Nike third quarter profits down by 33%
Nike earned $97 million, as opposed to $145.3 million during the same period the year before. Share dividends were 35 cents and 52 cents respectively.
"This in not a particularly fun hour for me," Nike Chief Executive Officer Philip Knight said last week during a conference call with analysts. "My immediate reaction is ‘This is what we get for $400 million?’ However, he insisted that the problem would be fixed and that the massive savings promised by the system would be realised within the next six to nine months.
The idea of the software was that it should allow the company to plan production schedules one week in advance, as opposed to one month under the old system. Nevertheless, teething problems have resulted in an overproduction of unpopular styles such as Air Garnett III, while leaving current big sellers such as Air Force Ones in short supply. In fact, Nike was at one stage forced to make about 5 million pairs of shoes - or $90 million of inventories - without customer orders, because of the ongoing problems.
In the U.S. – the one market where Knight admitted the company should have been at its strongest - Nike’s revenue was down 6% to $1.1 billion, while footwear revenue tumbled 15% to $734 million. Again, the main culprit was the new software system, though a general downturn in demand for the company’s footwear also played its part.
Wells Fargo Van Kasper analyst John Shanley said he expects Nike to gain ground in the mid-priced shoe market in the fourth quarter. "It seems that in the last two years Nike have put their head in the sand with their mid-priced range of shoes and that represents about half of their U.S. footwear revenue," Shanley said.
Despite the company’s problems, Wall Street added 5.6% ($2.13) to the company’s stock to achieve $40.14. By comparison, shares at arch-rival Reebok climbed by 8 cents to $23.30 on the NYSE.
