Full records of Nike's F2Q06 Qtr Ending Nov 30
Here the actual text of the prepared remarks from Nike(Ticker: NKE) Fiscal Q2 2006 business call. The Q has arrived. We know that this transcript may contain inaccuracies if you find any, Please post a comment below and we assimilate your corrections. And typical: This business call transcript is a Seeking Alpha product, So feel free to link to it but duplicate is not permitted without the explicit permission of Seeking Alpha.
Professionals: Bill(Account) Perez, President ceo
Good morning everyone. Welcome to Nike fiscal 2006 Second Quarter business call. Today getting together with is being recorded. Leading today call may possibly be Pamela Catlett, Vice chairman of Investor Relations. Before I switch 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 concerns that could cause actual results to differ materially. These risks and questions 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 at all times 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 remember a significant portion of Nike Incorporated business including equipment most of Nike Retail, Nike golf club, Speak, Cole Haan, Bauer, Hurley and Exeter brands group are not found in these futures numbers. Now I would wish to turn the call over to Pam Catlett, Vp of Investor Relations. Please don't wait ma Catlett,
Cheap Oakley Sunglasses For Sale, Vp, Investor contact
Thanks a lot. Good mid-day everyone and happy holiday. Appreciate joining us today to discuss our second quarter results. Most of you know that we been evolving our conference calls to streamline our communication and to appropriately address the topics that are primary to you. We are very enthusiastic about our portfolio 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 normal.
First we here from our future a Nike veteran CEO, Benjamin Perez. Bill will give his perspective on Nike and it stocks going forward. As well as we here from Don Blair, Nike Chief business Officer who will review our results. To conclude,
Oakley Outlet Kl, You will listen to both Mark Parker and Charlie Denson, Co President of the Nike brand who will each share their points of views on the Nike brand and business. After that good quality to taking your questions. Now it is my pleasure flying insects Bill Perez.
Payments Perez, President ceo
I praise you Pam. As I approach my first house warming I guess I am about to loose my rookie status and qualify as a veteran but as a rookie or not, I remain to be very excited about the growth opportunities. For the Nike logo and our Nike Inc. Collection.
In one of my primary missions as CEO is to make certain 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 present you an exact date, I can inform you of that we set the bar for ourselves very high. In the past ten months I spent much of my time working with our senior leadership team on an exhaustive strategic review. We carefully analyzed the growth opportunities and the potential profit for each of our businesses. And the conclusion was that mainly we have the right the game plan.
Nike has a fantastic amount of growth opportunities in product categories, In consumer portions, In developed and building markets, In sports stage production and in sports culture. Our multi brand portfolio adds to those opportunities giving us the cabability to reach consumers at all price points in all channels of distribution.
The review has deepened our confidence that our core strategies even more for the Nike brand are right, And that our long term growth hopes are achievable. But while our procedures are sound, The review also showed us how we can further improve our growth productivity drivers and how we can be even more competitive. So during the time you won see radical change, You'll come across refinements in how we are managing the business.
In emerging markets we be more severe. Market specifically China, Brazilian, Mexico and India are evolving rapidly and the potentials for Nike are great. We are accelerating our investments in those markets to make sure we are building strong profitable long term business and in other words we want to own those markets. We be more decisive and focused in our direct to consumer business, We are in the process of creating a more consistent global strategy that will enable us to exploit our internet connectivity, Use Nike stores worldwide to raise the brand, Create closer consumer connections and close submission moves gaps. Now search of a said, As has been the case in the past where possible our distribution strategy will still be anchored to our retail trading partners.
In the Nike brand we are also checking out ways to better align our business around consumer and category segments without loosing product focus. We have major opportunity 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 time and competition, We are driving advance with renewed energy and commitment.
In our action, We are driving greater overall performance. This is a company wide focus only to, Reduces costs of,
Wholesale Oakley Sunglasses, More reasonably use our resources and scale for greater competitive advantage. We are committed to better leveraging operating expenses while continuing to purchase growth. As an example, We are keeping non retail headcount at current levels while still looking after growth areas. We continues 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 exceptions the exemption process will be painful for those seeking the exemption.
Within Nike Inc. Portfolio we are more aggressively leveraging opportunity to share resources, Drive collaboration and amplify growth methods. As an example, Our Exeter branch group is now managed as a section of Converse. Exeter will greatly benefit from Converse operational advantages and expertise. As I said we are not focused on radically changing our game but we are focused on improving, Stronger and ever more aggressive at the game we are already playing. Our game plan gives us ample potential and clear sense of focus.
Product innovation and demand creation will still be our cornerstones. We will sustain the potency of our performance business, We will accelerate our game in emerging markets sports culture and women We will more boldy pursue a direct to consumer business and we improve our position in the value segments. And we fund our investments by better handling the portfolio, Holding a line on doing work expenses, Safe guarding our gross margin and reallocating demand creation. As I have said in the past Nike greater challenge is not related to the detection of the growth opportunities but it is rather one of focusing on those that afford us the greatest long term potential.
Now I chooses to turn over to Don who will review our second quarter numbers with you. Add.
Cheers Bill. In the past we told you about how we manage our global portfolio of companies to deliver consistent growth in a dynamic business environment. While the second quarter of fiscal 2006 certainly threw us plenty of curve balls, We delivered very strong growth in revenues and profits and continue to purchase our business. Although sales continues evolve rapidly we remain confident that we can deliver our financial growth goals for fiscal 2006.
Our gains for the quarter grew 10% to a record $3.5 billion dollars. Changes in foreign foreign exchange rates accounted for about one point of the growth in the quarter. This revenue growth was slightly over we had expected to a strong demand in the US and Latin America. Diluted cash flow per share for the quarter was a $1.14 up 18% versus fiscal 2005 reflecting the potency of the top line and SG leverage, In part offset by lower gross margins. Versus the prior year quarter our combined gross margin fell 60 basis points to 43.5%. Currency changes contributed about a 150 basis points of repair 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 standards we discussed before.
Cost savings and product value in Europe and Asia, Higher input costs foremost oil, And additional production and transportation costs to meet the strong unit demand for footwear all over the world. A mix of appliances sold in the quarter also drove gross margin lower. While gross margins for the quarter were less than we had expected, This was largely offset by more modest growth in SG as some demand creation moved to the back half of the fiscal year and we stiffened operating overhead. Overall we delivered 50 basis points to the SG leverage in the second quarter and are picked up delivering SG leverage for the full year.
Futures orders allowed for delivery from December through April grew 2.5% versus the prior year as changes in foreign exchange rates reduced the growth by nearly 5 points. Leaving to one side the impact of currency changes Futures grew 7%. In the first half of fiscal 2006 we also continued to build 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 handsomely. For the 12 months ended nov 2005, Our return on invested capital was 24% in conjuction with the prior quarter end. With that perspective on a combined performance I will now give you some additional depth on our results.
In our European region which has the Middle East and Africa,
Cheap Oakley Juliet Sunglasses, Proceeds grew 2% in Q2. Currency did not have a material influence on overall revenue growth for the quarter. Apparel revenues advanced 2% and appliance revenues were up 9% for the quarter. Footwear revenues were flat with the last year. Constant dollar revenue growth for the quarter was driven by high teens growth in the emerging markets in your neighborhood, Partly offset by lower revenues in Western Europe. As you know the retail environment in Western Europe has been challenging long. Within the last year we gained apparel and footwear share in that environment. Still in the second quarter we began to see a degree of weaker trends our competitors have reported in recent quarters. In addition our revenues in Futures reflect steps we taken to turn away some business we don't fall for reflects positively on our brand.
Gross margins in our European region expanded 40 basis points for the quarter contributive about a tenth of a point to our consolidated margin change. The benefits of more favorable foreign 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 really for footwear. Reported second quarter pretax income for the ecu region was $194 million a decline of 2% versus fiscal 2005. The decline for the quarter was driven by mid single digit increase in SG expense, In some measure offset by higher revenues and gross margins.
We continue to believe that our European region in general and Western Europe specifically present an explosion opportunities for the Nike brand. On a year to date basis revenues for areas 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 program drives sales of footwear, Apparel and computer hardware.
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 your community. Not including 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 extremely. This growth was partially offset by weaker ends in Japan, Korea and quarterly report. Of these markets the significant and the hardest has been Japan,
Cheap Real Oakley Sunglasses, Where constant currency profits declined at a single digit rate in the second quarter. Our footwear business there was affected by an overall lack of excited in the market and intense promotional activities at lower prices points. Our apparel business also under enjoyed.
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