NEW YORK — Growing acceptance of performance fabrics by consumers bolstered Nike’s apparel sales, which jumped 12.9 percent in the first quarter, while outpacing footwear and equipment for the company in three out of four geographic regions.
For the period ended August 31, net income for the world’s largest athletic footwear firm rose 25 percent to $326.8 million, or $1.21 a diluted share, from $261.2 million, or 98 cents, in the same year-ago quarter. Revenues gained 17.7 percent to $3.56 billion from $3.02 billion. Profits came in at 10 cents above Wall Street’s best guess.
Philip Knight, chairman and chief financial officer, said in a statement, “We’re off to a great start. Our first-quarter revenues reached record levels driven by strong results around the world and across all our brands. These results reflect both the strength of our brands and our ability to execute across our portfolio of businesses.”
Executives who spoke during the company’s conference call to Wall Street analysts attributed the increases in the quarter to a heightened brand awareness from its five-continent, multievent marketing campaign that focused on speed as its central theme. Boosting sales of apparel products has been increasing acceptance by consumers for performance fabrics such as Nike’s Swift technology.
Years in development, the Swift technology is designed to improve performance with elements such as breathable panels and specially placed seams. First worn in a track-and-field event in the Summer Olympic Games in Sydney, Australia, in 2000, the technology has evolved into suits that are lighter and more breathable, and is now incorporated into Nike’s products for other sports such as cycling, speed skating, swimming and rowing.
Consumers also are embracing Nike’s Sphere technology with high-in-demand products such as women’s Sphere dry woven jacket and dry woven pant. The two items contributed to a “robust back-to-school season for Nike that is driving healthy futures orders for spring 2005,” said Mark Parker, president of the Nike brand.
Nike’s Sphere technology features moisture-wicking properties, and is designed to keep athletes dry and cool as they work out. It’s used in a variety of the company’s performance offerings, including T-shirts, jackets and tennis dresses.
Sales of apparel in the U.S. climbed to $391.3 million from $346.5 million last year, with footwear rising 12 percent to $921.4 million and equipment sales up 11 percent to $89 million. Same-store sales for Nike Town stores grew 9 percent in the period, while U.S. futures orders rose more than 11 percent versus the year-ago quarter. Inventories at the stores have been tight, to the point where a major issue has been lack of inventory, and even factory outlet stores are having less merchandise than in previous years, according to executives on the call.
The biggest growth region was Asia Pacific, where apparel sales shot up 31.3 percent to $148.8 million from $113.3 million. Footwear sales climbed 7.8 percent to $218.6 million, and equipment sales gained 21 percent to $38.6 million from $31.9 million. The second largest area of growth was the European region, which includes sales from the Middle East and Africa. Apparel sales jumped 19.8 percent to $409.7 million from $341.9 million, while footwear gained 12.4 percent to $663.3 million and equipment sales rose 7 percent to $84.9 million. Apparel sales in the Americas region fell 8 percent to $35.5 million from $38.6 million, while footwear increased 11.6 percent to $114.8 million and equipment sales climbed 19 percent to $11.4 million.
Also contributing to the quarter’s revenue stream was Converse, which the company acquired in the second quarter of fiscal 2004. “For the quarter, revenues from other businesses grew 64 percent to $435 million. The acquisition of Converse contributed about three-quarters of that growth. Cole Haan had another stellar quarter as revenues advanced 30 percent,” noted Don Blair, chief financial officer.
In August, the company purchased the Starter brand, a licensed apparel business. Starter is part of Exeter Brands, which Nike launched as a way to funnel product into the discount channel.
“The purpose, in addition to the incremental revenue and profit, will allow us to expand our distribution into the value channel, a large and growing market and one in which we have not participated,” said Charles Denson, also president of the Nike brand.
He also said that while it’s too early in the process to say what opportunities there may be overseas, the company is evaluating the business as a global brand opportunity.
Following the earnings release, Lehman Brothers analyst Robert Drbul raised his fiscal year 2005 earnings per share estimate to $4.25 from $4.05 and fiscal year 2006 EPS estimate to $4.80 from $4.60.
Drbul wrote in a report, “We strongly believe that Nike has never been better managed from a strategic and financial perspective.” He also added that Nike continues to generate significant free cash flow. In fiscal 2004, free cash flow from operations was $1 billion, and $308 million for the first quarter of 2005. Nike used part of the cash to repurchase 2.1 million shares at a cost of $155.2 million.
Shares of Nike closed up 1.8 percent, or $1.44, to $78 in trading Monday on the New York Stock Exchange.
— With contributions from Melanie Kletter