Sterne Agee said that the miss was driven by a 100bp decrease in merchandise margins, caused by material cost increases and 50bps of margin pressure due to increased air freight, and offset by less closeouts, a greater DTC business, and some cost reduction initiatives, which in total resulted in a 105bp decrease in GM. “SG&A levered by 81bps with modest increases in both demand creation and overhead expenses. Revenues were up 7% and 8% in constant dollars. Sales were up in all geographies except Japan, and footwear was +8%, apparel +12%, equipment -5%, and other businesses +1%. Sportswear sales remain challenged in North America, and the Other businesses were weakened by weak Nike Golf and Umbro (World Cup comparison) sales. Inventory levels at the end of 3Q11 were up 18%, but only represent ~11 weeks of supply, given our revised estimates. Factories were unable to keep up with the demand and a good amount of the 18% inventory increase was in transit; pre-buys of key futures items were also in stock to help relieve some pressure from the factories.”