Nike’s Annual Report- A Few Interesting Facts

Nike came out with their 10K annual report maybe 10 days ago. Because we’re in the habit of focusing on the press release and the conference call which happens much sooner, nobody seems to have paid any attention to this 145 page document. But never fear, I’m a glutton for punishment and there were a few interesting facts I thought I might provide.

You’ll excuse me if I don’t do my usual financial analysis. With hardly any long term debt (given their balance sheet though some of us probably think $400 million is a lot), a few billions in cash, and just over $19 billion in revenue, I just don’t think I’d discover anything useful if I stared squint eyed at their cash flow statement for very long.

Revenue was down from $19.176 billion in 2010 from $19,014 the previous year. But their gross profit margin, at 46.3%, was the highest since 2006. “The increase in gross margin percentage was primarily the result of favorable product mix, cost reduction initiatives, lower input costs and sales growth in our NIKE-owned retail business. (Emphasis added)” The retail increase was from both new store openings and growing comparable store sales.
 
“While our wholesale business remains the largest component of our NIKE Brand revenues, our NIKE-owned retail business continues to grow, representing approximately 15% of our total NIKE Brand   revenues in fiscal 2010 as compared to 13% in fiscal 2009.”
 
In the U.S., they’ve got 18 Hurley stores, 145 factory stores for closeouts, 12 Nike stores, 11 Niketowns, 51 converse factory stores, and 106 Cole Haan stores. In the rest of the world, there are 205 Nike factory stores, one Hurley, 55 Nike, 2 Niketown, 12 employee only stores, and 68 Cole Haan. They’ve got more stores to handle their closeouts then most chains have stores.
 
 Net income rose from $1.487 to $1.907 billion. They reduced their inventories 13.4% to $2.041 billion.
They’ve got 34,400 employees worldwide and 42% of their sales are in the U.S. The three largest customers represent 24% of U.S. sales, but none are more than 10%.   Hurley’s sales grew from $203 million to $221 million, but that’s the only specific action sports number or comment we get in the whole document.
 
They note that 89% of their U.S. wholesale footwear shipments (excluding “Other Businesses” of which Hurley is part) were made under their futures program. I think that’s the same as prebooks, which is pretty impressive. The number for U.S. apparel shipments is 62%. Where do they get all this stuff made?
 
“Virtually all of our footwear is produced by factories we contract with outside of the United States. In fiscal 2010, contract factories in Vietnam, China, Indonesia, Thailand, and India manufactured approximately 37%, 34%, 23%, 2% and 1% of total NIKE Brand footwear, respectively. We also have manufacturing agreements with independent factories in Argentina, Brazil, India, and Mexico to manufacture footwear for sale primarily within those countries. The largest single footwear factory that we have contracted with accounted for approximately 5% of total fiscal 2010 footwear production.”
 
But not even Nike is immune from macroeconomics and some of the labor issues in China.
 
“We anticipate our gross margins in fiscal 2011 may be negatively impacted by macroeconomic factors including changes in currency exchange rates and rising costs for product input costs. We also anticipate higher air freight costs as we work with our suppliers to meet increasing demand for certain running footwear products in the first half of the year.”
 
I strolled through the U.S. Open of Surfing last week and kind of noticed that Nike and Hurley dominated the place. It looks like Nike has plans for our industry.

 

 

2 replies
  1. janet freeman
    janet freeman says:

    Hey Jeff, Thanks for doing the “heavy lifting” and reading that report.
    Wow, stores seem to be the way of the future. On-line and brick and mortar.

    J

    • jeff
      jeff says:

      What’s particularly interesting is that we all knew/know that the whole country is over retailed in almost any category you can name, and that includes action sports (not that I wouldn’t like to see some more independent specialty shops around). Yet companies keep opening or acquiring new stores. I guess it all comes down to the fact that as a CEO of a public company you obviously have to believe in your brand and strategy, and you have to find a way to grow and show quarterly progress. But this is when strong companies with good balance sheets and a product the consumer wants can gain market share, and that’s part of what we’re seeing too.

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