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Nike Q2 Earnings Conference Call Highlights

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The following bullets are highlights for the Nike (NYSE: NKE) Q2 Earnings conference call:

  • Looking at our e-commerce business, we delivered another strong quarter with 33% revenue growth. And at less than 15% of our DTC revenues today, our e-commerce business clearly has opportunity to grow.
  • Turning to apparel, we delivered some major apparel innovations in the last six months, most notably with Tech Fleece, Aeroloft and Dri-FIT Knit.
  • We'll launch 8 more National Team Kits as all 10 NIKE teams, by the way, a NIKE record - get ready for the World Cup. These new kits are just one example of the unprecedented level of product innovation we have planned for the World Cup.
  • In June, we transitioned to a third-party logistic provider in Mexico; the transition did not go as smoothly as planned. As a result, shipments from our distribution center to our wholesale partners were delayed, leading to a build-up of inventory in the distribution center and a shortage of NIKE product in the market. We are working with our third-party logistic provider to resolve the issue and expect to be shipping to demand by the end of Q3.
  • As we continue to manage through this logistical issue, we're actively engaging our wholesale partners to ensure the appropriate flow of goods into the marketplace. However, we believe it will take a few quarters for us to fully regain our business at retail and address residual inventory issues.
  • Our updated full year guidance reflects both the year-to-date and forecasted of the year impact of this FX pressure. Specifically, we expect revenue for Q3 to grow at a high single-digit to low double-digit rate, and Q4 to grow at a low double-digit rate, reflecting the weighting of future orders to the back half of the futures window.
  • On a constant dollar basis, the NIKE Brand was up 9% for the quarter, with growth across all key categories, product types and geographies
  • We estimate changes in currency exchange rates reduced our EPS growth by about 10 percentage points for both the second quarter and year-to-date
  • NIKE Brand DTC revenue increased 19%, driven by 10% comp store growth, new stores and a strong increase in online sales. And, importantly, global futures are up a robust 13%
  • Q2 inventories grew 11%, below the rate of futures growth. Inventories are generally in good shape, though we're continuing to work through pockets of excess inventory created by distribution center issues in Mexico and some slow moving footwear styles in North America, most notably a line of retro training footwear.
  • As expected, Q2 SG&A spending rose at a mid-teens rate, with demand creation increasing 13% and operating overhead up 14%. Second quarter demand creation spending was higher to support new product launches, including the World Cup kits and FuelBand SE, that Mark mentioned, as well as global Running events and the ramp up to the Winter Olympics.
  • NIKE Brand futures orders increased 13%, driven by a 10% increase in units and a 3% increase in average selling price. Futures for most of our geographies increased at a double-digit pace, driven by strong demand across multiple categories including Global Football, Sportswear, Running, Basketball and Women's Training.
  • Revenue in the emerging markets geography grew 3% on a currency-neutral basis, driven by higher revenues in nearly every territory and double-digit growth in the largest territory, Brazil.
  • Although, revenues for the geography were above the prior year, the rate of growth was significantly below the rate we'd expect, driven primarily by the impact of ongoing supply chain challenges in Mexico.
  • On a reported basis, revenue in the emerging markets declined 4% and EBIT decreased 18%, due to the adverse impact of FX headwinds on gross margin and translation. The decline in EBIT also reflected increased demand creation investments in advance of the World Cup and higher operating overhead for new retail stores and the launch of nike.com in Brazil.
  • In North America, Q2 revenue increased 9% on both a reported and constant currency basis, driven by growth across all key categories including double-digit growth in Basketball and Women's Training
  • In Western Europe, Q2 revenues increased 15% on a currency-neutral basis. As Trevor discussed, we continue to be very pleased with the growth of our business in Western Europe, following our strategic reset in 2012. Growth continues to accelerate at an impressive rate, led by double-digit growth in Sportswear, Running, Basketball and Women's Training, as well as in our Young Athletes' business.
  • In Greater China: At this point, we continue to expect overall FY 2014 revenue to be roughly in line with the prior year, with single-digit revenue growth in Q3 and flat to down revenue in Q4.

Posted-In: Earnings News Guidance

 

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