Nike warned that prices for leather, which have increased by at least 15% this year, "are rising due in part to European cattle diseases".

Much of that increase is blamed on the destruction of hundreds of thousands of cattle in Europe, in an effort to stop the spread of the disease.

"If these prices continue to rise, fiscal year 2002 gross margins may be negatively affected," Nike executives wrote in a Securities and Exchange Commission filing.

The warning comes as Nike reports a 33% fall in sales for the third quarter ending 28 February compared with last year.

Hell for leather

Nike's filing said leather is "a significant raw material" for the company but didn't say how much it uses or how much price hikes could hurt profits.

Industry calculations estimate that the production of a pair of Nike shoes uses about 2 square feet of leather, which now costs about $2.50 a square foot.

A 15% increase would add 70 cents to the production cost of a pair of shoes.

Taking a hiding

Shoppers could also pay more for this summer's range of leather consumer goods like furniture, car seats, footballs, clothing and shoes.

With fewer animals slaughtered in Europe, hide prices are soaring.