(Reuters) - Nike Inc (NKE.N) first-quarter earnings were lower than last year and orders in China for the next several months fell for the first time in three years, choking off what had been a growth engine for the world’s largest sportswear maker.
Higher costs of materials used in Nike’s shoes and T-shirts continue to hurt margins and Nike shares fell 2.3 percent in after-market trading.
Futures orders, or orders of Nike branded shoes and clothes scheduled for delivery from September 2012 through January 2013, rose 6 percent.
In China, futures orders fell 5 percent, after rising 27 percent last year.
Nike is the latest global company to be hit by the economic slowdown in China, which has hurt demand for everything from tractors to trench coats.
Companies like Nike have come to count on China and other emerging markets for rapid growth, compared with mature markets like the United States.
“There is a fear, North America is not a growing market, you need China to work,” Rahul Sharma, founder and managing director at retail consultancy Neev Capital, said. However, China is still not Nike’s largest market.
He said investors were overreacting to the drop in orders from China which were no surprise.
Nike, which already had some excess inventory there, is finding it difficult to tackle intense competition and frequent promotional sales by local brands, while distributors and retailers are wary of the economy.
The slumping orders overshadowed earnings that beat analysts’ expectations.
For the quarter ended August 31, Nike earned $1.23 a share compared to $1.36 a share last year. Analysts on average forecast $1.12 a share, according to Thomson Reuters I/B/E/S.
Net income was $567 million, compared with $645 million last year in the same quarter.
Revenue rose 10 percent to $6.7 billion, compared with the average analyst estimate of $6.42 billion.
Gross margin fell to 43.5 percent from 44.3 percent a year earlier. The drop in gross margins has eased from recent quarters as higher prices and cost cuts have helped mitigate the impact of rising materials and labor costs.
Reporting by Nivedita Bhattacharjee in Chicago; Writing by Brad Dorfman; Editing by Phil Berlowitz