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Nike warns FX fluctuations to slam profit, expects weak China sales

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[March 21, 2014]  By Phil Wahba

(Reuters)  Nike Inc <NKE.N> on Thursday warned Wall Street that growing pressures from weaker currencies in key emerging markets would take a big toll on its profit in the current quarter and into the next fiscal year.

The maker of sports shoes and apparel also said sales in China would be unchanged or even down slightly this quarter, reawakening concerns it is having trouble finding its bearings in that market after signs of progress in recent quarters.

Nike shares fell 3 percent to $76.88 in after-hours trading.

Chief Financial Officer Donald Blair told analysts on a call that the devaluation of developing market currencies against the U.S. dollar "will be a significant drag on next year's reported revenue, gross margin and profit growth."

Blair said Nike now expects earnings per share in the fiscal year beginning in June that will be "somewhat" below the company's mid-teens-percentage target.

Nike gets about 30 percent of its revenue from emerging markets, China and Eastern and Central Europe.

Still, the fundamentals of Nike's business were solid, with strong demand for its merchandise heading into the World Cup soccer tournament in June and July.

Orders for Nike-branded shoes and clothing scheduled for delivery between March and July 2014, a gauge of demand Nike calls "futures orders," rose 14 percent globally, excluding the impact of currency fluctuations, led by a 30 percent jump in Western Europe.

The company also reported a better than expected profit for the third quarter ended February 28, helped by a large jump in revenue in Western Europe, where it competes with Adidas AG <ADSGn.DE>.

Nike has been spending heavily on marketing ahead of the World Cup, which Brazil will host this summer.

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Total revenue rose 12.7 percent to $6.97 billion for the quarter ended February 28, above the $6.69 billion analysts were expecting, according to Thomson Reuters I/B/E/S.

In China, where Nike has grappled with the lingering effects of excess inventory and intense competition from rivals cutting prices in recent years, sales rose 7 percent.

"They continue to produce items that resonate with shoppers globally," said Edward Jones analyst Brian Yarbrough. "They're gaining share in each of their markets." Still, the poor forecasts for China were worrisome, Yarbrough said.

Nike earned $685 million, or 76 cents a share, in its fiscal third quarter ended February 28, compared to $866 million, or 73 cents per share a year earlier. Excluding discontinued operations, Nike had a profit of 76 cents per share for the quarter, four cents better than Wall Street had expected.

(Reporting by Phil Wahba in New York; editing by Chizu Nomiyama and James Dalgleish)

[ 2014 Thomson Reuters. All rights reserved.]

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