Nike reports 2nd quarter profit, continued gains in N. America, better China strategy

Nike reports 2nd quarter profit, continued gains in N. America, better China strategy

Dec. 20–Nike has been in China for three decades. The company has learned a lot about the Chinese market over that time, but the past year has provided a few more lessons.

Company officials suggested Thursday that steps taken over the past six months have begun to shift a tide that had threatened to turn a story of growth and potential into one of miscalculation and missed opportunity.

The company is back on track in China, Nike chief executive Mark Parker told stock analysts in a conference call reviewing the company’s fiscal second-quarter financial performance.

“We know what needs to be done in China,” Parker said in prepared remarks before taking questions from about a half dozen analysts. “We know we can do it, because we’ve done it before. And we’re confident we will continue to grow and lead this market. The progress will not always be linear — powerful change to unlock potential rarely is — but I truly believe Nike’s long-term opportunity in China is enormous. ”

While Nike executives emphasized their China strategy, the company’s performance in North America — where it all began for Nike some 40 years ago — continued to charge ahead. Sales in the quarter were about $2. 42 billion, a 17 percent increase over the same quarter last year. Futures orders recorded in the quarter, which reflect retailers’ anticipated shipment orders, were up 14 percent. Worldwide futures orders were up 6 percent.

“In North America,” Parker said, “we’ve created great momentum. This is counter-intuitive to some, given this market’s size and assumed maturity. But I see tremendous growth potential in North America. ”

Nike reported net income of $521 million, a 9 percent increase in profit over the $480 million for the same quarter last year. Diluted earnings per share were up 11 percent, to $1. 14.

However, when the net loss from discontinued operations was added to the mix, the company recorded an 18 percent profit decline. The discontinued operations resulted from the sale of subsidiaries Umbro soccer, which has been completed, and Cole Haan, which is expected before year’s end.

Sales for the quarter were $6 billion, a 7 percent increase over last year.

Expenses grew at a slower rate than revenue — up 6 percent to $1. 8 billion. Of that, $613 million was spent on “demand creation expenses,” which covers marketing and advertising. The amount spent was about the same as second quarter last year.

Greater China was the only geographical region to show a revenue decline: an 11 percent fall, reflecting $577 million in sales this quarter compared to $650 million in the last.

But Nike President Charlie Denson said the company has set a plan in motion to right the course in China and already has seen improvement.

“We’re taking decisive action,” Denson said, “to position this market for sustainable, profitable growth. ”

He described a three-prong approach:

— Building the brand. Nike “is the premium performance brand in China,” Denson said, and the company will protect that status by pursuing opportunities “grounded in performance and sport. ”

— Improving retail strategy, choosing “bigger, better, more productive retail spaces” in bigger urban centers while improving product distribution.

— Targeting products for the audience, especially with apparel, which Denson described as having “new fit and silhouettes that we launched for the Holiday 2012 season — designed specifically for the Chinese consumer. ”

Company executives also placed a spotlight on continuing to develop Nike’s digital products, services, marketing and sales.

“The word itself has become a bit of an industry free-for-all,” Parker said of digital. “It’s a technology, a platform, data, a product, a sensor, a service, a community — all true — but all short of their role at Nike. ”

Parker called digital at Nike, “an amplifier” to connect with athletes and consumers. He also noted that revenue from digital commerce grew 39 percent in the quarter compared to last.

— Allan Brettman; twitter. com/abrettman