Net income in the quarter ended May 31 rose 22 percent to $668 million, or 73 cents a share, from $549 million, or 59 cents, a year earlier, Beaverton, Ore.-based Nike said Thursday in a statement. Excluding units sold, profit of 76 cents a share exceeded the 74-cent average projection compiled by Bloomberg.
Nike has been benefiting from increasing demand for running and basketball gear in North America, its largest market. In China, by contrast, consumers shunned apparel that didn't have the right fit or sophistication, forcing Nike to use discounts. Worldwide sales gained 7.4 percent to $6.7 billion, topping estimates.
"It's a good quarter, but not a blowout," Chris Svezia, an analyst for Susquehanna Financial Group in New York, said in an interview. He rates the stock neutral.
Orders for the Nike brand from June to November, excluding the effects of currency exchange-rate changes, advanced 8 percent. Analysts projected a gain of 8.8 percent, the average of five estimates compiled by Bloomberg. Orders on that basis advanced 12 percent a year earlier.
The company's business in China looks like it's "still a work in progress," Svezia said after orders there were little changed. "There was some hope that they were turning the corner."
In China, which had been one of Nike's fastest-growing markets, sales excluding currency fluctuations fell 1 percent, the third quarterly decline in a row. The company has blamed the deterioration on a slowing Chinese economy and the discounts. In May, Nike replaced its top executive in the country.
Nike has been working to improve its profitability amid higher costs for materials and labor, mostly in China. To combat that, the company increased prices last year and has been cutting waste out of its supply chain. It also sold off the under-performing Cole Haan and Umbro brands last year.
As a result, gross margin, or the percentage of sales left after subtracting the cost of goods sold, widened to 43.9 percent from 42.8 percent a year earlier. That marked the second straight gain after nine consecutive declines. The company forecast an expansion of 0.5 percentage points.
Last week Nike announced management changes that included repositioning several current executives and the retirement of Charlie Denson, its second-in-command. Denson, president of the Nike brand, is leaving July 1 after 34 years. Gary DeStefano, president of global operations and a 31-year veteran, is also retiring next month.