Nike’s 4th Quarter Report -Including Hurley and Converse

When reading fiscal reports, it’s always interesting to note what “quarter” a specific company is in and how this effects their budgeting season. In the case of Nike, they finished their “4th quarter” May 31, so while the financial market talks about the end of the 2nd quarter taking place this week, for some publicly traded companies, their fiscal cycle may reflect differently, indicating, as in Nike’s case, the end of the year (or beginning of planning for the next year). This is an important aspect to keep in mind, especially when it comes to soliciting various brands for sponsorship dollars. Knowing when they have a new budget or perhaps left-over budget is good to know in terms of timing your pitch.

On June 24, 2009, Nike announced their 4th quarter fiscal results stating that revenue was down 7% for the quarter to $4.7 billion compared with $5.1 billion for the same period last year. For the full year revenues, overall there was growth of 3% to $19.2 billion compared with $18.6 billion last year.

“Fiscal 2009 was a year that challenged companies to leverage core strengths and adapt quickly to a changing landscape. Our strong results demonstrate that we are meeting these challenges and seizing the opportunity to optimize our position as the industry leader,” said Mark Parker, President and CEO of NIKE, Inc. “By focusing on what Nike does best – creating great product, telling great stories, and connecting with consumers – I believe that we will become a stronger, more profitable, and more valuable company for our shareholders. We%uFFFDve made some tough decisions over the past year, yet given our ability to increase our competitive separation through product innovation and brand relevance across our portfolio of businesses, I remain strongly optimistic about our long-term potential.”

As a quick recap, Nike recently laid-off several layers including management, cutting 1,750 jobs globally (5% of its workforce), with 500 taking place at Nike headquarters in Beaverton, OR. This is part of company changes towards staving off the economic meltdown, and controlling inventory, which many brands are scrambling to do right now. But watching what Nike does, as the world’s largest footwear company (although not necessarily the “favorite” across all youth culture markets in North America), and marking their changes in strategy, is of significant importance

In addition, last year’s 4th quarter included “demand creation spending” in the Asia Pacific arena because of support for the Olympic Games in Beijing. For the year, the Asia Pacific revenue increased 15% to $3.3 billion, but 4th quarter revenue was flat compared with last year. A couple of important things to note that are very telling: First, Nike’s future orders scheduled for June 2009 to November 2009 total $7.8 billion, which is 12% lower than last year. The greatest decrease in orders comes from parts of Europe and the Middle East dropping a whopping 24% compared with 4% in the USA. In the USA, footwear increased only 2% to $1.2 billion, but apparel revenues took a serious hit, dropping 15% to $379.8 million. Because of this major decrease in apparel, you can expect that Nike will be changing things around soon.

For the full year, Nike revenues in the USA were up 2 % to $6.5 billion, with footwear revenues increased 5% to $4.6 billion, and apparel revenues were down 5 percent to $1.7 billion and equipment revenues declined 4% to $327.7 million.

Finally, an important aspect that many in action sports poke fun at is how Nike tends to classify Hurley and Converse a part of their “other businesses” even thought both tend to do well in youth culture markets (and higher in some demographics than Nike in terms of preferences). In this report, it’s hard to know what each brand contributed, but “other businesses” which also includes Cole Haan, Nike Golf, and Umbro was down 5% to $702.3 million.

H & M HENNES & MAURITZ %u2013Fast Fashion Keeps on Ticking

H&M, the fast-fashion retailer from Sweden is another important chain/brand to watch, especially as it continues to open new stores and gobble-up marketshare in youth culture across North America as it has in Europe (and now Asia) (see also our European Youth Culture Study 2008).

In its recent report for the first 6 months, H&M reported an increase in local currencies of 6% and a sales decrease of 3%. Profit after the first 6 months decreased by 2%. However looking at the gross profit for the 2nd quarter, there was an increase of 19%. Sales for the first 6 months for H&M Group increased 21%, but for May, 2009 only, sales in comparable units decreased 9%. H&M continues its progress for store openings with 93 in the first half of the year, and a closing of only 9 stores. In total, H&M now has 1,822 stores of which 29 are franchise stores.

Active Gets Bought Out of Bankruptcy
Fresh from bankruptcy, Active Ride Shop, an action sports retail chain consisting of 21 retail stores, was bought for $5.2 million in an auction consisting of 5 bidders by a Florida-based investor group (if only we knew who that was!).

According to Shane Wallace, the president and co-founder of Active, “We are very pleased with the outcome [of the auction]. Our investors have the same vision as we do both short- and long-term, for the company, and we are aligned in what we’d like to see the company do in the future.”

Not many people know what this will mean because Active was initially
expected to be acquired by Zumiez, which had expressed interest in buying the competitor for $7.2 million. Supposedly the buyers will keep Active’s management in place, but there are negotiations on leases. Rents in some locations need to be dropped significantly in order for these stores to stay alive.

An estimated total of $15 million was lost due to the bankruptcy, costing
many vendors, which is an issue many brands are having today as retailers have a difficult time paying for orders based on decreased or discounted sales. During ASR and Agenda this past season, one of the main worries we heard over and over again were from manufacturers saying that while they may be getting orders written at these action sports-based trade shows, that didn’t guarantee the stores would be able to pay up when the time came. Here’s a case where an entire chain fell because of this problem.

Quiksilver Lay-offs%u2026Again
Quiksilver seems like its getting hammered these days. But maybe all of this re-org and strategy changes will result in a more nimble, fast-acting brand (or rather, stable of brands) that can take any sort of future beating. Until then, last week 168 people were laid off from the headquarters of Quiksilver in Huntington Beach, CA. This is the second round in 2009, with 200 jobs cut in January from various parts of the company (and 300 jobs cut in 2008).

But if you read back over the Quiksilver strategy for the last few reports, this is a part of the plan. Still, it’s a painful thing to watch from the world’s largest surf brand, especially as we move into summer surf season.

Express Sues Forever 21
More news coming on this soon, but at press time, word popped that Forever 21 is getting sued again, this time by Express for a very similar-looking men’s shirt that Express manufactured late last year. The fast-fashion saga continues.