A 10-year tax settlement with the Dutch government helped Nike to post an 8 percent increase in net income to $325.6 million for the 2nd quarter ended Nov. 30, and the weaker dollar contributed one percentage point to its 10 percent increase in revenues for the period to $3.82 billion. Pre-tax profit declined by 4 percent to $447.3 million, mainly because of a 26-27 percent increase in demand creation and stock option expenses, but total SG&A should not grow more than sales for the balance of the year, and the Dutch tax settlement will lower the effective tax rate for Nike through 2015. Excluding stock options, net income went up by 14 percent.

Nike continued to have a tough time in the UK and France in terms of sales and futures, although it has seen some positive signs in the latter country recently. It will try to improve product offerings and their presentation in the UK. Overall, sales in the Nike EMEA region improved by 6 percent, with half of the growth produced by currency changes. Emerging markets grew by more than 30 percent, driven by Russia, Turkey and South Africa. In terms of product, the Metro line of low-profile shows experienced a 350 percent sales increase in the continent, where Nike performed less well than elsewhere with certain performance products such as the Air Max.

Overall, sales reached a level of $1.0 billion for Nike EMEA in the quarter. The region’s pre-tax income declined by 18 percent to $158.8 million because of lower gross margins and increased demand creation, but both should improve over the balance of the financial year. Its futures orders are up by 7 percent in dollars and by 2 percent in local currencies.

In the Asia-Pacific region, sales were up by 15 percent in dollars and in local currencies to $578.2 million, including increases of more than 30 percent in both China and Korea. Japan was up by just over 1 percent. Pre-tax income rose by 21 percent to $139.9 million. Futures were up by 9 percent in dollars and by 7 percent on a currency-neutral basis.
Currencies contributed one percentage point to a 4 percent sales increase to $262.5 million for the Americas, where Brazil and Canada went down. Pre-tax income also rose by 4 percent in the region, settling at $59.8 million. Futures are up by 5 percent in dollars and by 7 percent in local money.

Again, the USA was the Nike brand’s “work horse,” as described by the management in last night’s conference call. It posted a solid 8 percent sales increase to $1.4 billion and a slightly higher pre-tax profit of $266.0 million in the quarter, which ended up with a 7 percent uptick in futures. Contrary to some other markets, average selling prices are still rising for Nike in the USA, where sales of styles priced over $100 went up by 20 percent over the period.

The Nike+ shoe has been a global success, with the number of pairs set to double from the initial run of 3-plus million pairs, and many other new footwear styles are in the pipeline. In apparel, performance items such as Nike Pro, basketball clothing and women’s fitness are doing very well.

For Nike, which is now looking more actively for acquisitions in areas with the Nike brand is not strong, its other businesses again made a big contribution to group sales and profits in this quarter. Their pre-tax income grew by 136 percent to $54.3 million on 21 percent higher revenues of $526.8 million. Revenues were up by more than 50 percent at Converse, by 9 percent at Cole Haan and by 6 percent at Nike Golf.

The group maintained its gross margin relatively stable at 43.4 percent during the quarter, compared with 43.5 percent in the year-ago period. Numerous supply chain initiatives were a factor, including a more widespread use of lean manufacturing, which now applies to about 30 percent of all the footwear sourced by the company. Nike is also aiming to channel 70-80 percent of all its closeouts through its own factory outlets, although it has not yet reached that objective in most of the markets. It has 260 outlets now, of which 90 are located in the USA and 62 in Europe.