Here’s the entire text of the prepared remarks from Nike’s (ticker: NKE) fiscal Q2 2006 conference call. The Q&A is here. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.
William (Bill) Perez, President & Chief Executive Officer
Donald Blair, Vice President & Chief Financial Officer
Mark Parker, President, Nike Brand
Charlie Denson, Co-President, Nike brand
Pamela Catlett, Vice President, Investor Relations
Robert Drbul, Lehman Brothers
Virginia Genereux, Merrill Lynch
Omar Saad, Credit Suisse First Boston
John Shanley, Susquehanna Financial
Lizabeth Dunn, Prudential
Margaret Mager, Goldman Sachs
Robert Ohmes, Banc of America Securities
Good afternoon everyone. Welcome to Nike’s fiscal 2006 Second Quarter Conference Call. Today’s conference is being recorded. For those of you who need to reference today’s press release, you will find it at www.nikebiz.com. Leading today’s call will be Pamela Catlett, Vice President of Investor Relations. Before I turn it over to Ms. Catlett let me remind you that participants of this call are going to 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 and 10-Q. Some forward looking statements concern future orders that are not necessarily indicative of total revenues for subsequent periods due to cancellations and a mix of Futures and at once orders which may vary significantly from quarter to quarter. In addition it is important to remember a significant portion of Nike Incorporated business including equipment most of Nike Retail, Nike Golf, Converse, Cole Haan, Bauer, Hurley and Exeter brands group are not included in these futures numbers. Finally participants may discuss non-GAAP financial measures, a presentation of comparable GAAP measures and quantitative reconciliation’s can also be 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 would like to turn the call over to Pam Catlett, Vice President of Investor Relations. Please go ahead ma’am.
Pamela Catlett, Vice President, Investor Relations
Thank you. Good afternoon everyone and happy holiday. Thank you for joining us today to discuss our second quarter results. Nike issued ours results about an hour ago, and those of you who need to reference the press release as the operator said, you will find it on our website at www.nikebiz.com. Most of you know that we’ve been evolving our conference calls to streamline our communication and to appropriately address the topics that are most important to you. We are very excited about our portfolio’s performance and we want to highlight some key drivers in more detail. So we are mixing it up today with a slightly larger group than usual.
First we’ll here from our soon-to-be a Nike veteran CEO, Bill Perez. Bill will give you his perspective on Nike and it’s stocks going forward. Then we’ll here from Don Blair, Nike’s Chief Financial Officer who will review our results. Finally, you will hear from both Mark Parker and Charlie Denson, Co-President of the Nike brand who will each share their perspectives on the Nike brand and business. After that we’ll look forward to taking your questions. Now it is my pleasure to introduce Bill Perez.
Bill Perez, President & Chief Executive Officer
Thanks Pam. As I approach my first anniversary I guess I am about to loose my rookie status and qualify as a veteran but as a rookie or not, I continue to be very excited about the growth opportunities. For the Nike brand and our Nike Inc. portfolio.
In one of my primary missions as CEO is to make sure this company has the right strategies in place to sustain long-term growth and ultimately double the size and value of our business. And while I am not going to give you an exact date, I can tell you that we’ve set the bar for ourselves very high. During the past ten months I spent much of my time working with our senior leadership team on an exhaustive strategic review. We’ve carefully analyzed the growth opportunities and the profit potential for each of our businesses. And the conclusion was that for the most part we have the right the game plan.
Nike has an extraordinary amount of growth opportunities in product categories, in consumer segments, in developed and developing markets, in sports performance and in sports culture. Our multi-brand portfolio adds to those opportunities giving us the ability to reach consumers at all price points in all channels of distribution.
The review has deepened our confidence that our core strategies particularly for the Nike brand are right, and that our long term growth aspirations are achievable. But while our strategies are sound, the review also showed us how we can further improve our growth profitability drivers and how we can be even more competitive. So while you won’t see radical change, you will see refinements in how we are managing the business.
In emerging markets we’ll be more aggressive. Market such as China, Brazil, Mexico and India are evolving rapidly and the opportunities for Nike are great. We are accelerating our investments in those markets to make sure we are building strong profitable long-term business and to put it simply we want to own those markets. We’ll be more aggressive and focused in our direct-to-consumer business, we are in the process of creating a more consistent global strategy that will allow us to exploit our internet connectivity, use Nike stores worldwide to elevate the brand, create closer consumer connections and close distribution gaps. Now the above said, as has been the case in the past where possible our distribution strategy will continue to be anchored to our retail trading partners.
In the Nike brand we are also looking at ways to better align our business around consumer and category segments without loosing product focus. We have major opportunities to grow in sport performance and sport culture and we are evolving how we align our business to support this. In categories and countries where we are under performing relative to the opportunity and competition, we are driving improvement with renewed energy and commitment.
In our operations, we are driving greater efficiency. This is a company-wide focus to simply, streamline, more strategically use our resources and scale for greater competitive advantage. We are committed to better leveraging operating expenses while continuing to invest in growth. For example, we are keeping non-retail headcount at current levels while still supporting growth areas. We will continue to hire where we need to but we will do that by assessing where we can trade our positions. And while we may have some exemptions the exemption process will be painful for those seeking the exemption.
In our Nike Inc. portfolio we are more aggressively leveraging opportunities to share resources, drive collaboration and amplify growth opportunities. For example, our Exeter branch group is now managed as a division of Converse. Exeter will greatly benefit from Converse’s operational capabilities and expertise. As I said we are not focused on radically changing our game but we are focused on getting better, stronger and ever more competitive at the game we are already playing. Our game plan gives us ample opportunity and clear sense of focus.
Product innovation and demand creation will continue to be our cornerstones. We will sustain the strength of our performance business, we will accelerate our game in emerging markets sports culture and women’s. We will more aggressively pursue a direct-to-consumer business and we’ll improve our position in the value segments. And we’ll fund our investments by better managing the portfolio, holding a line on operating expenses, protecting our gross margin and reallocating demand creation. As I have said in the past Nike’s greater challenge is not related to the identification of the growth opportunities but it is rather one of focusing on those that afford us the greatest long-term potential.
Now I would like to turn over to Don who will review our second quarter numbers with you. Don.
Donald Blair, Vice President & Chief Financial Officer
Thanks Bill. In the past we told you about how we manage our global portfolio of businesses to deliver consistent growth in a dynamic business environment. While the second quarter of fiscal 2006 certainly threw us quite a few curve balls, we delivered very strong growth in revenues and profits and continue to invest in our business. Although the marketplace continues evolve rapidly we remain confident that we can deliver our financial growth goals for fiscal 2006.
Our revenues for the quarter grew 10% to a record $3.5 billion. Changes in foreign currency exchange rates accounted for about one point of the growth in the quarter. This revenue growth was slightly higher than we had expected to a strong demand in the US and Latin America. Diluted earnings per share for the quarter was a $1.14 up 18% versus fiscal 2005 reflecting the strength of the top line and SG&A leverage, partially offset by lower gross margins. Versus the prior year quarter our consolidated gross margin fell 60 basis points to 43.5%. Currency changes contributed about a 150 basis points of improvement but this was more than offset by lower footwear product margins in every region and lower apparel margins in Asia. Erosion in footwear margins was somewhat more rapid than we had expected but continued to reflect the factors we’ve discussed before.
Investments and product value in Europe and Asia, higher input costs primarily oil, and additional production and transportation costs to meet the strong unit demand for footwear around the world. A mix of products sold in the quarter also drove gross margin lower. While gross margins for the quarter were lower than we had expected, this was largely offset by more modest growth in SG&A as some demand creation moved to the back half of the fiscal year and we tightened operating overhead. Overall we delivered 50 basis points to the SG&A leverage in the second quarter and are committed to delivering SG&A leverage for the full year.
Futures orders scheduled for delivery from December through April grew 2.5% versus the prior year as changes in currency exchange rates reduced the growth by nearly 5 points. Excluding the impact of currency changes Futures grew 7%. In the first half of fiscal 2006 we also continued to generate strong cash flows as we delivered $566 million of free cash flow from operations. We repurchased $390 million of our stock in the first half of the fiscal year and we paid out $130 million in dividends. For the 12 months ended November 2005, our return on invested capital was 24% consistent with the prior quarter end. With that perspective on a consolidated performance I will now give you some additional depth on our results.
In our European region which includes the Middle East and Africa, revenues grew 2% in Q2. Currency did not have a material impact on overall revenue growth for the quarter. Apparel revenues advanced 2% and equipment revenues were up 9% for the quarter. Footwear revenues were flat with the prior year. Constant dollar revenue growth for the quarter was driven by high teens growth in the emerging markets in the region, partially offset by lower revenues in Western Europe. As you know the retail environment in Western Europe has been challenging for some time. Over the past year we’ve gained apparel and footwear share in that environment. Still in the second quarter we began to see some of the weaker trends our competitors have reported in recent quarters. In addition our revenues in Futures reflect steps we’ve taken to turn away some business we do not believe reflects positively on our brand.
Gross margins in our European region expanded 40 basis points for the quarter contributing about a tenth of a point to our consolidated margin change. The benefits of more favorable currency exchange rates and a lower level of Closeout sales with better margins were offset by pricing and product investments in consumer value. And increased product cost related to higher commodity prices and cost to meet strong worldwide demand particularly for footwear. Reported second quarter pretax income for the European region was $194 million a decline of 2% versus fiscal 2005. The decline for the quarter was driven by mid single digit growth in SG&A expense, partially offset by higher revenues and gross margins.
We continue to believe that our European region in general and Western Europe specifically present tremendous growth opportunities for the Nike brand. On a year-to-date basis revenues for the region are 4% versus fiscal 2005 and pretax income is up 18%. And over the second half of the fiscal year we expect constant currency revenue growth to accelerate as our World Cup marketing program drives sales of footwear, apparel and equipment.
In the Asia-Pacific region revenues increased 4% in the second quarter and was about 2 points of the increase coming from stronger currencies in the region. Excluding currency effects footwear and apparel each reported 2% growth while equipment grew 9%. China was again the primary driver of the regions revenue growth as our business there grew strongly. This growth was partially offset by weaker results in Japan, Korea and Australia. Of these markets the significant and the most difficult has been Japan, where constant currency revenues declined at a single digit rate in the second quarter. Our footwear business there has been affected by an overall lack of excited in the market and intense promotional activities at lower prices points. Our apparel business also under performed.
Our approach has always been to build product line to deliver compelling consumer value up and down the price spectrum rather than simply discounting higher end models. As we’ve discusses on previous calls, new footwear products designed to strength our position at price points will debut in Japan next month. We are also working hard to improve our apparel lines for this market. While Futures for the December to April period are positive on a constant currency basis, we believe there is a great deal more we can do to realize the full potential of this critical market. Charlie will talk more about that later.
For the quarter Asia-Pacific gross margin fell 240 basis reducing our consolidated gross margin by 30 basis points. Higher product cost, increased customer discounts and product value investments in Japan drove the reduction. Pretax income for the quarter grew 3% to a $115 million as lower SG&A spending offset the lower gross margin. The Americas region continued to deliver outstanding results in the second quarter as revenues grew 33%. Stronger currencies in the region contributed 13 points of that growth. While Argentina and Brazil were the largest contributors to the revenue increase every country in the region posted higher revenues. Gross margins were flat for the quarter versus the prior year and pretax profit for the region increased 30% to $57 million. And that brings us to the US region which once again delivered a terrific quarter.
The US team added $175 million in revenue for the quarter, a 15% increase driven by broad based growth across most channels and wholesale accounts. Nike owned retail also performed strongly as overall sales increased 15% and comp store sales for Niketown stores increased 5% for the quarter. Overall footwear revenues grew 19% and apparel increased 13% in the second quarter. Equipment revenues decreased to 8%. The outlook for the US remains bright as Futures orders for delivery between December and April rose over 9% versus the year-ago period. Consistent with the past few quarters US Footwear was the most important driver of our growth in revenue and profits in the second quarter.
In Q2 wholesale unit sales increased over 20% driven by growth in both sports performance and sport culture products for men, women and kids. Unit sales advanced up and down the price scale with more rapid growth at the middle and lower price points reflecting a more effective product offering at those levels. For the 5-months Futures window both units and average price per pair were higher than the prior year period. US Apparel grew 13% in the second quarter despite a decline in licensed apparel sales due to the expiration of the NBA license. Our last significant sales of NBA Apparel were made in the second quarter of fiscal 2005, so we are now beyond this drag on our results.
A significant contributor to our second quarter growth in both footwear and apparel revenues was the Jordan brand which grew almost 50%. Recognizing the limitations of POS data in this industry. For the 12 month ended November 2005 Jordan footwear reached a 6% share of the overall US footwear market up 1.8 share points year-over-year and with a nine tenth of the point of the number four brand in the US. Gross margins in the US fell 170 basis points for the quarter reducing our consolidated gross margin by 70 basis points. Most of the decline was attributable to footwear due to principally to higher commodity cost and additional supply chain and factory cost to meet strong unit demand.
For the quarter pretax profit for the US region grew 14% to $266 million and strong revenue growth and SG&A leverage more than offset lower gross margins. For the quarter revenues from other businesses grew 14% to $435 million, while each of these brands posted higher revenues for the quarter the increase was driven by growth of nearly 40% at Converse and high teens growth for Nike Golf. Pretax income for the other businesses was $23 million in the second quarter up 11% versus fiscal 2005.
Bauer Nike Hockey posted a loss in the quarter as we absorbed cost related to the recently announced rebranding initiative. Excluding current and prior year results for Bauer Nike Hockey pretax income for our other businesses advanced 19%. Consolidated SG&A spending for Nike Inc. grew 8% in the quarter driven by an 8% increase in demand creation and 9% increase in operating overhead. For both components of SG&A demand creation and operating overheads, currency changes accounted for about 1 point of the increase. The increase in demand creation was a result of sports marketing investments in the US region, Nike brand advertising in Europe and Converse advertising in the US and higher spending on retail development around the world. As we expected the growth in operating overheads slowed in Q2, in addition to the impact of currency the increase in operating overhead for the quarter reflected a contribution to the Nike foundation which accounted for 2 points of growth. The balance of the increased about 6% was due primarily to increase personnel costs and investments in company owned Nike and Cole Haan retail stores.
For the second quarter we reported net interest income of $6 million versus $4 million of net interest expense in the prior year quarter. The improvement was due to both higher levels of invested cash and higher interest rates. Other income net for the second quarter was $1 million versus $8 million of other expense net in the prior year quarter. The largest factor in the improvement was the swing from foreign currency hedge losses in fiscal 2005 to foreign currency hedge gains in the current year. The net effected improvement in these foreign currency hedging results and the translation of foreign currency denominated profits from our international regions was approximately $20 million of additional pretax income for the current year quarter versus the same quarter last year.
Our effective tax rate for the quarter was 35.1% bringing our year-to-date rate to 34.7% inline with our current estimates for the full year. Our November 30 balance sheet continued to reflect the financial strength of the company. As of that date our balance of cash, cash equivalents and short-term investments totaled $2.1 billion or about $8 per diluted share while our total interest baring debt was about one third of that amount. As of November 30th, worldwide inventories were 10% higher than a year ago. Over half of the inventory increase was in the US and Americas regions where we continue to experience very strong demand.
A large percentage of the worldwide increase represents spring footwear product in transit including Air Max 360. Worldwide Closeout inventories were unchanged versus the prior year. In that prior year our inventory levels were relatively low as factories worked to meet a strong unit demand. As we’ve built our capacity to meet this demand deliveries from the factories have improved and our inventories in transit increased. As we anniversary these unusually low inventory levels in the coming months we expect inventory growth to ease. At the end of the quarter accounts receivable were 2% higher than the prior year. When viewed in conjunction with the 10% revenue increased we reported today this reflects outstanding receivables management from our field financings.
Our success in delivering consistent financial growth in a dynamic global business like athletic footwear and apparel depends on our ability to make adjustments to our financial model as market conditions change, and change they have. Since our last conference call Western Europe and Japan have become more challenging due to weaker currencies and overall business conditions. In addition we continue to cost pressure on our gross margins as we work to supply the strong unit demand and product input costs remain high. As we face those challenges we are taking steps to invest behind those businesses that have strong momentum. To accelerate those businesses that have slowed and to adjust our spending to fund these initiatives and deliver our financial goals for fiscal 2006.
For Nike Inc. we are still expecting high single digit revenue growth the full year with mid single digit growth over the balance of the year reflecting our current Futures and a less favorable currency outlook. The third quarter growth should be stronger than the fourth quarter consistent with the phasing of our Futures. We anticipate the gross margins for Q3 and Q4 will be below the prior year with variance as similar to that of the second quarter.
For SG&A we delivered 110 basis points of leverage so far this year and remain committed to delivering leverage for fiscal 2006 as a whole. As we indicated earlier we are committed to investing our resources in critical business initiative and driving productivity elsewhere to fund those investments. We anticipate that the demand creation will grow faster than revenue for the balance of the year and the full year as we invest in revenue driving initiatives such as a World Cup and Nike Pro. We expect this will be offset by significant leverage in operating overhead spending. Overall SG&A spending should grow at a 5% to 7% rate in each of the third and forth quarters with Q3 growth more toward the top of that range.
Interest income should be relatively consistent with first half levels but other income for the last two quarters of the fiscal year should look more like Q1 as our current FX forecast would result in more income from our currency hedges.
In summary we are very confident we are in position to deliver our financial goals for the year and position ourselves for continued growth in the future. So with that I’ll turn the floor over to Mark Parker.
Mark Parker, President, Nike Brand
Thanks Don and good afternoon everyone. As you heard we had a solid second quarter particularly in the United States and the Americas and in markets such as China and Central Europe. Retail in Western Europe and Japan is challenging but globally the Nike brand is strong with energy across both the sport performance and sport culture sides of our business. I can give you many examples today of the power of the Nike brand around the world and the close connections we are creating with consumers, such as our incredible Zoom Lebron III launch in China and the United States are biggest signature shoe launch in five years, kicking off with a $250 limited edition Zoom Lebron III that sold out in two hours in China, fantastic sell-throughs all around on this product as well as Carmelo Anthony’s Melo 5.5 from Jordan and Dwyane Wade’s signature shoes The Wade from Converse. There is also great momentum in sell-throughs in our Nike Pro apparel and our women’s fitness businesses with each being up 80% and 19% respectively year to date. We are seeing strong sales in Nike Retail including our new Nikestore on the Champs Elysee in Paris.
And Run Americas 10K event a record 80,000 runs across seven countries in Latin America which drove our Nike Shox footwear and Nike Sphere apparel businesses. These wins and many others drove our great results in the second quarter but I’d like to spend my time today on what is ahead for Nike which is more exciting.
We began fueling the World Football energy in the second quarter. The limited edition launch of the Ronaldinho’s golden R10 boot in October generated tremendous consumer and media response and drove growth in our Tiempo line. The re-launch of our high Hi-Vis soccer ball also was a big success. Our Brazil Five Star sport culture apparel collection generated strong sell-throughs globally. And year-to-date our global football business are up double digit driven by our performance on field products.
We are extremely excited and confident about our strategies as we build towards our most integrated campaign ever and the launch of our entire World Cup product line in the coming months. We are very pleased with retailer response to products we are already showing.
Consumers all over the world will see Nike with many of the games most exciting players including player of year Ronaldinho and with the world’s most exciting teams including reigning champions and five-time World Cup champion Brazil. Building Nike into a global soccer brand has been an incredible journey. In 1994 soccer was a $40 million business for us, practically an afterthought. Today it is approaching $1.5 billion a premium core business for us and a critical source brand strength around the world.
Amazing growth build through performance based product innovations and getting close to our consumers is the strength of the Nike brand. We are quickly approaching our goal of being the world’s leading soccer brand. There is more to come as we launch our most integrated campaign ever in the third quarter and unveil our entire World Cup product line.
Between now and when we report our third quarter results many of your questions about our strategy and products will be revealed. We have great momentum heading into next summer’s World Cup, then we’ll continue to build more and more energy in the months ahead. And you will see this momentum continue through World Cup ’06 into the next football season and beyond.
Looking ahead our strong high commercial potential innovation pipeline and upcoming global events such as the Winter Olympics give us ample opportunity to grow. Nike Pro will have a significant presence at the Winter Games as will our newly unified Nike Bauer Hockey brand. We are creating state of the art uniforms for 16 countries outfitting teams across 9 sports including Ice Hockey, Speed Skating and bobsledding. We are also outfitting 6000 NBC employees in specially designed Winter Olympics outdoor gear.
Innovation continues in footwear this spring with the launch of the AirMax 360 which will bring new energy to our entire Nike Air line. 26 years after the debut of the Nike Air technology and then the introduction of the first AirMax shoe in 1987 we fulfilled the original promise of creating a great performance running shoe with 360 of Nike Air cushioning. AirMax 360 has no midsole foam, just pure 100% Nike Air cushioning supporting a great looking performance shoe.
AirMax 360 embodies our commitment to product performance and innovation. We will also be announcing some very dynamic and high profile partnerships in this spring that will advance our product innovation possibilities and deepen consumer relationships with Nike. We are very proud of what we’ve have accomplished so far this year and very excited about what is ahead. We’ll stay focused on what we do best, consistently deliver innovative products rooted in and inspired by performance and creating close connections with our consumers. Further strengthening and leveraging our tremendous brand and business potential. Thanks and now I’d like to turn it over to Charlie Denson.
Charlie Denson, Co-President, Nike brand
Thanks Mark. Good afternoon to everyone. Happy holidays and my condolences to you who are sitting in New York facing a little tougher commuting home tonight. As Pam mentioned up front, our goal on these calls is to focus on a few topics beyond the financials that we believe are important. Don, Bill and Mark have both given you their perspectives so I’d like to round out today’s discussion by first giving you a little deeper insight into what we see going on in the global marketplace which as always has it’s challenges, what we call opportunities and offset by some areas where we have great momentum.
If there is one sound bite I’d ask you to take away from me today, it is this: Nike, Inc.’s global portfolio is working. For the last several years we have talked about how our long-term success is reliant on our ability to manage a growing and diverse portfolio. As we continue to navigate a changing global marketplace, we have great momentum and brand strength in the USA, China and throughout South America, and our subsidiary units are growing above the corporate rate. What I’d like to cover should sound pretty familiar to most of you that have followed us over the last several years. It’s our ability to deliver financial results driven by certain segments of the portfolio, while specifically addressing issues where we may have in parts of the business where we have big opportunity. Today, you’ve already heard about our strong financial results, I would like to address parts of Western Europe, and Japan.
Let’s talk about Europe first. We continue to see strong double digit growth coming from Central Europe, as our apparel business is accelerating across the continent as we approach World Cup, and we are addressing some of the strategic initiatives that will give us a strong brand position in a very tough macro economic landscape. It’s not formulaic, but our ability and history of looking at each marketplace through the consumers lens, addressing product, marketing and distribution strategies that are aligned is a well documented approach. We have talked about some of these strategic initiatives in the past, specifically distribution and the sport culture consumer. These are the two areas that I think you will see some strong long term benefits from in the future. It’s no secret that France and the UK have been the two toughest markets to grow in. We have taken a strong position in both markets to pull some of our premium performance product out of distribution we feel is not brand enhancing. It is having some short term affect on our numbers, but we feel in the long run, we will continue to build a strong premium brand position with premier brand presentation and new and innovative product introduction. We have also experienced some challenges with inventory management, both at the account level and in the regional apparel area. We feel we are on the backside of this and are starting to see some improving marketplace conditions regarding the Nike brand in the near future.
The other big strategic opportunity in Europe is the emerging sport culture consumer, you could say they’ve already emerged in this marketplace, becoming very influential within youth culture, and we have been a little slow to address their demands, mostly in the low profile footwear area. We have been doing a lot of work here, and you may have seen our initial effort in women’s over the last 6 months, with some of the most exciting product in the marketplace. The Shox Rival, the Sprint Sister and the Blaze we’re all great performers at retail and it’s just the start, we have an entire product assortment rolling out over the next several season in both men’s and women’s.
Turning to Asia, we reported another solid quarter, as rapid growth in China continued to drive the region’s results. Our China business remains a star performer, and we continue to see a top line growth rate that is among the best in our portfolio. We continue to open new doors at a rapid pace, with over 2,000 doors as of the end of this quarter. We’re at a point in our growth where we are expanding our reach past the Big Three cities of Beijing, Shanghai and Guangzhou, and are opening doors in the next tier of populated cities. But as we’ve made clear in the past, we do not view China as a race to Beijing in 2008. Our goal is to build a profitable and sustainable long-term business in this exciting new market, with as little near-term risk as possible. We’re very pleased with our progress, and feel great about our current brand position in the fastest growing market in the world. We are the number one brand in size, recognition, and overall performance. We have some great plans for the future, indicated by what Mark talked about at the most recent launch of the China only LeBron model is just the start.
In Japan it’s a different story. We continue to see a lack of energy from the broader retail environment, with retailers focused on price to drive product. Our strategy here is not dissimilar to what I just mentioned about parts of Europe. We’re not chasing business, and we’re keeping orders tight to protect the Brand while we reinvest in the longer-term growth opportunities we see in Japan. Things like NikeID, our custom footwear platform, a more competitive approach to the price/value relationship in product, and an aggressive innovation agenda to energize the Japanese consumer are things that will ultimately think will make the difference. We are confident as we evaluate this market, align our strategies and product communication and distribution that we’ll maintain our position as the leader in athletic footwear and apparel in this critical and influential marketplace.
So the bottom line is this, we’re very pleased with the state of our business. The health of the Nike Brand portfolio in the US, South America, Central Europe, and China is strong and profitable. Our subsidiaries are performing well and give us an additional ability to manage the portfolio and deliver our financial goals. We’ll continue to make the right investments, take a long-term proactive approach in markets like Western Europe and Japan, which still represent significant growth opportunities for the Nike Brand. The World Cup represents a great checkpoint for us, but in no way do we believe it’s the finish line. We are very excited about the balance of 06, and the opportunities that we have in ‘07 and beyond. With that we’ll open it up for questions.
- The Q&A from this call is here.
- All Retail Stock Blog articles on NKE.
- A list of full conference call transcripts available on the Seeking Alpha Network.
- The complete list of retail stocks (and links to articles about them) covered by The Retail Stock Blog.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: email@example.com. Thank you!