By Andria Cheng, MarketWatch
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 NKE +7.67% shares rose 5.9% in early trading, the biggest percentage gainer in the S&P 500. Its customers Foot Locker Inc. FL +2.48% , Dick’s Sporting Goods Inc. DKS +2.03% also saw their shares heading higher.
They’ve fallen 4.5% this year 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.
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.
Higher demand also meant the company will have more room to pass on cost increases, analysts said.
“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.
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 Financial Group analyst Christopher Svezia. “Sales growth should remain strong based on current future orders.”
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. 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.
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.
