Conference Call, 04/16/97 - Nike Inc. (NYSE: NKE)

FOOL CONFERENCE CALL SYNOPSIS*
By Dale Wettlaufer (MF Raleigh)

NIKE INC.
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One Bowerman Dr.
Beaverton, OR 97005-6453
503-671-6453
http://www.nike.com

ALEXANDRIA, VA., (April 15, 1997) /FOOLWIRE/ -- Nike Inc. reported third quarter 1997 earnings on March 20, 1997. On a conference call to discuss the quarter's results were Phil Knight, Chair, Tom Clarke, Chief Operating Officer, and Robert Falcone, Chief Financial Officer.

Q3 FINANCIALS AND REVENUE BREAKDOWN. Net income was $277.1 million, or $0.80 per share, compared with $0.45 last year. Revenues were $2.42 billion, up 53% from last year.

Revenue breakdown. U.S. athletic footwear was up 47% and U.S. apparel was up 63% for a total U.S revenue increase of 51%. International footwear was up 55% and apparel was up 104%, for a total international revenue increase of 67%. Other brands were down 3%, for a total corporate revenue increase of 53%.

FUTURES. The futures number for March through July is $4.3 billion, up 34% over last year. Currency affected the futures dollar amount by three percentage points.

PHIL KNIGHT. "Demand before currency adjustments for futures up 37% -- I can't say more strongly how pleased we are by the most recent 90 days. The other good news that's happened within the last 30 days is Business Week's report card on 500 companies, which is a quantitative calculation of companies based on sales increases, profitability, and return on equity. Nike was seventh overall, and number one in consumer products. Number two in consumer products was Coca-Cola, and I want to assure all of you that we will not rest on our laurels."

ROBERT FALCONE. This is the tenth straight quarter of double-digit increases in revenues and futures increases of more than 30%. We're pleased that in growth is again balanced. Every region around the world posted revenue increases of more than 50%. Looking ahead, we are also pleased to announce that every country is showing at least double-digit futures orders increases, on a constant dollar basis. I would also like to mention that our consolidated year-to-date revenues of $6.8 billion have surpassed our consolidated revenues for the entire 1996 fiscal year by $342 million.

U.S.. U.S. footwear revenues were up 47% for the quarter and 40% year-to-date. We are again pleased with the very strong increases we saw in some of our core categories. Men's running posted its third straight quarter of over 60%, coming in at 66%. Men's basketball was up 54%. Women's fitness, in another strong quarter, was up 60%. Our kid's category continues to be strong, increasing 67% on top of an 87% increase last quarter. Futures orders in men's running are up 24% and women's fitness orders are also up 24%. Men's basketball has futures orders up 17%. "Just to put that number in perspective, our year-to-date basketball business in the U.S. is in excess of $600 million. Finally, our kids category is continuing to get stronger, posting a futures increase of 35%. Growth continues across all categories. For the quarter, revenues were up 63%, and up 82% year-to-date. Women's and kids were both up over 100% each.

INTERNATIONAL. International revenues were up 67% in the quarter, with footwear up 55% and apparel up 104%. On a constant dollar basis, which is a better measure of the volume of business, international revenues increased 78%.

INTERNATIONAL REVENUES AND FUTURES.

Percentage change -- all of the following are on a constant dollar basis:

Quarterly revenues Year-to-date revenues Futures orders

Germany    65%  47% 59%
UK         111  95  63
Italy       64  50  71
France      36  32  54
Korea       93  64 200
Japan      107 129  90 (different forecast method)

FINANCIAL PERFORMANCE. Margins increased 110 basis points, coming in at 40.8%, compared with 39.7% a year ago. The largest part of the increase can be attributed to gains the company saw in U.S. footwear margins due to increases in pricing margins. Nike also saw some improvements in European gross margins, as they begin to see some of the benefits of the centralized distribution center in Belgium. Year-to-date, margins are at 40.2%, closer to where the company sees margins for the full fiscal year. On the SG&A line, the company saw some leverage due to the large increase in revenues during the quarter. SG&A as a percentage of total revenue came in at 23.8%, compared to 24.5% in the third quarter of 1996. On a year-to-date basis, SG&A is at 24%of revenues, compared to 23.9% last year. "We continue to spend in the critical areas of marketing and retail support, particularly in the international markets. We'll continue to build staff in our key countries and in all of our regions outside the U.S.. We are still anticipating a year-end SG&A rate closer to the 25% area. This spending should follow a similar pattern with last year, where SG&A was at 23.9% at the end of the third quarter, but the year ended with that percentage at 24.6%."

BALANCE SHEET. Inventories and receivables were up due to business growth, and they're in excellent shape. Inventory turns were about 5.5 for the quarter. Long-term debt is up $289 million compared to $14 million at this time last year, primarily due to a $200 million debt offering the company completed in December. Cash and short-term investments are up $41 million over the prior year.

TOM CLARKE, COO. Sell-throughs right now are solid. U.S. futures are up 23.5%. We're repeatedly said we're prepared to manage the business over the next 3-5 years with a U.S. growth outlook of 7-12%. "We're ahead of plan" looking at the futures orders for the United States. Apparel is increasing as a percentage of U.S. revenues. Apparel made up 27% of trailing 12-month U.S. revenues; we expect to be up somewhere in the 30-31% range in the coming fiscal year. In the U.S., there's always a lot of focus on traditional products.

NEW BUSINESSES. The company continues to build new businesses, though. The first is soccer -- "we're getting up to the point of significance, if you will, in the soccer business. In fiscal year 1998, we expect that business to be somewhere in the $135-150 million range," representing growth on the order of 40%. Another growing business is golf, both in footwear and apparel. "We expect to be somewhere in the $170-180 million range as a golf business in the U.S. -- that's up 60%. We are developing a new basketball brand here at Nike, it is the Jordan brand. In the next year, we are launching what has just been really Michael's game shoe into a full-fledged business." It will receive separate strong marketing support going into the Christmas season. This brand has a number of different shoes and a number of top pros will wear the Jordan brand. The brand will also feature apparel, with a number of top colleges in the country wearing Jordan-logoed apparel. We expect this to be the number-two basketball brand in the U.S., following Nike. Nike projects sales, based on the reception from the company's retailers, of somewhere in the $350-400 million range in fiscal 1998.

INTERNATIONAL. "This is where Nike's growth will come in the most significant way in the future. As we look at breaking out that overall 37% futures order for the coming five months, the international piece of that, on a constant dollar basis, is up 65%. Looking at the regions, there's exceptional momentum in all three. Europe is up 63% in futures; Asia/Pacific (not including Japan) is up 82%; and the Americas is up 55% on a constant dollar basis. The company sees itself as number-one in footwear across Europe, including being very close to that mark in Germany." The company has seen success in product flow in Europe and believes the market in Europe can grow. The company is pleased with its new general manager in France, which is an important market for the company since the World Cup will take place there next year. The company expects international business to be up 40% in 1998 and sees international revenues surpassing U.S. revenues by the year 2000.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.