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Lower Profit At Nike Blamed On i2 Software
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"I guess my immediate reaction is, this is what I get for our $400 million, huh?" said Knight during an earnings warning after the stock market closed Monday. The shortfall in inventory will cut into Nike sales by $80 million to $100 million during its third quarter, which ends Wednesday, Knight said. Nike warned that weakness in U.S. shoe sales due at least in part to problems with its systems would cause it to miss earlier earnings estimates of 50 to 55 cents a share by as much as 13 cents.
It will take six to nine months to sell the overproduced shoes, the company says. Knight notes that the inventory mismatch will personally cost him $15 million in profits this quarter. Nike spokesmen say the company's problems began last summer when it rolled out its new order- and inventory-management system. Some orders were placed twice, by the old and new systems, and the new system let orders for new shoe models fall through the cracks. Nike was forced to make certain shoes at the last minute and ship them by airfreight. Both problems pulled down third-quarter profits, says Nike CFO Don Blair. Nike is still attempting to fill undelivered retailer orders for certain new shoe models due to the system problems. Following Nike's warning, shares of i2 Technologies dropped to a low of $29.94 from Monday's close at $35.50. Nike's own shares dropped to a low of $38.80 Tuesday after closing at $49.17 Monday. Knight says deployment of the new system will result in improved profits for the company in the long run. A Nike spokeswoman says the company is working with i2 to fix the software problems. "It's not necessarily a question of who's at fault," says the spokeswoman. I2 could not be reached for comment.
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