The results were partly aided by currencies and extraordinary gains. Sales rose by 7 percent to $4.4 billion at Nike in the third quarter ended Feb. 28, though this was an increase of just 2 percent on a currency-neutral basis. Net income more than doubled, climbing by 103.3 percent to $496 million, but excluding a $241 million charge for the prior year, the increase again was just 2 percent.
The sales momentum is getting better. Orders for March-July were 9 percent higher than last year, or by 6 percent in constant currencies. In Western Europe they were up by 11 percent (7 percent excluding currency effects), led by the U.K., northern Europe, Iberia, the Austria-Germany-Switzerland region, and France. Football, running and action were strong in orders. However, in central and Eastern Europe orders were down by 4 percent, a 9 percent drop in constant currencies, but they are showing sequential improvement as they get closer to deliveries for next autumn.
In Nike’s third quarter, the gross margin was 46.9 percent, an increase of 3 percentage points from last year, largely because of better in-line product margins, fewer discounted close-out sales, lower raw material and freight costs, and a good product mix.
By region, turnover in Western Europe was up by 4 percent in the quarter to $929 million, but this was a 5 percent drop at constant currencies, with footwear down by 2 percent and apparel down by 10 percent. The drops were attributed to tough market conditions and lower off-price sales. Regional earnings before interest and taxes (Ebit) were flat at $199 million compared with last year.
Sales slipped in most of the major countries, but the U.K. had double-digit growth on a currency-neutral basis on the strength of football and sportswear, and better performance at local retailers. Football, action sports and basketball saw double-digit growth, offset by drops in sportswear, running and men’s and women’s training.
In Central and Eastern Europe, revenues fell by 8 percent to $272 million, an 18 percent drop excluding currency effects. Ebit plunged by 47 percent to $50 million. Nike said it was starting to see improvement in this volatile region, with Russia as the toughest market. South Africa had double-digit growth in the third quarter coming into the World Cup.
About other regions, sales in North America grew by 1 percent to $1.7 billion. They increased by 10 percent to $458 million in Greater China, dropped by 7 percent to $213 million in Japan, and jumped by 43 percent to $509 million in the emerging markets region, which includes Latin America, the Pacific countries and Korea.
In constant currencies, sales were up by 10 percent in Greater China and off by 10 percent in Japan, which is proving to be the toughest market. They were up by 25 percent in emerging markets, with Brazil up by more than 60 percent and the southern cone of South America up by about 30 percent overall.
Nike’s other business segment, which includes Cole Haan, Converse, Hurley International, Nike Golf and Umbro, grew by 13 percent to $656 million. Ebit was $105 million, compared with an Ebit loss of $343 million the year before, when it was hit a goodwill impairment charge related to Umbro.
Nike said that Converse is expanding across the board, Hurley is outperforming all of its competitors, and Umbro is gearing up for a World Cup season already with a 20 percent increase in revenues year-to-date. Umbro’s sales doubled in the quarter alone, thanks mainly to the launch of new kits for the England team and Manchester United, as well as better sales in the U.K. under its own brand.
The management said it has been focusing on apparel, trimming down the number of products offered by almost 20 percent, and it saw results in the third quarter with a 3 percent increase in total apparel revenues and a 1.6 percentage point increase in their gross margin. It noted that its basketball jerseys are 60 percent light than the offical NBA shirts.
It’s also looking at boosting its direct-to-consumer channel, which has shown an 11 percent increase in revenues in the year to date, with a 1.4 percentage point increase in gross margin. Worldwide for the quarter, direct-to-consumer revenues were up by 19 percent, and its gross margin grew by 3.9 percentage points.
For the fourth quarter ending in May, Nike expects good year-over-year improvement in gross margin, but not as great as in the third quarter. Revenues should be up by mid- to high single digits, so for the full financial year turnover would be just under the previous year’s total.
