Nike (NYSE: NKE) Sept. 23, 2010 Intraday & After Hours Trading

In the last month, Nike‘s stock price hit an all-time company high, pushing past the $80 mark. On September 23rd, Nike held its Q1 2011 Earnings Conference Call which shed plenty of color on the world’s largest sportswear and equipment company’s previous 90 days of business and what it plans to do in the next three months ahead.

Major stories include the Nike LunarGlide+ 2 becoming the biggest selling performance product in any quarter of Nike’s entire history, integration of Nike’s portfolio brands with executions in World Cup and World Basketball Festival among others, and Nike’s counter-Toning category strategy focusing in on Nike FREE product (including hints at a new technology story) to rebalance its Women’s business. Continue reading for an inside look at Nike’s Q1 2011 Earnings Conference Call…

Notes on the Nike Q1 2011 Earnings Conference Call

Mark Parker – Nike, Inc. President and CEO:

- Global futures are up 13%, our biggest increase in over a decade, and our portfolio of affiliate brands, Converse, Hurley, Cole Haan, Nike Golf and Umbro, continues to gain strong momentum. I point to three reasons for our outstanding performance – flexibility, balance and alignment.

Flexibility is about the power of our portfolio, our mix of brands and category offense. We’re able to pull multiple levers across many dimensions of our business. For example, we can dial-up the running category to leverage successful new designs like the LunarGlide and Dynamic stability. We can create momentum in action sports by combining three great brands across multiple sports in a single consumer experience. In an environment, where certain categories or geographies might be slower to recover, our diverse global portfolio allows us to create new growth in other key markets. This flexibility is strategic and powerful and unique to Nike, Inc.

Balance is all about leveraging innovation to create new opportunities. We fixate superior performance products, and then use that innovation to drive the style side of the business, something you can see clearly in the success of our apparel business. We invest in direct-to-consumer retail and use that innovation to elevate our presence with our own retail partners. We take everything we know about the physical world of sports and we apply that knowledge to the potential of digital technology to create new experience. We do these things to create short and long-term opportunities that generate top and bottom line growth.

Finally, alignment, which is all about optimizing our resources to maximize return. When we’re fully aligned across design, production, marketing and distribution, the result is experiences that only Nike can create, like our ‘Write the Future’ World Cup campaign, the U.S. Open of Surfing and the World Basketball Festival, and all three of those events happened in Q1. We see the same power of alignment throughout the Company, in design, our supply chain, in retail, in HR and operations and in marketing and sales. Alignment amplifies our resources to create unique and compelling successes for our consumers and shareholders.

- We have the hunger to seek and develop the new ideas and inspiration that allow us to innovate, and ultimately surprise and delight the athletes and consumers we’re here to serve. That’s why we are not guided by the vagaries of the macro economy. We are guided by our own potential and that potential has never been greater.

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Charlie Denson – President of the Nike Brand:

- Let’s go through some of the first quarter highlights. Reported revenue was up 6% to $4.5 billion. SG&A was up due to demand creation behind World Cup and the World Basketball Festival and our global futures are up 10% or 13% on a constant dollar basis, our highest in over a decade.

We feel great about where we are and what we’ve accomplished, but I’m even more excited about where the Nike brand can go. For the past year, you’ve heard us talk about amplifying our innovation agenda and the power of sport through a category lens. In fact, nine months ago on our Q2 call, we laid out specific plans to pick up share and expand our leadership position across the industry worldwide.

Fresh Air in the spring to drive sportswear, industry-leading football innovations around World Cup, running strength driven by LunarGlide and dynamic stability and the evolution of Pro Combat apparel. All of these category specific efforts are paying off big time just like we said they would.

If we take a bit deeper dive into some of the examples Mark opened with, you can see how we used that category lens to drive innovation across products, brands and at retail. In June, we had our best World Cup effort ever. We broke new ground with a revolutionary traction technology and in high performance apparel with kits that were also our most sustainable lever. And whether you were 100 rows up in Soccer City Stadium or 10,000 miles away in your living room there was no mistaking the iconic orange pop of the Nike boots on the pitch.

Our “Write The Future” football content was viewed more than 52 million times online and it was Andrés Iniesta in the Nike boot, who kicked the winning goal for Spain in the final. I’m proud of both of our brand and our commercial success at World Cup, 2010. It was a championship performance and we’re looking forward to winning again in Brazil in 2014.

After the World Cup it was on to the U.S. Open of Surfing. More than 600,000 people stormed Huntington Beach to watch Brett Simpson and Carissa Moore take the crowns. It was a massive celebration of surf, skate and BMX, created by the leaders in action sports: Nike 6.0, Hurley and Converse.

Then we put together the first World Basketball Festival. It was a four-day city wide celebration to honor the global game, and a tremendous showcase for Nike Basketball, Jordan and Converse. I was especially inspired by Kevin Durant, whose planned leadership earned him the MVP of the world championships and established himself as an emerging force in the game going forward.

As much as we highlight connecting with consumers at big events with millions of people, we are equally focused on the individual athlete. Just a couple of weeks ago, we launched our new Nike+ GPS app. It helps train, inspire and connect runners to the rest of the world anytime and anywhere. It’s a very exciting example of how we can combine two high-performance businesses, digital sport and running, to create a new experience for consumers and a new growth market for the Nike brand.

While I’m on running, real quick on the LunarGlide shoe. We sold more LunarGlide shoes in Q1 than we did any other performance shoe in any quarter in our history. It’s also proving to be a powerful crossover shoe between technical performance and style, again, an opportunity, we started talking about a few years ago and a perfect example of how performance product can drive both sides of the business.

So, World Cup, U.S. Open of Surf, World Basketball Festival, all featuring new product and stories, new communities, compelling experiences with our brands and insider stores, and all in the last 90 days. So what’s coming in the next 90 days? Well, we will launch the new LeBron VIII shoe in October, a totally fresh expression of one of our most successful franchises and we’re putting the finishing touches on a highly anticipated Kobe VI set to launch on Christmas day.

In college football here in the States, 10 elite college teams are now playing in new Pro Combat uniforms and will be running marathons in Berlin, Chicago, Beijing, New York and San Francisco where you will see countless athletes running in Lunar cushioning, Dynamic stability, Flywire technology and the Tempo running short, and that’s just a glimpse of the product and the brand experiences on the way.

That leads to the final piece of the category offense, optimizing the expansion of the marketplace. We lead with the Nike retail, in-store and online, and we drive innovation into the marketplace to help our retail partners present our brands and our products. Two new Nike stores in Santa Monica and Roosevelt Field are great examples of where we see the retail evolution headed, a balance of innovative products, strong brand and category fashion, from the best performance product you can find anywhere to lifestyle footwear and apparel you can wear anytime.

Our partner retail concepts have that same balance. Foot Locker’s House of Hoops, Finish Line’s Running Lab, and Dick’s Fieldhouse concepts have quickly become meaningful and measurable formats that expand the overall market, and with partners like JD Sports in the U.K., BELLE in China and Centauro in Brazil, we continue to deliver robust potential in key markets around the world.

With one look at our futures, you can see that demand is high. It’s a great position to be in but it does come with its own challenges, specifically with select technical footwear and performance apparel products. We’re working closely with all our manufacturing partners to accelerate production and meet demand on these highly sought-after products. But all things equal, we prefer a full market and we’re seeing that enthusiasm play out across categories and geographies.

In North America, the category offense is building strong momentum in products, brand experiences and premium distribution, with particular strength in our performance categories and in apparel. Futures for holiday and spring are up strong double-digit to nearly every category, including Women’s Training, which is steadily gaining share with its apparel business. We expect Women’s Training to see additional success and revenue when we introduce a major technology and performance story around Nike FREE footwear in the spring.

In Western Europe, we are pleased to see an accelerating return to growth as the region begins to show signs of stabilizing. We saw dramatic growth in running, football and action sports. In the U.K., specifically, we saw solid futures growth in basketball, football and Men’s and Women’s Training. Central and Eastern Europe featured especially impressive comebacks in Russia and Turkey and strong futures in all categories. Still a lot of choppiness in that geography, but nice to welcome them back to the positive side of the growth equation.

In China, we extended market shares gains driven by strong retail partner performance and strong double-digit futures in nearly every category. The big story there continues to be basketball, which shows no signs of slowing down. Kobe is a living legend in China and his signature product continues to absolutely kill at retail. China continues to be a market that offers a solid balance of short and long-term growth potential.

Japan continues to work through one of the toughest economies in decades. That said, our technical running product in women’s apparel is performing relatively well in that market. We’ll continue to do in Japan what we’ve done with each of our businesses during the recession – run lean, invest wisely, optimize, drive profitability and maintain brand strength.

Finally, the emerging markets, where every category in major territories saw positive growth and continued strong futures. Revenue in our Brazil business alone is up 70%, which speaks to the power of the Nike Brand, and it speaks just as loudly to the potential of our emerging markets region, which has consistently posted double-digit growth in revenue of futures and EBIT.

So it was balance, alignment and flexibility that delivered our strong quarter. Our footwear business is solid around the world. Our apparel business is energized and just beginning to reveal some of its true potential. Overall, we’ve never executed better on both the global and the local level. Going forward, we have a clear vision and a wealth of opportunity. While we face some uncertainty on the macro side, there is no doubting our performance and our ability to execute our game plan and deliver results.

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Question & Answer Session:

Kate Mcshane – Citigroup: You mentioned the Nike FREE product and new technology but I think you had said in your prepared comments that it was coming out in the spring. I have been under the impression that there was new Nike FREE product coming out in the fall. Has this changed or is this incremental to what’s happening in the fall?

Charlie Denson: I’m sorry. What I was referring to was the spring will be a major campaign around NIKE Free. To your point, some of the new Free product will you will see pre-Christmas, during the holiday timeframe.

Mark Parker: That technology, by the way, is continually evolving. So you’ll see refinements to Free technology in the second half of the year, and then, certainly, as we move beyond.

Robert Drbul – Barclays Capital: Another bigger picture question would be, when you look at the success of these numbers in the men’s business, can you maybe elaborate a little bit more on the plans around the women’s business and what has you most excited about the women’s business today?

Charlie Denson: I think that is actually starting to expand regularly. Right now I think you’re seeing some of the new executions in-store with women’s apparel, specifically around the Bottoms Bar and the bra bars that we put into some of the new retail formats, that is performing extremely well and we are very excited and optimistic about the apparel side of the equation in women’s. As I referenced a little bit earlier, I think we talked about it, some of the new FREE products is coming in to the market in holiday and will be highlighted in a major campaign around the FREE technology, which to Mark’s earlier point, continues to evolve for spring and that will bring a lot more attention to the women’s business again. So, we feel pretty good about the women’s business, both short term regarding the things that I just talked about and even more excited about it on a longer-term basis. As we stated back in New York in the spring, we believe that it’s one of the big opportunities for the brand.

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