Nike silences naysayers after outstanding quarter

Shares of the world's largest athletic apparel maker surge after its profit beats analyst expectations.

By Jonathan Berr Mar 22, 2013 12:49PM
Credit: HANDOUT/Newscom/RTR/Reuters
Caption: Handout photo of the LeBron X shoeNike's (NKE) shares surged more than 11% Friday on a better-than-expected quarterly profit that appeared to address investors' concerns about margins and slowing overseas growth.

Profit from continuing operations at the company soared 16% to $662 million, or 73 cents a share, from $569 million, or 61 cents a share, a year earlier. Revenue rose 10% to $6.2 billion in the quarter ended Feb. 28. Wall Street analysts expected profit of 67 cents a share on revenue of $6.23 billion. The company also gave an earnings forecast for 2014 that was in line with analysts' estimates. Click here for a closer look at the numbers.

Investors were particularly impressed that gross margins gained 30 basis points to 44.2% as Nike raised prices to counter rising costs and also reduced an inventory glut that has hurt business in China. The world's most populous country continues to be a concern. Though sales there declined by 9%, orders posted a 3% gain, far better than the decline analysts expected.

Nike, whose shares had been a laggard as the stock market hit record highs, may see more momentum if it continues to show improvements in its gross margins and in its China business. CEO Mark Parker also told Wall Street analysts on the earnings conference call that he was not satisfied with the company's e-commerce efforts.

"I can assure you, given the size of the opportunity, everyone on the leadership team shares

my sense of urgency around e-commerce," he said.

Wall Street believes that Nike's stock price may have outrun its fundamentals.  Analysts have an average 52-week price target on the stock of $57.34, above where it traded earlier this week. If it continues to do well, Nike's success would prove to skeptics that the economic recovery is for real.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.

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