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Nike Flourishing Outside the U.S.

NEW YORK — Nike Inc. on Thursday posted second-quarter results that were a penny better than Wall Street expectations.<br><br>Income for the three months ended Nov. 30 was up 18 percent to $152 million, or 57 cents a diluted share, from $129.3...

NEW YORK — Nike Inc. on Thursday posted second-quarter results that were a penny better than Wall Street expectations.

Income for the three months ended Nov. 30 was up 18 percent to $152 million, or 57 cents a diluted share, from $129.3 million, or 48 cents, in the year-ago quarter. The consensus among Wall Street analysts polled by Thomson First Call was 56 cents. Revenues rose 8 percent to $2.51 billion from $2.34 billion.

Apparel sales generally did well in the period, with revenue increases in Europe and Asia Pacific.

Shares of Nike closed at $41.53, down 40 cents, or 1 percent, in trading on the New York Stock Exchange. The firm announced its quarterly results after the market closed.

Philip H. Knight, chairman and chief executive officer, said in a statement, “Our global portfolio continues to deliver strong results, as each of our international regions posted outstanding growth in revenue and profits.”

The ceo added, “Our international businesses continue to show strength as futures orders outside the U.S. increased 8 percent. While U.S. orders were down this quarter as we expected, we are pleased with the worldwide strength of our brand and believe that the realignment of our U.S. distribution will only enhance our business and our brand going forward.”

The company said worldwide future orders for athletic footwear and apparel, set for delivery between December 2002 and April 2003, totaled $3.9 billion, or a 2.4 percent increase over the same period last year. Had the U.S. dollar remained constant, futures orders would have been flat year-over-year, the company said.

By region, future orders for the U.S. were down 4 percent, while Europe’s were up 9 percent. The Asia Pacific grew 15 percent, but the Americas declined by 15 percent.

U.S. revenues for the quarter decreased 8 percent to $1 billion from $1.1 billion, with U.S. athletic footwear revenues down 13 percent to $596 million. Apparel revenues fared better, down 1 percent to $370 million.

In the European region, which includes the Middle East and Africa, revenues jumped 35 percent to $781 million. Included in the results were a 39 percent spike in footwear revenues to $437 million and a 29 percent uptick in apparel to $295 million.

Elsewhere, quarterly revenues in the Asia Pacific region rose 14 percent to $353 million, with apparel up 23 percent. In the Americas, however, revenues fell by 13 percent to $134 million, with apparel falling 11 percent to $41 million.

Robert S. Drbul, analyst at Lehman Brothers, in a research note earlier in the week, observed: “In our opinion, the prospects for U.S. apparel remain strong, and we look for continued growth throughout fiscal 2003. U.S. apparel gross margins continue to improve, reflecting the continuing effect of product cost reduction initiatives and the elimination of the unprofitable NFL licensing agreement.

“Led by 20 year apparel industry veteran Mindy Grossman, Nike has tremendous opportunity to grow apparel revenue, particularly in the U.S. market.”

Drbul wrote that in fiscal 2002, apparel revenue accounted for approximately 31 percent of total company revenue.

As for its Foot Locker relationship, Nike remains its largest vendor at 47 percent of Foot Locker’s sales. Foot Locker, in turn, remains Nike’s largest customer at 11 percent of Nike’s sales, according to Drbul. Foot Locker has been reducing orders of higher-priced Nike footwear.

Charles Denson, president of the Nike brand, said during a conference call to Wall Street analysts that Foot Locker will no longer participate in key Nike launches after February. He noted that the company has already replaced units to offset the declines expected in Foot Locker orders next April and May.

He noted that the company’s focus is a “Nike footwear strategy, not a Nike/Foot Locker strategy.”

For the six months, income fell 69 percent to $103.1 million, or 39 cents a diluted share, from $328.5 million, or $1.21, a year ago. The latest results include the cumulative effect of an accounting change, net of income taxes. Excluding the accounting change, income was $369.2 million. Revenues rose 7.3 percent to $5.31 billion from $4.95 billion.