Nike, Inc. (NKE) Shares Up 12%, After Q3 Profit Beats Estimates

Nike, Inc. (NKE) Shares Up 12%, After Q3 Profit Beats Estimates
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NIKE, Inc. (NYSE:NKE), the world’s largest sports apparel company announced better than expected third quarter results Thursday. Revenues in the February 28 ending quarter jumped 9.4 percent to $6.2 billion. Net profits soared 16 percent to $662 million or 73 cents per share, compared to $569 million or 61 cents in the same period a year ago. Analysts were expecting 67 cents in earnings. The company’s second quarter earnings were also better than analysts had expected.

Nike, Inc. (NKE) Shares Up 12%, After Q3 Profit Beats Estimates

Investors have long been worried about the company’s slowing growth in China. Though sales in China and Japan declined at 10 percent and 6 percent respectively, NIKE, Inc. (NYSE:NKE) is showing early signs of improvement in the world’s second largest market. Chinese orders for Nike brand for the fourth quarter rose 3 percent. Analysts were expecting a 4.3 percent decline in orders from China.

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The increase in orders from China shows that the company is on the right track. NIKE, Inc. (NYSE:NKE) had earlier blamed a slowing economy and a glut of apparel for declining sales in China. In the third quarter, the company started offering discounts to clear old items and revive growth.

NIKE, Inc. (NYSE:NKE)’s attempts to improve gross margin have improved profitability. Last year, the Beaverton, Oregon-based company increased prices to counter the rising material and labor costs. That helped the gross margin expand by 30 basis points from 43.9 percent to 44.2 percent.

North America, the strongest market of NIKE, Inc. (NYSE:NKE), remained strong with 18 percent revenue growth. Revenues from Western Europe, which has been going through a debt crisis, surged 8 percent. Sales from Central & Easter Europe grew 13 percent while revenue i emerging economies rose at 6 percent.

The company also issued optimistic forecasts for fiscal 2014 that came in line with Wall Street expectations. Analysts estimate 14 percent earnings growth and 7 percent revenue growth next year.

Morgan Stanley (NYSE:MS) said in a research report that a clean quarter, gross margin improvement and improvement in Chinese sales will give investors new confidence. Morgan Stanley (NYSE:MS) analysts said NIKE, Inc. (NYSE:NKE) management has demonstrated strong execution, but results would take longer than expected. Of course, they are talking about China, where 7 quarters of inventory hangover after Beijing Olympics, coupled with continued labour cost inflation, are likely to weigh on the company. Morgan Stanley has an Equal-Weight rating on the stock.

NIKE, Inc. (NYSE:NKE) shares ware up 11.92 percent to $59.99 at 11:30 AM EDT.

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