Nike (NKE) -) shares fell sharply in early Friday trading after the sportswear giant issued a muted full-year revenue outlook and cost-cutting plan that offset a solid fiscal-second-quarter earnings report.
Nike said for the three months ended in November came in at $1.03 a share, up 21% from the year-earlier period and firmly ahead of the Wall Street consensus forecast of an 85-cent profit.
Group revenue, however, rose only 1% from last year earlier to $13.4 billion, just shy of analysts' estimates of a $13.43 billion tally.
China revenue was also light of forecasts, rising 8% to $1.86 billion, while North America revenue was down 3.5% to $5.63 billion.
Gross margin improved modestly, widening 40 basis points (0.4 percentage point) from the prior quarter and 1.7 percentage points from a year earlier to 44.6%, thanks to fewer markdowns and cheaper shipping costs.
Nike seeks to cut $2 billion of costs
Looking into the second half of its financial year, Nike sees revenue growing by a similar amount compared with its autumn forecast of 'mid-single-digit-percent' gains, thanks in part to weakness in China and "increased macro headwinds."
As a result, Nike said, it was looking to cut another $2 billion in costs over the next three years, with a focus on supply-chain efficiency, more automation and mid-management job cuts.
"Last quarter, as I provided guidance, I highlighted a number of risks in our operating environment, including the effects of a stronger U.S. dollar on foreign-currency translation, consumer demand over the holiday season, and our second-half wholesale order books," chief financial officer Matt Friend told investors on a conference call late Thursday.
"Looking forward, the impact of these risks is becoming clearer, and as a result, we are adjusting our full-year financial outlook," he added. "As we move forward, our focus is building a faster, more efficient Nike and embracing the opportunities in front of us to accelerate sustainable and more profitable growth."
Nike shares were marked 10.7% lower in early Friday trading to change hands at $109.52 each, a move that pushes the stock into negative territory for the past six months.
Foot Locker (FL) -), which relies heavily on Nike for its retail sales, was marked 4% lower at $31.01 each while German sportswear rival Adidas (ADDYY) -) slumped 6% in Frankfurt.
"Nike posted slightly softer than expected top-line results amid a difficult macro, with gross margin expansion and timing shifts in expenses led to a solid earnings beat," said KeyBanc Capital Markets analyst Ashley Owens. She carries a sector weight rating on the stock.
"We are encouraged by momentum in (Asia and Latin America) but a strong second-half recovery in China looks to be out of focus due to increasing macro headwinds, and helped drive a downward revision to guidance, and we think reduced guidance implies ongoing uncertainty in the near term," she added.
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