Nike results show growing importance of China - Financial Times

Nike’s chief executive Mark Parker will bow out on what he described as “a position of strength” after the latest results showed that controversies during his 13-year tenure had done little to hold back the US sportswear company’s financial performance.

Mr Parker, who is passing the reins to technology industry executive John Donahoe next month, said the business and brand were “as strong as they’ve ever been” after quarterly revenues jumped at each of Nike’s four geographical divisions, led by China.

Among a series of political criticisms drawn by the company in recent months, Nike was singled out by Mike Pence, the US vice-president, over its approach to doing business in China.

He accused Nike of “checking its social conscience at the door” by pulling Houston Rockets merchandise from Chinese stores after one of the NBA team’s executives voiced support for protesters in Hong Kong.

Nike has also had to deal with the fallout from a recent doping scandal in athletics. The company in October shut its Oregon Project athletics training programme after Alberto Salazar, a Nike-backed athletics coach, and Jeffrey Brown, a doctor who worked with athletes from the project, received four-year bans for doping violations.

None of these issues appeared to do much to hurt Nike’s results in its second quarter. Net income in the three months to the end of November jumped almost a third from a year ago to $1.12bn.

Even though diluted earnings per share of 70 cents were better than analysts had forecast, the update failed to dazzle investors. Shares ticked down about 2 per cent in after-hours trading to just under $100 each, having already rallied 36 per cent this year to a record.

Speaking to analysts on Thursday, Andrew Campion, chief financial officer, cautioned that he expected the company’s gross profit margins to be flat year-on-year in the third quarter due in part to the imposition of trade tariffs.

He said “geopolitical trade dynamics” created “quarterly anomalies” but added that “one quarter, or one data point, does not equate to a trend”.

“Over the past two-years, our gross margin expansion has significantly exceeded our goals,” he said.

The results on Thursday underlined the growing importance to Nike of demand from China, where revenues leapt a fifth to $1.85bn. Sales from Nike’s domestic market of North America rose 5 per cent to $3.98bn.

Higher sales from each of its footwear, apparel and equipment businesses helped revenues across the group rise a tenth to $10.3bn.

The figures come at a pivotal time for Nike. Mr Donahoe, a former Ebay chief who already sits on its board, is preparing to become the company’s fourth chief executive in its 55-year history.

Mr Parker, who will step up to executive chairman, highlighted his successor's experience in ecommerce, adding he would “help elevate Nike to the next level, and accelerate our strategic transformation”.

“The best time to make change is from a position of strength and our brand and our business are as strong as they’ve ever been,” Mr Parker added.

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Nike results show growing importance of China - Financial Times
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