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Nike Slips as Second-Quarter Gross Margins Miss the Mark

Shares trade lower after Nike reports earnings and sales that beat forecasts but not quite makes the three-pointer on gross margins.

Shares of Nike  (NKE) - Get Nike Inc. Report traded lower on Friday after the global shoe and athletic gear powerhouse reported earnings and sales that beat analysts’ forecasts, but didn’t quite make the three-pointer on the gross-margin front thanks in part to U.S. President Donald Trump’s recent trade spat with China and related tariffs.

For its fiscal second quarter, Nike posted earnings of 70 cents a share vs. 52 cents in the year-ago quarter and well above analysts’ forecasts of 58 cents a share. Sales rose 10% to $10.32 billion against analysts’ estimates of $10.09 billion.

However, gross margin, which is the selling price of an item less the cost of the actual good sold, taking into account production, labor, shipping, duties, taxes and other factors, increased 20 basis points to 44%, missing analysts' estimates of 44.1% as higher product costs from tariffs partially offset gains.

Nike said the gross margin miss was “primarily due to incremental tariffs in North America,” which raised the cost of goods sold and bit into bottom-line profits.

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Still, strong demand for limited-edition Jordan sneakers and apparel from its website helped steer the company to its first-ever billion-dollar quarter thanks to strong interest in the basketball label as well as heavy interest in other brands including women’s soccer.

For their part, analysts who cover the company are still expecting better things ahead.

The Beaverton, Ore. company was crowned a coveted “Best Idea” and “Top Pick” by analysts at Guggenheim this week on expectations the iconic retail brand will do well at the 2020 Summer Olympic games.

And analysts at Goldman Sachs, Bank of America Merrill Lynch and Wedbush Securities all raised their ratings on Nike last week on expectations of a bumper holiday shopping season and, like Guggenheim, a strong Olympics-driven 2020.

Nike shares were down 1.58% at $99.55 in morning trading on Friday.