Athletic footwear leader Nike (NYSE:NKE) reported large increases in earnings and revenue for its fiscal second quarter. Future orders for the company were up, yet the market was disappointed and shares sold off after the report was announced.

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Nike's Quarter
Revenue increased by 10% to $4.8 billion, while net income grew 22% to $457 million. Diluted earnings per share were up 24% to 94 cents. Revenues grew in six of seven key Nike brand categories, as only sportswear was down. Nike Golf and Converse contributed to a 13% revenue increase in other businesses.

The company continued its recent surge of strong results as other measures showed. Gross margins improved 80 basis points to 45.3%. More profitable close-out sales and greater demand spurred the improvement. President and CEO of Nike, Mark Parker, said, "We had a great second quarter. Almost every brand, category and geography delivered growth. We continued to outperform the market."

Future Orders
Despite Nike's earnings numbers beating analyst estimates, the stock market choked on the future orders for Nike. Orders for December 2010 through April 2011, next quarter, stand at $7.7 billion. While this is 11% higher than the same period from last year, analysts were looking for an 11.6% increase. Also, inventory is up 8% compared to last year. Nike stock, which has risen 40% this year, fell more than $5, nearly 6%, in after-hours trading after the release of the report. In the earnings call, the company warned that despite the lofty margins it now enjoys, with input costs on the rise, margins will see pressure for up to the next year-and-a-half.

Nike's Business Performance
For the six-month period, the halfway point of Nike's fiscal 2011, it has racked up $10 billion in revenue compared to $9.2 billion in the same year ago period. Its net income is $1.016 billion or $2.08 per diluted share, compared to $888 billion or $1.80 per diluted share in last year's first-half fiscal 2010. Nike's full year earnings have gone from $3.06 in fiscal 2009 to $3.93 last fiscal year, with the company on pace to exceed these numbers in fiscal 2011.

A Cranky Market
The stock market wasn't unkind only to Nike. Shares of Skechers, USA (NYSE:SKX) were down almost 8% after an analyst report cited slowing sales and falling margins. Sterne Agee & Leach analyst Sam Poser slapped a sell rating on Skechers, also citing inventory concerns. The stock is already selling near its 52-week low.

The sell-off didn't extend to all footwear companies, as Decker Outdoor Corp. (Nasdaq:DECK), Crocs (Nasdaq:CROX) and mainline retailer Shoe Carnival (Nasdaq:SCVL) were left fairly untouched by the dumping of shoe shares.

Nike Prospects
The market's reaction to Nike's report was worrisome. Nike isn't like Crocs a few years ago, it's not going to see its business rise and plunge dramatically. Nike was up front about the margin pressures, and is still showing robust growth everywhere but Japan and Western Europe. The company is a dominant player that carries $4.8 billion in cash and cash investments. We feel Nike will manage its margin challenge well in the coming quarters, and with a slowly improving global economy, dents in the stock price are buying opportunities. (For a look at how to construct an athletic portfolio, check out The Professional Sports Portfolio.)

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