Nike Inc. (NKE)
F4Q10 (Qtr End 05/31/2010) Earnings Call
June 23, 2010 5:00 PM ET
Kelley Hall – Senior Director, IR
Mark Parker – CEO
Charlie Denson – President, NIKE Brand
Don Blair – Chief Financial Officer
Chi Lee – Morgan Stanley
Bob Drbul – Barclays Capital
Michelle Tan – Goldman Sachs
Eric Tracy – FBR Capital Markets
Kate McShane – Citigroup
Chris Svezia – Susquehanna Financial Group
Sam Poser – Sterne, Agee
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Good afternoon, everyone. Welcome to Nike’s Fiscal 2010 Fourth Quarter Conference Call. For those who need to reference today’s press release, you’ll find it at www.nikebiz.com. Leading today’s call is Kelley Hall, Senior Director of 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, and discounts which may vary significantly from quarter-to-quarter. In addition, it is important to remember a significant portion of Nike, Inc.’s business, including equipment, NIKE Golf, Cole Haan, Converse, Hurley, and Umbro, are not included in these future numbers.
Finally, participants may discuss non-GAAP financial measures. The presentation of comparable GAAP measures and quantitative reconciliations are found at Nike’s website. This call might also include discussion of non-public financial and statistical information, which is also publicly available on that site www.nikebiz.com.
Now, I’d like to turn the call over to Ms. Kelley Hall, Senior Director of Investor Relations.
Thank you, operator. Hello, everyone. And thanks for joining us today to discuss Nike’s fiscal 2010 fourth quarter and full year 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 or at our website nikebiz.com.
Joining us on today’s call will be Nike, Inc. CEO, Mark Parker, followed by Charlie Denson, 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 come back to you.
Thanks for your cooperation on this. I will now turn the call over to Nike, Inc. President and CEO, Mark Parker.
Thanks, Kelley. And by the way, welcome to your first earnings call. It’s great to have Kelley at the table in her new role as leader of the Investor Relations team. I want to start by saying how, first of all, very pleased and proud I am of our performance and our team over the past year and the most recent quarter.
I’m also very happy by the way about today’s World Cup results, great wins by U.S.A and England, joining Brazil, Holland and South Korea as those already through to the next round. So it should be a very exciting weekend ahead.
A year ago on our Q4 call, I said Nike was not a wait-and-see company. At the time, that would have been an easy strategy to adopt, in fact a lot of companies chose that path, but I had tremendous confidence in our strategy and the competitive fire of our management team.
We weren’t about to let our core strengths sit idle because innovation and inspiration are not tactics at Nike, they are a way of life. And because we stayed on the offense, we were able to deliver a very strong year in a tough global economy and we did it while increasing momentum for the business throughout the year.
So, how’d we do it? Building on the success of our category offense, we decided to reengineer the company to expand the influence of our brands and people, and to leverage our operational excellence across the portfolio. It was the right thing to do.
We energized our key markets with the most innovative product that we’ve ever produced. We forged deeper and more productive relationships with our consumers. Our Retail and Apparel businesses are starting to deliver on their true potential as two of our biggest growth opportunities. And we continue to increase our brand strength and competitive separation and we’re stronger financially than we’ve ever been before.
Our revenue at $19 billion is down 1% from last year but we’ve never been more profitable. EPS and futures are up. Inventories are down. Our affiliate brands, Cole Haan, Converse, Hurley, NIKE Golf and Umbro contributed more than $2 billion in revenue, an increase of 5% over last year and that’s a record.
Revenue from direct-to-consumer, our Nike-owned stores and online business increased 12% to nearly $2.5 billion and that’s a record.
Gross margins came in at 46.3% for year, that’s a record. And we generated $2.8 billion in free cash flow from operations and now have over $5 billion in cash and short-term investments on our balance sheet. Yeah, those are two more records.
What those full-year numbers don’t show is that tremendous momentum I mentioned that we generated in the back half of fiscal 2010. In most key markets around the world, our business has strengthened while our major competitors weakened and that’s a trend we intend to accelerate.
That momentum helps us remain highly opportunistic across all of our categories and markets. And I want to be really clear on that point. Our focus on new growth does nothing to minimize our attention or investment in the NIKE Brand and the huge upside we see in both developed and developing categories and markets, quite the opposite, in fact. Our innovative products, brand strength and premium distribution are what drive the entire portfolio.