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Sluggish Sales in North America Weigh on Nike Profit

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Nike

Good isn’t always good enough for Nike investors.

On Tuesday, the active apparel and footwear titan reported results for the fourth quarter and full year ended May 31 that were worse than expected. When the markets closed the company’s stock (NKE) had fallen more than 15 percent year-to-date.

Though Nike, Inc. revenue rose 6 percent to $8.24 billion in the most recent quarter, this was slightly below Wall Street estimates of $8.28 billion, while diluted earnings per share were flat at $0.49 when compared to the prior year.

Nike brand revenue was $7.7 billion, up 8 percent on a currency-neutral basis. This was driven by double-digit growth in Western Europe, Greater China, emerging markets and Japan, with strong sales in the sportswear, global football and Jordan Brand categories.

But the Beaverton, Oregon-based company said its North American business was still feeling the brunt of the West Coast port congestion in fiscal year 2015. Management blamed flat revenue on timing shifts related to delayed delivery—though it insisted the brand was still “incredibly strong” in the U.S. and Canada, and that excess inventory in the full price in line channels had been cleared.

With that being said, revenue growth was more than offset by lower gross margin, higher selling and administrative expense, and a higher tax rate. As such, fourth-quarter profits fell 2 percent to $846 million.

And yet, president and chief executive officer Mark Parker called fiscal 2016 “a breakthrough year for Nike in everything we do.”

“From product to manufacturing to how we serve our consumers—more personally and at scale—we’ve raised the bar of what’s possible. It’s a great time to be in sports and the Nike brand has never been stronger,” he continued. “Fueled by our unrivaled roster of athletes, fiscal 2017’s calendar of sport moments promises to build on our business momentum and inspire consumers.”

Nike says situation will improve in fiscal 2017

Worldwide future orders for Nike brand athletic footwear and apparel scheduled for delivery from June through November 2016 totaled $14.9 billion as of May 31. That’s 8 percent higher than orders reported for the same period last year.

Andy Campion, the company’s chief financial officer, said he expects North America revenue to return to growth in the first quarter of the current fiscal. “North America’s gross margin will contract in Q1 as we complete the clearance of excess inventory with a return to gross margin expansion over the course of fiscal year 2017,” he said on an earnings call with analysts.

Nike stock inched up more than 1 percent in early trading Wednesday.

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