NIKE CHIEF: GLOBAL SALES, CONTROLS WILL KEEP THE MOMENTUM ROLLING

Byline: Rosemary Feitelberg / With contributions from Thomas J. Ryan

NEW YORK — More international sales and tighter controls on the home front will keep Nike Inc. on its “slow motion rebound,” according to chairman and chief executive officer Phil Knight. Knight went over the strategies during a conference call Thursday to discuss Nike’s third quarter results.
Nike said U.S. athletic apparel sales dropped 12 percent in the third quarter ended Feb. 29, to $251.8 million. Overall sales dipped 0.7 percent to $2.2 billion, as an 8 percent decline in apparel sales globally was almost offset by a 4 percent gain in footwear. U.S. footwear sales grew 4 percent, to $858.9 million.
Earnings increased 17 percent to $145.3 million, or 53 cents a share, from $124.2 million, or 44 cents, a year ago, due to a pick-up in gross margins to 40.5 percent of sales from 37.3 percent. Results topped consensus estimates of 50 cents.
As Nike becomes a more international company, it is more susceptible to the global market, Knight said — but the home market still has impact as well. The two key factors that affected sales in the past 90 days were foreign currency fluctuations, particularly the weak Euro, and the “meltdown of U.S. retail,” as key retail accounts close or shift their focus.
“Our world is not just defined by the U.S. any more,” Knight said. “We’re in the process of becoming an international company. At this point next year, our international sales should be greater than our U.S. sales.”
Knight is extremely optimistic: he said that American, European and Asian markets each have a $5 billion growth opportunity, while the combined businesses of Latin America, Africa and Nike’s high-end brand Cole-Haan could provide another $5 billion.
At constant exchange rates, sales would have risen 3 percent. European revenues fell 7 percent to $558.5 million, but were up 8 percent in constant dollars, including a 34 percent hike in Britain. Sales increased 14 percent to $254.1 million in Asia and 5 percent to $110 million in the Americas.
Meanwhile, on the home front, Knight expects Nike will benefit from the domestic retail shakeout because the company will be forced to operate more cleanly and efficiently. Despite the ongoing challenges, Nike does not plan to pass out pink slips as it did last year. Instead Nike executive said they would be more discriminating in adding costs and would reduce expenses as well.
To build business, executives said they will be focusing on moving excess inventory through outlet stores, expanding overseas business, adding about 60 more women’s concept shops in key department stores mostly in the second half of fiscal 2001, and building its e-commerce site, including business-to-business capacities. Knight said Internet sales are not yet profitable, but the company’s investment there has not been significant in terms of loss.
Nike also plans to improve operational systems and warehouse management.
Sales in the United Kingdom and Germany have been particularly strong in the third quarter, said Tom Clarke, president and chief operating officer. Even more encouraging is that apparel cancellations have been declining, he said. This year’s cancellations are 12 percent compared to 18 percent in the same period last year.
Clarke said he expects apparel sales to climb in the mid single-digit range for the next three consecutive quarters, although the company continues to deal with “oversupply and redundancy in the market.” Nike’s auto replenishment is now in the 11 percent to 13 percent range, he said.
Clarke described Sears, which unveiled Nike footwear in its stores last month, as “ecstatic” about high sell-throughs “pretty much at full price.”
Future orders for footwear and apparel stood at $3.9 billion as of Feb. 29, up 4 percent from a year ago. At constant exchange rates, orders grew 6 percent. By region, U.S. was down 6 percent’ but grew 17 percent in Europe, 19 percent in Asia Pacific and 11 percent in the Americas.
In the nine months, profits gained 26.9 percent to $453.1 million, or $1.61, while sales inched up 1.9 percent to $6.7 billion.

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