Nike to raise prices to cope with rising costs

NEW YORK: Nike plans to raise the prices on its shoes and sports clothing markedly in 2012 to cope with the rising costs of oil, cotton and transportation that are hurting its profitability. The shares in the world’s largest athletic shoe and clothing maker plunged 7 percent on fears that already stretched margins will come under even greater pressure this year and next. It reported a lower-than-expected quarterly profit on Thursday, hurt by rising production costs.

The company expects margin pressures to persist this year, intensifying in the current quarter.

“This is evidence that rising input costs are hurting Nike’s profit,” said Giri Cherukuri, a portfolio manager with OakBrook Investments, which owns Nike shares. “Nike’s margins will be under pressure for the rest of the year.”

To contend with that, Nike executives said the company would ramp up and broaden its price increases.

Gross margins, which slipped 1.1 percentage points to 45.8 percent during the third quarter, were further hurt by the greater use of air freight to ship products and meet consumer demand.

The company said there had been some product shortages and that suppliers would increase their capacity.

Nike forecast its gross margin during the current quarter will be 3 percentage points below year-earlier levels, but that pressure on margins would ease later in the year as price increases kick in.

“Beginning in spring 2012, we’ll take more significant price increases across a broader range of styles,” Chief Financial Officer Don Blair said on a conference call.

Blair said on the call it was too early to know how the crisis in Japan might affect its business in that country, which accounted for 3.8 percent of third-quarter sales.