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NIKE, Inc. Reports Fiscal 2018 Second Quarter Results | Webcast Link (updated with Transcription Notes)

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NIKE, Inc. (NYSE:NKE) today reported financial results for its fiscal 2018 second quarter ended November 30, 2017.

Source: NIKE, Inc. Reports Fiscal 2018 Second Quarter Results

I find it interesting that the shoe chosen for Nike’s Q2 Fiscal report is the Virgil Abloh Ten Jordan 1. Why is it interesting? The typical picture associated with Nike Fiscal reports is something that promotes sport; which is in line with Nike’s concept of athletes first. Using a limited release shoe designed for fashion as opposed to sport speaks to Nike’s realization that sport is no longer the driver of customer experience, service is.

I typically do a prediction and analysis of the Fiscal report, but I didn’t get to it this quarter. Instead I will post the link so that you can listen in to the webcast. I might transcribe it if time permits. One detail of importance that will shape this conference call is Operating Cost. Marketing spend was 877 million and operating cost were at 1.9 billion. The shift to CDO is going to be discussed in great detail I’m sure as an increase of 10% to selling and administrative is definitely going to affect growth. Here is the link to the webcast:

Note: For those wondering how this is Nike’s Q2 when other companies are in Q4, Nike begins its Fiscal Year at the beginning of other companies Q3 July, August, September.

Updated with Transcribed Notes from the Webcast

Growth in Jordan will be via dimensionalizing

In running the Zoom VaporFly 4% and Zoom X cushioning dominated marathons.

Women’s business will evovle and invest from concept to consumers which starts with innovation. Nike is expecting quadruple business in bras for women.

Nike Pants Studio drove stronger in season growth and Nike is focusing on Nike specific footwear. The brand name dropped Nordstroms

Momentum in sportswear saw double digit growth. The 35th anniversary of Air Force 1 was solid and Air Max 97 sold a million pair this season.

In greater China saw double digit growth and grereat sell through in VaporMax, Lebron 15 and Jordan 1. Overall Greater China Direct Store business saw double digit growth.

Nike set records on Single’s Day in China.

Nike 120,000 people for 38,000 spots in Shanghai Marathon

EMEA saw strong digital and the local door openings improved via membership integration.

North America is starting to payoff. This quarter the brand updated Nike Plus Membership is already showing uptick in new and buying members.

The improved consumer experience has led to coversion.

Key Retail partners featured a mention of Finish Line and the virtual wall.

CDO in United States will make a healthier market to drive brand heat.

Andy Campion

In dynamic times we know you don’t need to do everything, you need to do the right thing. CDO reflects what matters most with an emphasis on 12 Key Cities.

New Innovative Products faster

New versions of the Air VaporMax made it number 1 for over 100 dollar shoes.

Another mention of the Virgil Abloh Ten as an extraordinary demand item.

Growth through grew faster than other channels.

Nike will launch and scale more innovation of the next few months. Second half of FY18 will enhance digital globally.

With Innovation Speed and Digital Nike is becoming a better retailer because of CDO in a promotional environment.

Q2 grew 5%

Gross Margin contracted.

Inventories up 6% due to Nike Brand units.

North America contracted 5% but Nike can see momentum with growth in Nike Direct vs Nike Wholesale, but Wholesale will stabilize as Foot Locker and DSG improve store experiences.

EMEA revenue was up 14% Growth was led my Nike Direct

Nike will not take China for granted they will continue to invest there.

APLA Key Cities Seoul, Tokyo, Mexico City saw double digit growth. Nike is the leading brand in this geography. Q2 revenue was up 6% in APLA

Converse declined 4% due ot investment to drive brand heat.

FY18 guidance remains consistent. Revenue growth mid single digits.

Two factors will way FX and the promotional environment.

Expect tax rate to be 14-16% before taking into account US tax reform. Tax rate will be higher on deemed repartiate earnings if tax reform is passed. It will be favorable long term.

Additional notes from Q&A

The Air Force 1 is one place where Edit to Amplify has been utilized.

Amazon pilot is going well what is to come?

We’ve seen good sell through on the limited range so the brand is extending the small pilot. The brand is bullish on where it can go from there. Nike is looking to have better presentation. The brand shifted to a discussion on TMall to explain how Amazon relationship could work.

Were closeouts a part of decline in margins?

Closeouts were not very significant. Contraction was due to foreign exchange.

Will closeouts be similar in Q3?

As we launch more scale tooling and upfront will have an impact because it’s amortized in the first season of launch. Innovation will affect Q3, but long term will be a bonus.

How is demand and how are changing supply into the marketplace shaping North America?

The promotional backdrop will be there at the retail level. There is a consumer appetite for retail experiences, premium product and innovation.