Nike Inc. (NKE - Get Report) shares traded sharply lower Friday after the world's biggest sports apparel company posted weaker-than-expected third quarter sales in its key North American market and noted that a stronger dollar would clip profits over the near term.
Nike posted earnings for the three months ending in February, its fiscal third quarter, that were three cents ahead of Wall Street forecasts at 68 cents per share, and currency-neutral revenue gain of 11% to to $9.6 billion, but disappointed investors with a top-line tally of $3.81 billion in North America, thanks in part to issues with product launch timing.
Nike's four quarter and fiscal year 2020 outlooks were solid, forecasting high single-digit sales growth, once currency movements are stripped away, as it continues to win back market share from German rival Adidas AG (ADS - Get Report) in its home U.S. market and capitalizes on its hammer-lock on basketball shoe sales, but a stronger U.S. dollar and planned increases in expenditures could erode earnings potential.
"There were some timing impacts related to our NBA business and the launch of certain products year-over-year," CFO Andy Champion told investors on a conference call late Thursday. "There are always timing impacts in terms of product launches. So yes, nothing in terms of a turn or change in consumer demand."
"In fact, consumer demand for our apparel in North America is very strong. Frankly to some extent it puts pressure on supply, but that is that's a great point of pressure to have," he added. "We've got really strong demand for our apparel in North America."
Nike shares were marked 4.8% lower Friday and changing hands at $83.84 each, a move that would trim the stock's year-to-date gain to 13% and value the Beaverton, Oregon-based sportswear group at around $133 billion.
Nike's quarterly gross margin, key metric for profitability, increased by 1.3% from last year to 45.1%, thanks to higher average selling prices, but was partly offset by a rise in selling and administrative expenses, which swelled by 12% to $3.1 billion as the group continues to expand its digital platforms, supply chain improvements and marketing campaigns.
Some of Nike's North American weakness was also linked to the February 20 injury to Duke University Basketball star Zion Williamson injured his knee after his Nike shoe collapsed during a nationally televised game Wednesday night in North Carolina.
Williamson's Nike PG 2.5 shoe appeared to separate from the sole when he planted his left foot near the top of the key and attempted to pivot to his right in the opening seconds of the contest, causing the 6-7 freshman forward, who has dominated college basketball's headlines this year, a knee injury that kept him out of action for the final weeks of the regular season.
"Our close examination of figures reported by NKE suggest clearly that broadbased momentum continues to drive the business," said Oppenheimer analyst Brian Nagel. "Early in 2019 we identified NKE as a top pick for the year. We very much stick by that call and recommend clients use any "sell on the news" weakness in shares as an incremental buying opportunity."