Nike’s (NKE) CEO Mark Parker discusses Q1 2015 earnings results in a conference call held on September 25, 2014.
Edited Transcript of Nike (NKE) Q1 2015 Results Earnings Conference Call
Company: Nike (NKE)
Event Name: Q1 2015 Results Earnings Conference Call
Date: September 25 2014 5:00 PM ET
Nike Q1 2015 Results Earnings Call – Webcast audio
Good afternoon everyone. Welcome to Nike’s fiscal 2015 first quarter conference call. For those who need to reference today’s press release, you will find it at http://investors.nikeinc.com. Leading today’s call is Kelley Hall, Vice President, Corporate Finance and Treasurer.
Before I turn the call over to Ms. Hall, let me remind you that participants on this call will make forward-looking statements based on current expectations, and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially.
These risks and uncertainties are detailed in the reports filed with the SEC, including Forms 8-K, 10-K, and 10-Q. Some forward-looking statements concern future orders that are not necessarily indicative of changes in total revenues for subsequent periods due to mix of futures and at-once orders, exchange rate fluctuations, order cancellations, changes in the timing of shipments, discounts, and returns, which may vary significantly from quarter to quarter.
In addition, it is important to remember a significant portion of Nike Inc.’s continuing operations including equipment, Nike Golf, Converse, and Hurley are not included in these future numbers.
Finally, participants may discuss non-GAAP financial measures, including references to wholesale equivalent sales. References to wholesale equivalent sales are only intended to provide context as to the overall current market footprint of the brands owned by Nike Inc. and should not be relied upon as a financial measure of actual results.
Participants may also make references to other non-public financial and statistical information and to non-GAAP financial measures. Discussion of non-public financial and statistical information and presentations of comparable GAAP measures and quantitative reconciliations can be found at Nike’s website, http://investors.nikeinc.com.
Now I would like to turn the call over to Kelley Hall, vice president, corporate finance and treasurer.
Kelley Hall – Vice President, Treasury and Investor Relations
Thank you, operator. Hello, everyone, and thank you for joining us today to discuss Nike’s fiscal 2015 first quarter results. As the operator indicated, participants on today’s call may discuss non-GAAP financial measures. You will find the appropriate reconciliations in our press release, which was issued about an hour ago, and at our website, investors.nikeinc.com.
Joining us on today’s call will be Nike, Inc.’s President and CEO Mark Parker, followed by Trevor Edwards, President of the Nike brands, and finally, you will hear from our Chief Financial Officer, Don Blair, who will give you an in-depth review of our financial results.
Following their prepared remarks, we will take your questions. We would like to allow as many of you to ask questions as possible in our allotted time, so we would appreciate you limiting your initial questions to two. In the event you have additional questions that are not covered by others, please feel free to re-queue and we will do our best to come back to you. Thank you for your cooperation on this.
I will now turn the call over to Nike, Inc.’s President and CEO Mark Parker.
Mark Parker – President and CEO
Thank you, Kelley, and hello everyone. Our Q1 results demonstrate that Nike is, without a doubt, a growth company. Nike Inc. revenues grew 15% to $8 billion. Gross margin expanded 170 basis points, and diluted earnings per share increased 27% to $1.09.
Nike’s Competitive Advantages
On previous calls, I’ve highlighted three of Nike’s distinct competitive advantages: our relationship with athletes and consumers, our ability to innovate, and the power of our portfolio. Those advantages are the foundation for the Q1 results we just reported, and the competitive separation we’re driving in the marketplace.
First, our relationships with athletes and consumers are unparalleled. By relentlessly focusing on what they want and need, we propel our business forward. We use the insights we gain to deliver the products, services and experience athletes and consumers want. The lens we use to focus these relationships is our category offense, and the power of that approach is most clearly seen during global sports moments like the World Cup.
These events provide us with the opportunity to showcase our most innovative products, as the world’s greatest athletes inspire us with their performance and their passion. They also create remain energy throughout the year, as we leverage these innovations and athlete stories to deliver compelling products and experiences to consumers through their favorite sports.
As I think about the evolving consumer landscape, there are a number of trends that play to Nike’s strengths. The middle class is growing around the world. Interest in sport continues to grow, and consumers are investing more and more in their own health and fitness.
Apparel and footwear styles are becoming increasingly athletic. Because we know the consumer better than anyone else, we’re able to leverage these developments to accelerate our growth. The result – we turn trends into real business momentum.
Second, let’s talk about innovation. At the heart of our ability to achieve long term growth is our unrivaled ability to innovate. Nike delivers impressive innovations because we develop ever-sharper insights from athletes and consumers, and we harness the power of new technologies, designs, and materials.
Our capabilities today are greater than they’ve ever been. Our challenge is to edit and focus those capabilities on the most significant opportunities. And when we do this effectively, we accelerate the pace of innovation, we create competitive separation, and we deliver results, like we did in Q1.
In just the past 90 days, we’ve demonstrated the versatility and potential of our advanced Flyknit technologies, with products in Running, Global Football, Basketball, and most recently, Football in the U.S. The consumer benefits are incredible, and looking ahead, I know the potential for this is significantly increasing the scope and scale of this technology is very, very real.
We set new levels of performance in apparel with products such as the NIKE Dri-FIT rain jacket, the NIKE Pro collection, and the further extension of our Dri-Fit Knit and collections like NIKE Tech Fleece continue to drive growth and distinction by leveraging technical performance features in the premium sportswear apparel.
We launched the Air Jordan 29, our lightest Jordan ever, bringing a new level of basketball performance to the Jordan brand. And just last week, we expanded the potential of our Zoom Air technology with the launch of the LeBron 12. We have some very ambitious plans for this signature Air technology. I can’t tell you much more now, but I will say that the LeBron 12 is just the beginning of the revolution.
It’s important to understand that NIKE’s innovation agenda goes beyond products. It touches everything that we do. One example is how we’re leveraging the power of digital. The digital world moves fast, and NIKE is at the forefront. We’re employing new ways to engage consumers online as we create communities, services, and ecommerce experiences that fuel our growth strategies around the world.
These strategies are strengthening our relationships with consumers and driving our business, as ecommerce revenues were up over 70% in the first quarter. Going forward, we will innovate at an increasingly rapid pace. We are a growth company, because we are an innovation company. That is why we are committed to sustained investment in this area. We know it fuels the top and bottom line expansion and drives value for our shareholders.
And when I look at our innovation pipeline, I see innovations that will, no doubt, surprise and delight, innovations that are better for athletes, consumers, and the planet. I couldn’t be more excited about what’s coming.
The final competitive advantage I want to highlight is the power of NIKE’s portfolio. It’s a complete offense that encompasses brands, geographies, categories, product types, and channels. When all these components are working together, the portfolio generates amazing growth, and when we double and triple click into the various dimensions of our business, we see even more potential.
The diversity within our portfolio is a tremendous competitive advantage. It allows us to thrive in a rapidly changing environment, create separation, and ultimately expand the market. Trevor will discuss the NIKE brand’s outstanding Q1 results in more detail, but let me give you three highlights from my point of view:
One, the Nike brand is strongly resonating with consumers around the world. We’re delivering robust growth and profitability in some of our largest geographies, maintaining momentum in North America, accelerating growth in Western Europe, and turning the corner with strong results in China.
Two, our category offense is accelerating growth. Our largest performance businesses – running, basketball, and global football continue to expand. Sportswear grew at a strong double-digit rate, and our women’s and young athletes businesses grew rapidly, in fact, faster than our men’s business.
And three, we’re driving growth across an integrated marketplace. DTC revenues grew over 30% in the quarter, and our wholesale business grew double digits, reflecting strong growth in stores and online.
I’ve said that becoming a better retailer would make us a better wholesale partner, and our Q1 results are only the beginning.
We have been extremely thoughtful about the investments we’ve made against our biggest growth opportunities across the portfolio. From accelerated product innovation to enhanced consumer experiences, to sharply focused retail executions, it’s the integration of complementary strategies and investments that leads to an acceleration of growth.
And we will continue to make strategic investments to drive growth for years to come. I’m tremendously proud of our Q1 results, the momentum and our management team’s ability to seize opportunities and manage risks. At the same time, I’ve never been more excited about the potential to raise the bar even higher in the future.
Thank you, and now here’s Trevor.
Trevor Edwards – President, NIKE Brands
Thanks, Mark. I’m also very proud of the results we reported for Q1. On a constant currency basis, NIKE brand revenue grew 15%, with growth across all six geographies and nearly every key category.
NIKE brand DTC revenue increased 30%, driven by comp store growth of 15%, new store expansion, and accelerated growth in online sales up 70% and global futures are a robust 14%.
The great results we’re reporting today clearly demonstrate the success of our vital growth strategy: the category offense. The power of the category offense is unleashed when NIKE works with our wholesale partners to develop an integrated marketplace. This happens when we have the right product at the right time, presented in a way that clearly differentiates the NIKE brand to consumers.
A key component of this offense is our own DTC business, which is an important complement to the wholesale business around the globe. As I said, we delivered impressive growth in the quarter, with expansion in all three DTC concepts, inline, factory stores, and NIKE.com.
Our investments in DTC as a strategic driver are clearly paying off, and we continue to see even greater potential ahead. And we’re investing to create compelling presentations with our wholesale partners around the world, as we expand the potential of the NIKE brand in a holistic and integrated marketplace.
World Cup 2014
At NIKE, we earn our place with consumers every day. The World Cup is a great example of how we harness the power of sport to deepen the relationship between consumers and the NIKE brand.
We introduced more revolutionary product innovations in this World Cup than in any prior, and we’re proud of the fact that more players wore NIKE boots on the pitch than all other brands combined. Nearly a third of those players wore Flyknit boots. That’s amazing.
We delivered products to consumers in compelling retail experiences all over the world, from our first football-only store in Copacabana, Brazil, to the NIKETowns in London and New York, to football-focused executions with our wholesale partners around the world.
With great football product, compelling retail presentation, and strong consumer engagement, we drove great results. All told, global football revenue grew at a strong double digit rate in Q1, and as of the end of the quarter, we had the leading footwear market share in the nine largest football markets around the world.
Next, I’d like to highlight running. Our relentless drive to serve our athletes gives us an unmatched ability to meet their needs as they compete, train, and express themselves. Our Q1 results demonstrate this with double-digit revenue growth, driven by premium footwear and apparel.
In footwear, the Pegasus 31, the LunarGlide 6, and the Free Flyknit have all sold-through exceptionally well. In apparel, our Dri-FIT knit, with its seamless construction and comfortable fit, has continued to resonate with consumers. And in sportswear, we continue to showcase our deep heritage with products like the Air Max Lunar 1, the NIKE Tech Windrunner jacket, which delivered strong results.
Like the athletes we serve, we look for ways to continually improve. We see tremendous growth opportunities for running around the globe, and we look forward to another season of great events, starting this fall, with the NIKE Women’s Half Marathon in San Francisco, followed by marathons from Chicago, to Amsterdam, to Shanghai.
Now, I’d like to talk about our women’s business, which continued to grow faster than men’s. Q1 revenue for women’s grew at a strong double digit pace as we focused on realizing the significant potential in this large and growing business.
It all starts by engaging and inspiring consumers, and here are some key examples. The NIKE+ Training Club has been downloaded nearly 17 million times, and has become a personal trainer for women around the world. And we’re also inspiring women with live experiences every day. 70,000 members participate in NIKE Run Clubs across the globe, and more are joining daily.
We also lead the women’s market by continuing to deliver innovative products such as the performance footwear for the gym, like the NIKE Free Trainer 4.0; premium apparel such as the NIKE Sculpt Tights and the NIKE Pro Bra collection, which saw exceptional sell-through, and iconic franchises that remain incredibly popular, like our Air Max footwear and Sportswear Tech Pack apparel.
Lastly, we serve these consumers in increasingly dynamic retail environments. We’re experiencing tremendous growth online, led by NIKE.com, and in store, driven by sharper assortments and the continued expansion of the NIKE Training Club concept to in-line stores. And our printed and digital style guides are a key accelerator leading to increased conversion. All told, it is this complete offense that is driving impressive results for our women’s business.