Rebound for Nike in Western Europe, realignment in Brazil

Western Europe was one of the best regions for Nike during the third quarter, with a sales increase of 21 percent in local currencies and growth across all product categories. The sportswear, women's training and running categories all produced double-digit sales expansion. In reported terms, the Nike brand's sales in Western Europe jumped by 10 percent to $1,416 million.

The German-speaking countries, the U.K. and Southern Europe delivered particularly strong results for the Nike brand but the company said that it achieved double-digit sales growth in nearly all parts of Western Europe. It added that the sales hike was achieved through market growth as well as (unspecified) market share gains. West European sales are up 23 percent in constant currencies so far in the fiscal year.

The company attributed this expansion to a realignment that began three years ago, implementing Nike's category offensive strategy in the region. This includes more differentiated retail concepts, for the brand's own stores and with retail partners. Examples quoted by the group are JD's omni-channel store at the Trafford Centre in Manchester and the Pro Direct digital store in London. Sales jumped at Nike's own retail stores by 40 percent in Western Europe during the quarter.

Earnings before interest and taxes (Ebit) kept pace with sales in Western Europe, rising by 22 percent to $335 million. Orders for the region were down by 14 percent in dollars at the end of the quarter but the underlying trend is still favorable, with an increase of 7 percent in constant currencies.

Another region that continued to deliver strong growth was Greater China, again after a strategic realignment. Sales jumped by 17 percent in yuan, driven by footwear, and orders soared by 23 percent in constant currencies. The group said that its wholesale partners enjoyed higher comparable store sales in their Nike stores and higher profits in those that have been upgraded. The rise the Chinese Ebit was a little slower at 7 percent, and the company attributed this to higher investments in marketing and own retailing.

The Nike brand boasted an underlying sales increase of 12 percent in Emerging Markets. Reported sales for Emerging Markets inched up by just 2 percent and Ebit by 3 percent, chiefly due to currency exchange rate changes. Sales improved strongly in all countries other than Brazil and Mexico.

Nike added that it expected some turbulence in Emerging Markets, judging from a decline in new orders of 6 percent in local currencies and 17 percent in dollars. However, the drop was partly due to the fact that the same period last year included orders ahead of the football World Cup, held in Brazil. At the same time, the company is continuing to reduce the supply of products in Brazil and in Mexico, where its turnover declined at a mid-teens rate in the quarter.

Nike is uncomfortable with its inventory levels in Mexico, which largely stem from transition issues with its distribution center early in the previous fiscal year. The company says it has made significant progress to clean up the excess inventory and it should return to more normal levels by the end of the current fiscal year.

As the Nike brand's sales expanded by only a single-digit rate in Brazil for the quarter in constant currencies, the company has started to rearrange its business there along the same lines as it has previously done in North America, Europe and China,  deploying its category offensive strategy. This involves a more measured flow of products into the market.

North America delivered a sales increase of 6 percent for the quarter, led by basketball and sportswear, and orders were up in the region by 15 percent. Own retail sales climbed by 15 percent, with fast-growing sales at Nike.com and a 7 percent rise in comparable store sales. North American Ebit improved by 14 percent to $830 million.

Nike stressed that the demand in North America remained vigorous but admitted that the quarterly sales rise was a little lower than expected. This was partly related to the port congestion on the U.S. West Coast, which escalated late in the quarter. This meant that some shipments expected for delivery in the quarter were delayed.

Sales expansion should accelerate in the current quarter, as the flow of products is starting to normalize. It should still take several quarters for the product flow to normalize entirely, since many containers have yet to be cleared. Nike managers  warned that they would have to deal with somewhat higher inventory levels and lower margins in North America for the next few quarters.

Another region with mixed results was Central and Eastern Europe. Nike's sales in the region inflated by 7 percent in constant currencies. While most countries in the region managed double-digit sales growth, the brand's turnover dwindled in Russia, Israel and Turkey. The brand's regional sales declined by 10 percent in dollars and Ebit shrank by 35 percent, which was mostly blamed on the weakness of the ruble.

Orders from Central and Eastern Europe remained healthy, up by 21 percent in constant currencies. The same applies to Japan, where orders are up by 13 percent, after a sales increase of 8 percent in yen for the quarter.

The Nike group is particularly upbeat about basketball. The category has strongly benefited from Nike's category offensive strategy, delivering double-digit sales growth for the 14th quarter in a row. Nike again shone at the NBA All-Star weekend in New York, with numerous marketing activations for both Nike and the Jordan brand – from events to special retail executions at House of Hoops locations with Foot Locker and pop-up stores.

Nike is equally positive about its performance in the running category in Europe, China and the Emerging Markets. However, company managers pointed out that sales of performance running shoes weren't as strong as they would like in North America. The company is therefore focusing on delivering innovation in that part of the running category.

The Nike brand's own retail sales climbed by 29 percent in constant currencies in the quarter, again with increases in all regions and in all retail concepts. Sales at Nike.com even soared by 42 percent, with increases in traffic as well as conversion rates. The company pointed out that mobile traffic surpassed desktop traffic for the first time, which it partly attributed to the launch of the SNKRS app at the All-Star Game.

At the same time, the Nike brand has continued to ramp up its online activities. For example, it has activated new partnerships with the Nike+ Running app and added more sharing capabilities to its Nike+ Training Club app, which is now available in 18 languages