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NEW YORK — Nike Inc. delivered another blockbuster quarter Monday, driven by higher-than-expected sales in the U.S. and robust growth across product categories and regions.
Profits in the first quarter ended Aug. 31 climbed 32.3 percent to $432.3 million, or $1.61 a share, up from $326.8 million, or $1.21, a year ago. The first-quarter results exceeded analysts’ expectations of $1.42 and sent the stock surging to $83.46, up $4.99, in New York Stock Exchange trading.
Revenues jumped 8.4 percent to $3.86 billion from $3.56 billion. The first-quarter performance from the world’s largest athletic company follows a stellar fiscal year, when it posted a 28.1 percent jump in profits on a 12 percent gain in sales.
“A strong product pipeline and our global management team’s ability to consistently execute across our brand portfolio drove very strong performance in the first quarter,” William D. Perez, Nike’s president and chief executive officer, said in a statement.
However, one soft spot was domestic apparel sales, which rose 1 percent in the U.S., partly because of the expiration of Nike’s National Basketball Association license, Donald W. Blair, Nike’s vice president and chief financial officer, said on a conference call. The company also is facing increased competition now that Adidas has bought Reebok in a bid to improve its business in the U.S., and from smaller, more nimble competitors such as Under Armour.
Blair said on the call that footwear sales in the U.S. “have been one of the most important drivers of growth in revenue and profits over the past few quarters.” Overall revenues in the U.S. grew 8 percent to $1.5 billion, with footwear gaining 11 percent to $1 billion, as apparel edged up 1 percent to $395.5 million and equipment gained four percent to $92.3 million.
Nike’s “other businesses unit,” which includes Converse, Bauer Nike, Cole Haan, Hurley and its Exeter Brands Group, reported a 6 percent sales gain to $462.3 million.
On the international front, revenues in the European region, which includes the Middle East and Africa, grew 5 percent to $1.22 billion, helped by favorable exchange rates. Asia-Pacific region sales gained 13 percent to $459.6 million, while the Americas region posted a 32 percent increase to $213.7 million, Nike said.
This story first appeared in the September 20, 2005 issue of WWD. Subscribe Today.
Gross margins, which have been of some concern to analysts, rose about 80 basis points in the quarter, but were down slightly in the U.S. Much of the decline was attributable to footwear, principally because of higher product costs and additional costs to meet strong unit demand, the company said.
“Nike’s strong performance this quarter reinforces our belief that the brand remains strong globally and that Nike is managing its business very well,” Robert Drbul, an analyst with Lehman Bros., said in a report. “This quarter also increased our confidence in Nike’s ability to meet its long-term revenue and [earnings per share] growth targets this year….We believe that Nike has never been better managed, as it has made tremendous strides in improving the consistency of its performance.”
Nike, based in Beaverton, Ore., said worldwide future orders grew 11 percent to $4.9 billion for products scheduled for delivery from September through January. Blair said the company expects high-single-digit revenue growth for the full year and is planning for “minimal year-over-year gross margin growth in fiscal 2006.”
Charles Denson, president of the Nike brand, said on the call that the company sees growth opportunities in China and Latin America. In addition, he said, Nike looks at category growth in areas such as soccer, performance apparel, women’s fitness and basketball.
“Our performance apparel story continues to improve worldwide and is critical to our overall brand position in apparel,” Denson said. “The new Nike Pro program is gaining momentum, not only in the U.S., but in Europe and Japan as well. Another solid growth category is the women’s fitness area in both footwear and apparel, where we continue to see strong double-digit growth.”
Denson said the company is stepping up its offerings of lifestyle apparel. It recently launched the Jordan brand for women and is testing capsule sportswear collections for men and women that are not tied to performance.
“For so many years, we have been focused on the authentic performance side of sport footwear and apparel, and we have always known that a lot of product was worn off the court as well,” he said. “But in the future, the consumer is demanding even more. They want both. They want the product to perform on the field, but [have] demands for the right product [for] the other parts of their life. They love sports, but there is a bigger opportunity.”