This summary is based on the third quarter fiscal 2009 earnings call conducted by Nike Corp. (NKE) on March 18, 2009.
Management:
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Chief Executive Officer: Mark Parker
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President - Nike Brand: Charlie Denson
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Chief Financial Officer, Vice President: Don Blair
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Vice President of Investor Relations: Pamela Catlett
Key Investors Issues
- Revenues fell marginally to $4.4 billion from $4.5 billion in 2008
- Earnings declined 46% to $243.8 million or 50 cents from $463.8 million or 92 cents a share in 2008.
Year to Date Highlights:
- Revenues were up 7% to $14.5 billion.
- Net income came in at $1.1 billion or $2.33 a share, an 18% dip from $1.4 billion or $2.76 a share in the prior year.
Third Quarter Highlights
Revenues declined 2% to $4.4 billion from $4.5 billion in the prior year but currency neutral revenue increased 2%.
- Excluding currency changes, Nike Brand revenues grew 2% while revenues for our other businesses which include Converse, Cole Haan, Hurley, Nike Golf and Umbro grew 3%.
- In a tough retail environment, products out performed the market on both sell in and sell through as consumers moved to the leading brands and Nike gained market share.
- Earnings declined 46% to $243.8 million or 50 cents from $463.8 million or 92 cents a share in the prior year, on a decline in revenues and a $241 million after-tax, non-cash charge for impairment of the assets of Umbro.
- On a currency neutral basis, Nike Brand footwear and apparel futures orders scheduled or delivery from March through July 2009 declined 2%.
Futures were lower in comparison to a prior year that included orders related to the Beijing Olympics and the European Football Championships and they also reflect the impact of the difficult consumer environment.
- Real dollar futures for the period declined approximately 10% as the U.S. dollar has strengthened significantly against most world currencies.
- Gross margin declined 120 basis points to 43.9%. Currency hedging delivered benefits but that upside was more than offset by higher product costs, discounts and obsolescence reserves.
- SG&A decreased 4% versus the prior year and excluding FX effects, demand creation, operating expenses and total SG&A each grew about 1%.
- This rapid deceleration of spending reflected actions to refocus resources and reduce spending.
- Net interest expense was $3 million compared to $19 million of net interest income last year due to lower interest rates on investments.
Cash and short-term investments totaled $2.6 billion or about $5.34 per diluted share.
- Return on invested capital was 20.4%, 3.9 points below the previous year driven largely by the impairment charge.
- Free cash flow from operations was below prior-year levels driven largely by higher investments in working capital.
- Accounts receivable were 4% higher than the prior year reducing cash flow.
- Inventories were 3% higher than the prior-year with Nike Brand footwear accounting for the majority of the increase partially as a result of early factory deliveries.
- Nike Brand apparel inventories declined year-over-year due to the strong focus on clearing excess inventory and tightening our buys.
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U.S revenues increased 3% in the quarter, a remarkable performance as sales to nine of top ten accounts increased while one was essentially flat.
- Revenues at Nike owned retail stores grew 2% reflecting growth in e-commerce and new store openings.
- Comp store sales for Nike owned in line stores declined 28% driven largely by lower traffic and factory store comps were down 3%.
U.S. footwear revenue grew 8% and the firm continues to significantly outperform the competition.
- U.S. apparel revenue declined 9% as growth in running and Jordan was more than offset by lower sales in most other categories.
- Overall futures for the U.S. region fell about 1% as growth in footwear was offset by lower orders for apparel.
- Pre-tax income in the U.S. rose 2% as the impact of revenue growth and lower SG&A was partially offset by higher sales discounts.
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European revenues declined 14% with 10 points of the decline due to currency changes.
- European futures for the next five months fell 9% on a currency neutral basis driven by lower apparel futures, reflecting weaker market conditions and the comparison to strong orders in advance of last year’s European Championships.
- Pre-tax income for Europe declined 18% reflecting lower revenues, investments in demand creation and retail and weaker European currencies.
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The Asia Region delivered solid third quarter revenue growth of 8% including one point of growth from currency.
- Revenue growth in China moderated to about 10% versus over 50% growth in the prior year quarter while revenues in Japan declined slightly 2%.
- Pre-tax income for the Asia region grew 11% driven by revenue growth and lower demand creation spending.
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The Americas region revenues declined 5% and pre-tax income declined 22%.
- Revenues from the businesses reported as other increased 1% to $592 million and these businesses reported a pre-tax loss of $344 million driven primarily by the impairment charge at Umbro.
Strategic Thoughts:
