NEW YORK (MarketWatch) — Athletic-shoe maker Nike Inc. shares led the gainers in the S&P 500 index on Tuesday after higher demand in markets from the U.S. to China offset cost concerns.
Nike /quotes/zigman/235840/quotes/nls/nke NKE +0.03% shares surged 11% to $90.31 in afternoon trading, their biggest percentage increase since October 2008, after Chief Executive Mark Parker said the company’s sales goal to generate $27 billion in sales by 2015 is “ahead of schedule.”
Parker increased the projection to $28 billion to $30 billion by 2015. The company’s sales in the most recent fiscal year jumped 10% to $20.9 billion.
“The last 12 months reveal many changes in the world,” Parker said at the company’s investor update meeting in the company’s Beaverton, Ore. headquarters, adding global recovery continues to be slow with youth facing “nagging unemployment” and the industry faces rising costs.
“We are not immune from those pressures. (But) we are well resourced to navigate the global economy.”
To spur demand, Nike has introduced items such as GPS watch and opens in-store boutiques such as House of Hoops for its retail customer Foot Locker Inc.
The company also has helped to spur industry-wide athletic shoe sales with its lightweight running shoes including Nike’s LunarGlide line and Nike Free that mimics natural motion movement. Meanwhile basketball shoe sales, which Nike holds a dominant market share, also have been boosted by the company’s release of items such as the $150 Air Jordan 3 Retro basketball shoes, which were listed as out of stock on the company’s web site.
Nike’s share gain also sent up the performance of its top rival Adidas AG /quotes/zigman/619210 DE:ADS +1.89% by 4.1%. Under Armour Inc. /quotes/zigman/388552/quotes/nls/ua UA -0.12% shares rose 4%.
Shares of Foot Locker /quotes/zigman/293726/quotes/nls/fl FL -1.03% rose 1.6%. Dick’s Sporting Goods Inc. /quotes/zigman/310940/quotes/nls/dks DKS +0.05% climbed 2.9%. Finish Line Inc. /quotes/zigman/71779/quotes/nls/finl FINL +0.08% rose 1.5%.
Nike brand’s share among leading footwear brands in the U.S. athletic shoe market, its top market, has risen 1.6 percentage points this year through June 18 to 43.1%, according to SportScanInfo data compiled for Susquehanna Financial Group.
The data separated out its Jordan brand franchise, which alone had about 11.3% share of the market. The company’s Converse brand held a 2.6% share of the market.
In comparison, Nike’s second largest rival Adidas and its Reebok brand together had about a 13% share of the market, SportScanInfo data showed.
“Given the strong product innovation and athletic trends in the industry as well as the upcoming events such as the London Olympics and European Championships, we believe Nike’s future growth should continue in the double digits and remain solid in the coming quarters,” said Sterne Agee analyst Sam Poser.
Awaiting company update
Nike’s shares had fallen 4.5% this year through Monday after the company warned in March that higher material costs facing the industry would eat into its margin and it wouldn’t be able to hike prices on a broad range of products quickly enough to offset cost pressures. See Nike story from March.
As a case in point, fiscal fourth-quarter gross margin narrowed 3.1 percentage points to 44.3%, hurt in part by higher product costs and increased air freight costs to fly in products to meet strong demand, the company said Thursday.
Those concerns, however, were limited after the Beaverton, Ore.-based sneaker giant on Monday reported a 14% increase in fiscal fourth-quarter sales to $5.8 billion. The company also said orders of shoes and apparel for delivery from June through November, a gauge of future demand, rose 15%. Both measures topped Wall Street estimates, in some cases at more than double the pace.
Higher demand also meant the company will have more room to pass on cost increases, analysts said.
“We believe Nike’s brands remain as strong as ever,” said McAdams Wright Ragen analyst Sara Hasan. “Over time, we expect the company to mitigate the impact of cost pressures.”
Still, whether its share gains will have legs depends on the outlook that the company is expected to provide at its analyst meeting Tuesday afternoon, analysts said.
“We believe this will be the primary factor in driving share performance in the near term, particularly color around the sustainability of top-line trends and expected margin dynamics,” said Susquehanna analyst Christopher Svezia. “Sales growth should remain strong based on current future orders.”
In the fourth quarter, all markets saw higher demand except in Japan and Central and Eastern Europe, Nike said. In North America, sales surged 22% to $2.1 billion, with comparable sales at the company’s own stores rising 18% and online demand surging 31%.
In Greater China region, sales jumped 21% and were up 16% excluding the impact of currency translations.
Emerging markets sales rose 25%, led by Argentina, Brazil, Korea and Mexico.
Sales in Japan fell 17%, hurt by the March 11 quake. The decline was much smaller than analysts expected.
Sales of Nike’s other businesses, including Cole Haan, Converse, Hurley, Nike Golf and Umbro, rose 6%.
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