© Reuters. FILE PHOTO: A jogger wearing Nike shoes runs along the Charles River in Cambridge, Massachusetts, U.S., March 18, 2019. REUTERS/Brian Snyder/File Photo
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By Deborah Mary Sophia
(Reuters) -Nike topped Wall Street estimates for first-quarter profit on Thursday as higher prices of its sneakers and apparel helped offset a hit from waning demand and persistent cost pressures, sending its shares up about 9% in extended trading.
The company also forecast a 100-basis point increase in second-quarter gross margins, following at least five straight quarters of declines, on the back of fewer planned mark-downs and lower freight costs.
Nike (NYSE:)’s inventories fell 10%, indicating the company has been successful in reducing excess product stocks ahead of the holiday season, quelling investor fears that it would be forced to offer steep discounts.
“We will build on the consumer momentum around running and modern comfort,” CFO Matthew Friend said, adding the company will lean on its sneaker series such as Air Max 1, Infinity and V2K to cash in on the growing demand for running shoes.
The company will also refresh its portfolio of basketball shoes across the Nike and Jordan brands in terms of style, as well as focus on its new Kobe brand, according to Friend.
The world’s largest sportswear maker maintained its annual forecasts and said it expects second-quarter revenue to be up slightly. Analysts had expected a 2.1% rise to $13.59 billion, according to LSEG data.
“Nike has showed that it has pricing power … (and) will be able to avoid really severe discounting compared to some others (in the holiday season) this year. It’s in better shape,” Morningstar senior equity analyst David Swartz said.
The company posted total revenue of $12.94 billion in the quarter, missing analysts’ estimates of $12.98 billion.
Nike reported a profit of $1.45 billion, or 94 cents per share, beating estimates of 75 cents per share.