When many footwear fi rms are struggling to keep up amid ever-tightening consumer spending, the athletic shoe behemoth said last week its ongoing brand resonance has it well positioned for the rest of the fiscal year. The fi rm, no stranger to prior recessions, already proved in the latest quarter it had staying power, as it posted last week a better-than-expected increase in net income, on a 6 percent rise in revenues.
The company said worldwide future orders for delivery through April were down just 1 percent at $6.7 billion (though up 6 percent excluding foreign currency impacts), including a 6 percent increase in future orders in the U.S. Nike subsequently tweaked its second-half revenue guidance for an increase in the low- to mid-single digits on a currency-neutral basis — versus a prior estimate for high single digits — and said it now expects gross margins to be flat for the year.
Still, bullishness is running deep at the footwear vendor. “The tone around here at Nike is that this is an opportunity,” said Mark Parker, president and CEO, on the firm’s post-earnings conference call, held last Wednesday at the close of the stock market. “I don’t mean that we’re cavalier about what’s going on, or feel immune to the [economic] situation — by no means is that the case — but there’s a true feeling that this is an opportunity for Nike to be an even better company and to leverage some of those things we’ve built as competitive strengths through our history.”
The firm said intimately knowing its target customer is one of the key aspects to being successful during a downturn. Nike’s plan is to “create innovative product, leverage our consumer connections and focus on driving excellence into every corner of our business,” Parker said. Indeed, competitors best take note: “I’m not talking about simply surviving tough times. In fact, it’s quite the opposite,” Parker concluded.
But the fi rm will also keep a close eye on costs — including an already implemented hiring freeze — though not at the complete expense of marketing, which will be slightly reduced. Overall selling, general and administrative expenses are expected to be fl at to down for the rest of the year.
Credit Suisse analyst Omar Saad responded favorably to Nike’s plans to curb excess expenses, saying in a report last week that it will help the firm “more than offset weak demand” from consumers. He added, “Nike’s status as one of the few truly global U.S. discretionary stocks makes it an attractive alternative for investors grappling with the possibility of a prolonged, weak, U.S. consumer.”
Investors sent Nike shares up 4.1 percent in trading last Thursday to close at $52.69, amid an otherwise down trading day.
The Beaverton, Ore.-based fi rm reported last week fiscal second-quarter net income that rose 9 percent, aided, in part, by a lower tax rate, to end at $391 million, or 80 cents a diluted share, compared with $359.4 million, or 71 cents, the prior year. Revenues increased 6 percent to $4.59 billion, propped up by a 22 percent rise in sales from the Asia Pacific region. In China, revenues jumped 27 percent, and future orders were up 25 percent.
“Nothing has softened our enthusiasm for the [Chinese] market or the Chinese consumers and their passion for sports,” Charlie Denson, Nike brand president, said on the call.
Domestically, second-quarter footwear sales increased 1 percent to $993.5 million, though total U.S. revenues fell 1 percent to $1.51 billion.
Sara Hasan, an analyst at McAdams Wright Ragen, noted in a report last week that though the quarter’s total revenues came in below Wall Street estimates, “we remain impressed with Nike’s ability to continue to post increasing sales results against the backdrop of an abysmal macro climate.” She added that the current environment is likely “to test management’s mettle,” but that “there are a number of levers that the company can pull in an attempt to protect profits.”
Nike brand sales rose 6 percent in constant currencies to $4 billion, Denson said, with global footwear sales up 7 percent, driven by solid sales in basketball and running. “The Nike brand is as strong as it’s ever been. It’s a signifi cant advantage in helping us manage the marketplace,” Denson said.
Revenues at Nike-owned retail stores rose 1 percent in the quarter, refl ecting growth in ecommerce and new store openings. But comp-store sales at Niketown declined about 20 percent. “With limited promotional activity relative to the rest of the retail marketplace, and locations in high tourist areas, these destination stores were particularly hard hit,” the firm said.
Denson added that Nike is being “patient” regarding new retail openings amid the tough economy. “It’s fair to say the current economic conditions are moderating the pace of new store rollouts for Nike, but not the pace of refi ning our concepts and building our skills,” he said. Second-quarter sales in Nike’s “other” business, which include Cole Haan, Converse and Umbro, fell 4 percent to $564.5 million.