Management Presentation Section:
Good afternoon everyone and welcome to Nike’s fiscal 2014 first quarter conference call. For those who need to reference today’s press release you’ll find it at http://investors.nikeinc.com. Leading today’s call is Kelley Hall, vice president, treasury and investor relations.
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, 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 total wholesale equivalent sales are only intended to provide context as to the overall current market footprint of the current brands owned by NIKE Inc. and should not be relied upon as a financial measure of actual results. Participants may also make reference to other non-public financial and statistical information and 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, treasury and investor relations.
Kelley Hall – VP, Treasury & IR
Thank you, operator. Hello everyone and thank you for joining us today as we discuss NIKE’s fiscal 2014 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.
Before we begin our prepared remarks, I’d like to take a few minutes to highlight changes to our segment reporting structure for FY14. Starting with Q1, we’ve changed our reporting structure for our other businesses. First, Hurley and NIKE Golf are now included in our NIKE brand geography results. This reflects changes we’ve made to integrate Hurley into our Action Sports category and optimize our golf business across our NIKE brand geographies as part of our category offense strategy.
Second, we will be separately presenting the financial results of Converse. Converse is a key part of our continued growth strategy and this change will provide additional visibility to its financial performance and contribution to NIKE, Inc. For your benefit, we’ve posted a new schedule on our website at investors.nikeinc.com that provides comparable FY12 and FY13 quarterly revenues and EBIT reflecting the reporting changes we’ve made in FY14.
With that, let me now introduce the participants of today’s call. Joining us will be NIKE, Inc. president and CEO, Mark Parker, followed by Trevor Edwards, the new President of the NIKE Brand, 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 get back to you. Thanks for your cooperation on this.
I will now turn the call over to NIKE Inc. president and CEO, Mark Parker.
Mark Parker – President and CEO
Thanks, Kelley and hello everyone. Twenty five years ago NIKE launched its first “JUST DO IT” ad. Those are three simple words that remain a rallying cry for people striving to reach their full potential. It’s a source of inspiration for me, this company and for consumers all over the world. It’s that “no excuses” voice of the athlete that’s really driven the success of this company from the very beginning. And it’s what motivates us to achieve even more as we move forward.
Last quarter, I told you what to expect from NIKE in fiscal ‘14. I said we were set to grow. That we would push ourselves and our partners to better serve the athlete and consumers, because that’s how we’ll reach our full potential and deliver more value to shareholders.
Looking at Q1 results, I’d say we’re off to a great start. NIKE Inc. first quarter revenues were up 8%. Gross margins grew 120 basis points, better than projected and diluted earnings per share increased 37% to $0.86. These are outstanding results and they demonstrate our ability to grow and more specifically that NIKE is able to generate profitable sustainable growth.
So how are we able to succeed in a challenging global economy? By focusing on the fundamentals — the competitive advantages that help us win and expand our leadership position. Today I want to highlight three — our ability to innovate, the power of the NIKE Inc. portfolio and our ability to continue to make meaningful connections with consumers.
So let’s take a look at the first one — our ability to innovate. It’s what fuels our growth and it always starts with the athlete. How can we make the athletes faster, stronger, better and help them push themselves to new levels of performance.
In Q1, we launched a whole array of products that deliver on that promise, including the Nike Free Flyknit, the next-generation of Flyknit products in our running category. This shoe demonstrates how we take Flyknit and combining it with other footwear platforms, like Free in this case, to continue to innovate and serve the athletes. As you’ve heard me say before, Flyknit is high-performance visually iconic, and manufactured in ways that reduce labor and waste. We’ve seen a strong response from runners to the Free Flyknit and we look to continue to drive innovation using this revolutionary upper technology both in the running category and beyond. The potential for Flyknit is tremendous and it’s safe to say, it’s going to be a big year for Flyknit.
We launched the Hypervenom football boot, which features revolutionary design changes to improve the fit, touch and traction of the boot. This allows the player to have better ball control and improved agility on the pitch. And as Trevor will detail, the Hypervenom has resonated with consumers making it the most successful boot launch in NIKE history.
We also extended our offering of Dri-FIT Knit, incorporating different knit patterns to improve breathability while maintaining a seamless construction and comfortable fit. This product is one of many that have helped accelerate our premium apparel growth. And we brought a new level of sophistication and performance to fleece with the NIKE Tech Pack, a new line of premium apparel that delivers better fit, breathability and comfort by leveraging construction methods originally developed for technical performance product. The Tech Pack is quickly becoming the go-to product for consumers, and will be a big driver of growth for our sportswear category going forward.
This is only a small sample of our new products. We’re accelerating our innovation agenda and it’s paying off. And there is a lot more to come, including some real breakthroughs and game changers, over the balance of this year and into the future.