Nike 2011 Annual Report Download - page 22

22 NIKE,INC.-Form10-K
PARTII
ITEM7Management’s Discussion and Analysis of Financial Condition and Results of Operations
Fiscal 2011 Compared to Fiscal 2010
Revenues for North America increased 13%, driven by double-digit percentage
growth in both wholesale and Direct to Consumer revenues. Contributing to
the wholesale revenue growth was strong product category presentations
at our wholesale customers, improved product lines and earlier shipments
of summer season products. North America’s Direct to Consumer revenues
grew 19%, which contributed approximately 4 percentage points to North
America’s revenue increase. The growth in the Direct to Consumer business
was fueled by 14% growth in comparable store sales.
For fi scal2011, the increase in North America footwear revenue was primarily
driven by double-digit percentage growth in Running, Men’s and Women’s
Training and Football (Soccer) categories and a single-digit percentage growth
in Basketball, partially offset by a low single-digit percentage decline in sales
of our NIKE Brand Sportswear products.
Theyear-over-year increase in North America apparel revenues was primarily
driven by double-digit percentage growth in most key categories, most notably
Men’s Training, Running, Basketball and Women’s Training.
For fi scal2011, the increase in North America’s EBIT was primarily the result
of revenue growth and leverage on selling and administrative expense, which
more than offset a lower gross margin percentage. The decline in gross margin
percentage was due primarily to increased air freight and product input costs,
which more than offset the favorable impact from the growth of our Direct to
Consumer business and fewer close-out sales.
Fiscal 2010 Compared to Fiscal 2009
Excluding the changes in currency exchange rates, revenues for North America
declined 1%, driven primarily by a decrease in revenue from our wholesale
business. This decrease was partially offset by an increase in our NIKE-owned
retail business, driven primarily by an increase in comparable store sales.
During fi scal2010, the decrease in North America footwear revenue was
primarily attributable to a low single-digit percentage decrease in unit sales,
while average selling price per pair remained fl at. The decline in unit sales
was primarily driven by lower sales for our Kids’ and Running categories in
the fi rst half of fi scal2010.
North America apparel revenue during fi scal2010 was fl at when compared
to fi scal2009, which was refl ective of a high single-digit percentage increase
in average selling price per unit, offset by a low double-digit percentage
decrease in unit sales. Both the increase in average selling price per unit and
the decrease in unit sales were primarily a result of fewer close-out sales
compared to the prioryear.
For fi scal2010, the increase in North America’s EBIT was primarily the result
of improved gross margins combined with a slight decrease in selling and
administrative expense, driven by a reduction in demand creation expense
compared to prioryear. The improvement in gross margin was mainly attributable
to a shift in mix from close-out to in-line sales, growth of our Direct to Consumer
business as a percentage of total sales, improved in-line product margins and
lower warehousing costs.
Western Europe
(Inmillions) Fiscal2011 Fiscal2010
FY11vs. FY10
%Change
FY11 vs. FY10
%Change Excluding
Currency Changes Fiscal2009
FY10vs. FY09
%Change
FY10 vs. FY09
%Change Excluding
Currency Changes
Revenues
Footwear $ 2,327 $ 2,320 0 % 7 % $ 2,385 -3 % -3 %
Apparel 1,266 1,325 -4 % 2 % 1,463 -9 % -9 %
Equipment 217 247 -12 % -6 % 291 -15 % -15 %
TOTAL REVENUES $ 3,810 $ 3,892 -2 % 4 % $ 4,139 -6 % -6 %
Earnings Before
Interest and Taxes $ 721 $ 856 -16 % $ 939 -9 %
Fiscal 2011 Compared to Fiscal 2010
On a currency neutral basis, revenues for Western Europe increased 4%
for fi scal2011, attributable to growth in most territories. Revenues for the
U.K.& Ireland, the largest market in Western Europe, grew 5% for fi scal2011.
Western Europe’s Direct to Consumer revenues grew 10%, which contributed
approximately 1 percentage point to Western Europe’s revenue increase.
The growth in the Direct to Consumer business was fueled by 6% growth in
comparable store sales.
Excluding changes in currency exchange rates, footwear revenue in Western
Europe increased 7%, driven by double-digit percentage growth in our Running,
Football (Soccer) and Action Sports categories, which more than offset a slight
revenue decline in our NIKE Brand Sportswear category.
On a currency neutral basis, apparel revenue in Western Europe increased
2%, primarily driven by double-digit percentage growth in our Football (Soccer)
and Running categories, which more than offset a mid single-digit revenue
decline in our NIKE Brand Sportswear category.
For fi scal2011, the decrease in Western Europe’s EBIT was driven by unfavorable
foreign currency translation and a lower gross margin percentage, all of which
more than offset the increase in revenues and improved leverage on selling
and administrative expense. The decline in the gross margin percentage was
signifi cantly impacted by the unfavorableyear-over-year standard currency
rates. Also contributing to the decrease in the gross margin percentage was
higher product input and air freight costs, higher royalty expenses related to
sales of endorsed team products and higher full price discounts. These factors
more than offset the favorable impact of fewer close-out sales.
Fiscal 2010 Compared to Fiscal 2009
On a currency neutral basis, most markets in Western Europe experienced
lower revenues during fi scal2010, refl ecting a diffi cult retail environment
throughout the geography. Our largest market, the U.K.& Ireland, declined 4%.
Excluding changes in currency exchange rates, the decrease in footwear
revenue during fi scal2010 was primarily the result of low single-digit decreases
in both average selling price and unit sales. The decrease in average selling
price was attributable to higher customer discounts provided to manage
inventory levels, while the reduction in unit sales was due to lower sales for
most NIKE Brand product categories.
Theyear-over-year decrease in apparel revenue was primarily driven by a high
single-digit decline in unit sales combined with a mid single-digit decrease in
average selling price. The decrease in unit sales was due to lower sales for
most NIKE Brand product categories, while the decrease in average selling
price was a result of higher discounts provided to retailers to manage their
inventory levels.
For fi scal2010, EBIT for Western Europe declined at a faster rate than revenues,
as the increase in selling and administrative expense as a percentage of
revenues more than offset the improvements in gross margin percentage.
The increase in selling administrative expense was primarily driven by a
higher level of both demand creation spending around the 2010 World Cup
and operating overhead expense as a result of investments in our Direct to
Consumer operations and higher performance-based compensation. The
gross margin improvement in fi scal2010 was primarily attributable to higher
in-line product margins, a smaller proportion of close-out sales and reduced
inventory obsolescence expense as a result of our leaner inventory positions.