Last year at this time the comparable issue of Sports Executive Weekly (SEW_0426) was highlighted by a quote from Nike brand co-president Charlie Denson that, “It is a good day today.” Unfortunately, we will have to wait until tomorrow for any fiscal fourth quarter and full year feedback from Mr. Denson, Bill Perez, or Mark Parker as the Nike, Inc. team prepares for their investor conference scheduled for Tuesday. Don Blair, Nike’s CFO, did the honors on Monday morning, attempting to review the numbers for each period, but offering little color on the business. Analysts and the press were left to come to their own conclusions on the outlook for the business, a reality that may be at the center of a more than 4% drop in NKE shares in early trading on Monday.

Based on a quick review of the numbers and the limited color provided, it appears to SEW that, based on backlog numbers, the business continues to track pretty healthy for the future. The one sticking point appears to be apparel in both the U.S. and Europe, with the U.S. issue based on the loss of the NBA license and later scheduled deliveries for fall goods.

SEW will publish a full review and analysis of the Nike investor day conference in SEW_0527.

Brand Nike saw the EMEA region, which is comprised of Europe, the Middle East, and Africa, post fourth quarter revenue growth of 3.6% to $1.13 billion versus $1.09 billion in the year-ago period. EMEA would have seen a decline of about 3% in currency-neutral terms. Footwear revenues were up 9.1% for the period to $659.6 million from $632.0 million in Q4 LY, or up about 3% in currency-neutral terms. The constant dollar gain here was more than offset by Apparel, which reversed a strong 33% increase in the year-ago period to post a 10% decline in currency-neutral terms. Equipment sales were down roughly 8% in currency-neutral terms for the period. Much of the impact was due to the inability of the company to anniversary the strong apparel and equipment numbers posted last year in the run-up to the Euro 2004 championships and the Olympics in Greece. Nike Europe posted a 43% increase in Equipment sales in fiscal Q4 last year due to “robust sales of Football product.”

For the year, Europe posted a 5% constant dollar sales gain in both Footwear and Apparel, while Equipment grew 2% for the year when measured in constant dollar terms.

Mr. Blair said most of the constant dollar growth in Europe came from the Central Europe, Middle East, and Africa unit, with much of the gains coming from the former Eastern Bloc countries, Turkey, and Russia. He also pointed to the U.K. and Italy as strong points for the brand for the year, offsetting declines in the rest of Western Europe.

Pre-tax profits for the region were up 9.7% for the quarter to $254.2 million, compared to $231.6 million in the year-ago period. Pre-tax for the year was up 23.3% to $917.5 million, compared to $744.0 million in the prior year. Gross margin for the European region improved 290 basis points for the year on top of a 340 basis point gain last year, accounting for 90 basis points of overall NKE margin improvement. Blair said that improved FX rates were the main driver to the GM gain, partially offset by lower product margins and an increase in footwear and apparel closeouts.

China is still seen as the focal point for the Asia Pacific region, but constant dollar revenues for the year reportedly increased in every country in the region except New Zealand and Australia. Still, Blair said they “nearly doubled” the business in China for the year as they added over 500 retail doors and posted strong same-store sales growth. Japan posted gains in constant dollar sales for the year, but constant dollar revenues “fell slightly” in Q4.

Asia Pacific revenues increased 19.3% to $535 million in the fourth quarter, compared to $448.6 million in Q4 last year and were up roughly 16% on a currency-neutral basis. Pre-tax profit was up 36.1% to $124.0 million for the quarter. Full year revenues increased 17.8% to $1.90 billion, compared to $1.61 billion last year. The full year gain was up about 14% in currency-neutral terms. Excluding the FX rate changes, Footwear sales increased roughly 9% for the year, while Apparel jumped 19% and Equipment revenues surged 20% for the year. Gross margins dipped 30 basis points for the year, due for the most part to efforts to “improve consumer value” and more closeout sales.

Last year, Nike said the Americas region was starting to become a more stable business environment. That stabilization has obviously led to more opportunity as brand Nike posted a 19.7% sales gain in the region for the quarter to $201.1 million, or 14% gain in currency-neutral terms. For the year, the Americas saw revenues increase 15.1% to $695.8 million, with only about one point coming from currency benefits. The gains in the region were driven by a 30% increase in sales in Central and South America, as well as higher sales in Mexico, offset a bit by weaker footwear and apparel sales in Canada.

Nike, Inc.  Fiscal Full Year 2005
Regional Operating Results
  U.S. EMEA Asia/Pac Americas Other Total
Sales $5,129  $4,282  $1,897  $695.8  $1,736  $13,740 
Adj. Change*  n/c +5.0% +14.0% +14.0% n/c  +9.0%
Pre-Tax  $1,126 $917.5  $399.8  $117.6  $153.9  $1,860 
Change +11.8% +23.3% +13.5% +20.7% +104% +28.3%
Backlog +9.0% +7.0% +11.0% +25.0% n/a  +9.5%
Adj. Change* n/c +5.0% +9.0% n/c n/a +8.5%

Pre-tax income was up 11.0% to $29.2 million in the quarter. Full year pre-tax was up nearly 21% to $117.6 million. Gross margins were up 120 basis points for the year after a 230 basis points decline in the prior year, an increase that was attributed to discount reductions, fewer closeout sales, and favorable FX rates.

Blair said the growth in the U.S. region was broad-based across channels and major accounts. Increased allocations of marquee product for Foot Locker and Champs, and the resurgence of the Footaction business under the Foot Locker, Inc. umbrella are certainly having an impact on sales and futures backlog. The business at Finish Line does not appear to slowing either as brand Nike works to strike the right balance in the mall right down to the store level (see page 4).

The rough spot here is in the apparel category, due in large part to the loss of a pretty significant chunk of the NBA licensed business that went to Reebok this year. Blair also alluded to a shift in the timing of fall shipments as a reason for the decline.

In owned-retail, the Niketown stores saw comp store sales increase 11% for Q4 and 10% for the year.

Fourth quarter pre-tax moved back into growth mode, increasing 9.3% for the period to $311.8 million after a 2.4% decline in the year-ago period. For the year, pre-tax income in the U.S. jumped nearly 12% to $1.13 billion. U.S. region gross margins improved 80 basis points for the year, contributing 30 basis points to the overall NKE gross margin gain. Blair attributed the majority of the improvement to “tight management” of the footwear supply chain, resulting in “fewer, more profitable closeout sales.”

Total Nike brand Footwear sales increased 9.4% for the fourth quarter to $2.0 billion, while Apparel sales inched up just 0.5% to $965.8 million for the period. Equipment sales increased 13.6% to $225.4 million. For the year, total Nike brand Footwear sales increased 11.2% to $7.23 billion, Apparel grew 9.6% to $3.88 billion, and Equipment gained 14.6% to $824.9 million.

Mr. Blair said they estimated that Converse revenues grew 11% for the year. Cole Haan revenues increased 19% for the year, due in large part to the expansion of owned-retail, coupled with high-single-digit same-store sales gains, and “strong growth” in the wholesale business. Nike Golf and Hurley revenues were up in high-single-digits for the year, but Bauer Nike Hockey went the way of most hockey businesses, declining “slightly” for the year.

Pre-tax profits for the “Other Brands” slipped 1.6% for the fourth quarter to approximately $68.9 million from $70.0 million in the year ago period. Full year pre-tax more than doubled for the year, due primarily to the Converse and Starter acquisitions and “better profitability” at Cole Haan and BNH.

Total NKE revenues increased 9% for the year in constant dollar terms, or about 8% in comparable terms without Converse and Starter. Blair said the two brands accounted for about 12% of the 22% growth in the “Other Brands” business for the year. Total company fourth quarter revenues increased about 4% in constant dollar terms for the fourth quarter.

Demand creation spending increased about 16% for the year, with about 3% of the increase coming from FX rate changes and another 2% coming from the annualization of Converse and the acquisition of Starter. The Q4 demand creation increase was described as “modest.”

Nike, Inc.
Fiscal Fourth Quarter & Full Year 2005
(US$ Millions) Fourth Quarter Full Year