After the closing bell Monday, athletic shoe and apparel company Nike said it expects third-quarter earnings to fall at least 24 percent from its previous forecast to a range of 34 cents a share to 38 cents a share. Analysts had been expecting Nike to report earnings of 53 cents a share.
It's not often that sporting goods and software intertwine, but Nike said its supply-chain management system, which is powered by i2, led to excess inventory and order delays. Nike's problems were compounded by a slowdown in U.S. footwear sales. Nike's footwear division, which accounts for 57 percent of the company's revenue, uses i2 software for it supply-chain management. Nike's apparel division uses software from Manugistics Group.
Supply-chain management software helps manufacturers plan and schedule production and related operations such as raw materials procurement and product delivery. When problems occur implementing new software systems, a company's financials can take a hit.
Shares of i2 ended regular trading Tuesday down $7.94, or more than 22 percent, to $27.56. Rival Manugistics was off $5.31, or almost 15 percent, to $30.69, and Nike ended the day down $9.57, or about 19 percent, to $39.60.
i2 officials weren't available for comment, but analysts said the concerns about the company's software were overblown. "Investors are shooting first, asking questions later," said Dresdner Kleinwort Wasserstein analyst David Garrity.
Garrity also said that Nike should carry a lot of the blame. "There are strong indications out of Nike that the reason (the supply chain) wasn't performing properly was because Nike hadn't entered orders," Garrity said. Nike said it was working with i2 to smooth out problems.
"This should be a buying opportunity for investors," Garrity said. He added that he expects good news from i2's analyst meeting March 6 and 7.
Credit Suisse First Boston analyst Brent Thill reiterated his "strong buy" on i2, but did raise some concerns about the Nike-i2 relationship. In a research note, Thill said his contacts at Nike indicated the company may halt its North American implementation of i2's software until problems are fixed. Thill said Nike's high-volume retail business may now run i2's product parallel to its existing supply-chain software for the next three years in order to be confident it works.
Though Thill expects the stock to be under pressure from the announcement, he added that "there are multiple examples of customer success stories--Caterpillar, Dell, 3M--that far outweigh the negative news."
"I do think investors are overreacting. It's one company and one vertical that's not really i2's sweet spot," said David Mahoney of Wit Soundview. i2's specialty is supply-chain management for high-tech and industrial businesses. "This does not change my enthusiasm for the stock," said Mahoney, who rates i2 a "strong buy."