Software Problems Soften Nike Shares

The shoemaker is hurt by a supply chain screwup for the second time in a year.
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For the second time this year,

Nike

(NKE) - Get Report

stumbled over its supply chain.

The athletic gear seller's stock fell Friday following reports that software glitches could delay shipments and reduce earnings in coming periods.

The problems were revealed Friday in a research report published by Wells Fargo Van Kasper analyst John Shanley, who cited "several retail executives" as sources. He says the glitches are in a new

SAP

software system that is supposed to organize the flow of goods in Nike's core U.S. business. Nike didn't immediately return a phone call seeking comment.

Nike shares slipped 83 cents to $54, after falling almost 9% early.

In the report, Shanley said the tech glitches jeopardize "what had promised to be a significant opportunity" for Nike's core shoe division. The brand has lost 5 percentage points of market share, primarily to rival

Reebok

(RBK)

, over two years.

The analyst cut his third-quarter earnings estimate to 45 cents a share from 52 cents. Still, his estimate remains a penny better than the Wall Street consensus, according to Thomson Financial/First Call.

In addition, Shanley also said Nike recently reorganized its U.S. sales force, a decision he says shows the company has abandoned efforts to rebuild the brand in retail channels such as department stores and big-box sporting goods stores. Continuing to rely on only athletic specialty stores, such as FootLocker, Finish Line and Footstar, he says, will give the company less leverage on pricing.

At the same time, he lowered his rating on the stock to market perform from buy, though mainly on valuation concerns. The stock currently trades at over 20 times next fiscal year's earnings estimates, a premium to its projected annual growth rate of 15%. (His firm doesn't have an investment banking relationship with Nike.)

The company is slated to report second-quarter earnings Dec. 20. Analysts expect Nike to report earnings of 46 cents a share, 2 cents above what it earned in the year-ago period.

Nike shares are virtually unchanged on the year, but are up about 50% from their 52-week low of $35.50 reached in March.

In February, Nike

blamed a projected third-quarter earnings shortfall on problems with software produced by

i2 Technologies

(ITWO)

. That software aims to help the company with its inventory control and deliver better efficiency in the supply chain.