Nike took a hit on Wall Street on Thursday as the sporting goods and apparel maker said rising costs in transportation as well as commodities would hurt profit margins in coming months.
The company's profit for its September-November quarter jumped 22 percent to $375 million on a 10 percent increase in sales to $4.84 billion. Company shares fell more than 5 percent, however, as investors reacted negatively to lower-than-expected future orders and rising costs for commodities and transportation.
"You can expect, given the strong demand for our brand and products, for us to continue to air freight select product as we work with our manufacturing partners to expand capacity," Charlie Denson, president of the Nike brand, told analysts.
By The Numbers: Air Freight Price Index.
Company officials said worldwide future orders are up 11 percent but that those numbers don't include online and direct-to-consumer sales, which are a growing part of Nike's business.
Nike expects "strong gross-margin headwinds for the next few quarters" but looks for them to abate within 12 to 18 months, said Don Blair, vice president and chief financial officer. "The combination of rapidly recovering demand and reductions in supply have driven higher costs for inputs, such as labor and cotton, as well as higher transportation costs as companies work to meet demand," Blair said.
Blair said with its leaner inventories the company had been able to avoid discounting while reducing its own costs. "These upsides more than outweighed higher costs for air and ocean freight," he said.
"While we're working hard with our suppliers to increase capacity, we also expect higher than normal levels of air freight at least through the first half of FY '12 to meet strong demand."
He said Nike would try to meet those higher shipping costs by "continuing to manage the marketplace to keep inventories tight."