts of 6.5%. Potential earnings upside will be driven by market share gain in the United States, and "powerful growth" in Asia led by China.
Analysts now lowered their first-quarter EPS expectations from $1.41 from $1.54, but have stuck with their 2007 estimates of $5.62 a share, with the lower first-quarter offset an expected stronger second half. I still expect prices to rebound back up to the $90 range over the next few months as orders are expected to increase and stabalizing its European market after the World Cup.