Nike Inc. posted flat currency-neutral revenue growth for the second fiscal quarter and net income was up in low-single digits when excluding one-time charges associated with staff reductions and other expense-cutting measures, but a diminished backlog portfolio and a dampened outlook sent investors and some analysts for the door as NKE shares fell more than 10% last week.  Total reported Nike, Inc. revenues slid 7.4% to $4.71 billion in the fourth quarter ended May 31.


Fourth quarter net income decreased 30.5% to $341.4 million, or 70 cents a share. Excluding non-recurring charges, fourth quarter net income increased 3% versus the prior year period.  The quarter included a charge of $195.0 million pre-tax restructuring charge associated with the corporate restructuring and cost reduction realignment that resulted in the termination of 1,750 jobs worldwide.  Excluding the current year restructuring charge and a prior-year gain associated with the sale of Bauer Hockey, fourth quarter diluted EPS would have increased 5% to 99 cents per share.


For the year, total Nike, Inc. revenues rose 2.9% to $19.18 billion, with brand Nike revenues increasing 3.5% for the year to $16.66 billion.  Excluding the currency changes, NIKE brand revenues grew 4%, while revenues for the “Other” businesses, including Cole Haan, Converse, Hurley, Nike Golf and Umbro, grew 1% for the year.  Excluding the impairment and restructuring charges in fiscal 2009, as well as gains on the sale of Bauer and Starter and a one-time tax benefit, all in fiscal 2008, diluted EPS would have increased 10% to $3.81 per share.


Brand Nike posted constant dollar revenue growth in every region except the Europe, Middle East and Africa (EMEA) region, which saw flat currency-neutral revenues for the year.  Nike footwear revenues were up 5.9% for the year to $10.31 billion and apparel inched up 0.2% to $5.24 billion.  Equipment revenues were the drag, dipping 1.8% to $1.11 billion.


Nike brand footwear revenues were down 3.0% for the fourth quarter to $2.58 billion and apparel revenues fell 16.0% to $1.17 billion.  Equipment was down 11.2% to $261.5 million for the quarter.              

 

Fiscal Q2 Beats Estimates; Apparel Challenged…

 

On the quarterly conference call with analysts, Charlie Denson, president of the Nike brand, said that lifestyle categories have “performed well around the world” and global running and Nike sportswear both delivered high-single digit growth. Basketball posted double-digit gains “on the strength of the Jordan brand,’ which he said “had a very strong year.”  Denson went on to say the action sports category had “significant double-digit growth.”  Men's training was reportedly “down slightly,” but Denson said they had some solid product concepts in the pipeline that are expected next year.  Still, he stressed that women's training had its “biggest quarter ever in Q4.”  The football (soccer) business was said to be flat against the Euro Championships last year.  He said they continue to gain share in key markets as they move into World Cup in South Africa next summer.


The apparel side of the business is certainly seeing some stress where management sees a bigger impact from the macroeconomic conditions.  Still, he suggested that performance apparel like Pro Combat continues to deliver “solid results.”


Futures orders for Nike and Jordan brand footwear and apparel scheduled for delivery through November declined 5% on a currency-neutral basis.


During the fourth quarter, U.S. revenues decreased 2% to $1.6 billion. Footwear increased 2% to $1.2 billion, apparel revenues decreased 15% to $379.8 million and equipment revenues were up 2% to $85.5 million. Apparel revenue was down significantly compared to the prior year due to challenging market conditions and a strategic decision to optimize the product assortment. U.S. pre-tax income declined 5% to $375.7 million.


For the full fiscal year, U.S. revenues were up 2% to $6.5 billion. Footwear revenues increased 5% to $4.6 billion, apparel revenues were down 5% to $1.7 billion and equipment revenues declined 4% to $327.7 million. U.S. pre-tax income decreased 5% to $1.3 billion for the fiscal year.


Revenues in the U.S. region were down 2.3% in the fourth quarter, but grew 2.0% for the full year.  Management said that full year sales were up at seven of their top 10 accounts.  Revenues at Nike-owned retail stores grew 6%, reflecting “growth for factory outlet stores and online.”  Comp store sales results for the full price brand stores fell 29%, “driven largely by lower traffic.”  Company CFO Don Blair suggested that the company’s in-line destination stores continue to be particularly hard hit due to the format’s “limited promotional activity relative to the rest of the retail marketplace” and the location of the stores in high tourist areas.                       

                           
U.S. footwear grew 2.5% in the fourth quarter and 5.2% for the full year, with much of the growth driven by the “resurgent basketball category,” including the Jordan brand.  U.S. apparel revenues declined 15.2% in the fourth quarter and were down 4.6% for the year, due primarily to “lower sales in sportswear and kids.”                                                                            


Blair said approximately half of the apparel revenue decline for the year resulted from the decision to reduce sales to the value channel and refocus the product line on brand-enhancing styles at higher price points.  He said market share remains flat and inventories are “down significantly.”


Pre-tax income in the U.S. declined 5.3% to $375.7 million in the fourth quarter.


The EMEA region saw fourth quarter revenues fall 19.1% to $1.24 billion, or down 3% on a currency-neutral basis. Excluding the currency impact, footwear revenues grew 4% but apparel revenues fell 14% versus a strong fourth quarter last year, which benefited from the European Championships. In Western Europe, revenues grew in Germany and the northern European countries, partially offset by declines in Italy, France and Spain. Revenues were said to be flat in the U.K.  Nike said they increased market share across the five biggest markets in Europe.  The emerging markets of Russia, Turkey and South Africa grew 14% for the year.


EMEA fourth quarter pre-tax income decreased 3.4% to $321.1 million due to lower sales volume.


Reported fourth quarter revenues for Asia were flat, but grew 3% excluding currency changes. For the full year, revenues in China grew 22%, but growth slowed to 6% on top of over 60% growth in Q4 last year.  Management said they expect “generally weaker year-over-year revenue comparisons in China” for the first half of fiscal 2010, as they anniversary the strong 2008 numbers that were fueled by rapid store growth and the Olympics.  Revenues in Japan were down 3% on a currency-neutral basis for Q4, but flat for the fiscal year. The other markets in the Asia region posted 9% growth for the year, driven by double-digit growth in Korea.


Asia fourth quarter pre-tax income increased 41% to $238.2 million mainly driven by lower demand creation spending, primarily around the Olympics.


Fourth quarter revenue in the Americas region decreased 3.1%, but increased 20% on a currency-neutral basis.  Fourth quarter pretax income was up 15% to $70.8 million.


Other business revenue, which includes Cole Haan, Converse, Hurley International, Nike Golf, and Umbro, decreased 5.2% for the fourth quarter and pre-tax income dropped 56.3% to $40.6 million, driven primarily by the impairment charge at Umbro.  For the continuing Other businesses — excluding Nike Bauer and Starter and adding Umbro — fourth quarter revenues declined 3% and pre-tax income declined 47% for the quarter. For this same group, fiscal year revenue grew 5% while pretax income declined 28%. Pre-tax income for the fourth quarter and fiscal year were said to be negatively impacted by lower profits at Cole Haan and NIKE Golf, reflecting difficult conditions in these market sectors.


Converse full year revenues grew 26% to $915 million, but the wholesale equivalent of the Converse brands was estimated at over $2 billion of revenue worldwide. Hurley also delivered a record year as revenues grew 19% to over $200 million. Both Congress and Hurley also delivered double-digit growth in pretax income for the year. These results were offset by lower revenues at both Cole Haan and NIKE Golf, which declined 5% and 11%, respectively. Both Cole Haan and NIKE Golf posted pretax losses for the year. Umbro apparently performed to expectations. Reported revenues for the year were $174 million, reflecting wholesale equivalent revenues of about $600 million worldwide.