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In This Economy, Nike's 12% Revenue Drop Is Good News


Nike reported Tuesday that revenues for the first quarter of its 2010 fiscal year decreased 12 percent.

In a more stable economy, that might be cause for alarm. But as KristianFoden-Vencil reports, the figures were better than analysts expected and earnings per share increased – so the stock price jumped.

First quarter sales at Nike amounted to $4.8 billion -- down from $5.4 billion for the same period last year.

Some of that reflects a change in the value of the dollar.  Still, Nike CEO Mark Parker says earnings increased one percent and that’s cause for "cautious optimism."

Mark Parker: “It shows that Nike is poised to benefit first and most as we move through the current economy. It’s not enough to simply survive, we’re more confident and competitive than that. We’re focused on creating separation and momentum that allows us to extend our leadership now and in the future.”

As the recession deepened in the spring, Nike cut hundreds of jobs, reduced its inventory, and trimmed other costs.

Stock analyst Bill Parish says that kind of quick and decisive action sent a message to investors.

Bill Parish: “Clearly there’s someone at the helm at Nike -- unlike these clowns running our major banks -- and what they’ve done at Nike is they’ve made some strategic changes. One of which is they had a big staff reduction recently. And so what’s happened is their revenues are down 12 percent but they’ve also structurally reduced their cost, which makes them profitable.”

Still, it seems unusual that a 12 percent drop in revenues would be good news for investors.

Bill Parish: “The real economy has taken a very significant hit. If you look at a lot of companies, their sales are down 30 to 35 percent. So 12 percent is a very significant drop in sales, but it’s probably less than what people expected.”

Nike stock increased more than 3 percent on the news, to about $62 a share in after-hours trading.

© 2009 OPB

Bill Parish
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