Fitness financials: Nike reports Q1 2005, Saucony/Hind works to keep management, plus National Retail Federation

Nike 2005 first quarter off to a great start
Robust U.S. sales vaulted Nike’s (NYSE: NKE) 2005 first-quarter revenues up 18 percent to $3.6 billion, versus $3.0 billion for the same period last year. First-quarter net income totaled $326.8 million, or $1.21 per diluted share (10 cents ahead of analysts’ forecasts of $1.11 a share), compared to $261.2 million, or $0.98 per diluted share in the prior year.

Contributing to the success was Nike’s summer-long “Speed” initiative, which featured top athletes and aired during big sporting events, including the Tour de France, the Olympics and the U.S. Open. It was the company’s largest global integrated brand initiative. The company said Olympic years have always represented an excellent international platform and positive boost to the business. One analyst agreed, noting that Nike and the footwear and apparel industry in general have shown a consistent history of growing after an Olympic year. Since the Sydney games in 2000, Nike revenues have increased by 35 percent, the company said.

During the first quarter, U.S. revenues increased 12 percent to $1.4 billion versus $1.2 billion for the first quarter of fiscal 2004. U.S. athletic footwear revenues increased 12 percent to $921.4 million. Apparel revenues increased 13 percent to $391.3 million. Equipment revenues increased 11 percent to $89.0 million. Revenues for the European region (which includes the Middle East and Africa) grew 14 percent to $1.2 billion; up 17 percent in the Asia Pacific region to $406.0 million; and also up in the Americas region by 7 percent to $161.7 million.

Nike’s worldwide futures orders for athletic footwear and apparel, scheduled for delivery from September 2004 through January 2005, are $4.3 billion, 9.9 percent higher than last year. Approximately 0.7 percent of this growth was due to changes in currency exchange rates. Gross margins were 44.5 percent compared with 43 percent last year.

Nike bought back 2.14 million shares for $155.2 million in the quarter, as part of its four-year, $1.5 billion share repurchase program.

Saucony works to keep top management through possible ownership change
In a recent Form 8-K filing with the SEC, Saucony entered into retention agreements with various management personnel, aimed to keep top management onboard through any possible sale of the company. The agreements are with Michael Umana, Saucony’s CFO, COO and executive vice president; Michael Jeppesen, senior vice president of manufacturing and product development; Samuel Ward, senior vice president of operations and technology; and Brian Enge, vice president of the Hind apparel division. A day later, Saucony also entered into a retention agreement with Roger Deschenes, its vice president, controller and chief accounting officer.

These retention agreements all generally provide that if the officer remains continuously employed full time by Saucony and the company completes a change in control on or prior to Dec. 31, 2005 (or June 30, 2005, for Deschenes), Saucony will pay the officer an initial retention bonus. Then, if the officer remains continuously employed full time by Saucony during the period ending six months after it completes the change in control, or the officer’s employment is terminated, Saucony will pay an additional retention bonus. The amounts of the retention bonuses are: Umana, $150,000; Jeppesen, $106,818; Ward, $92,500; Enge, $88,275; and Deschenes, $73,192. Each would receive that amount a second time for the second bonus.

Also, for Umana, Jeppesen, Ward and Enge, if they remain continuously employed full-time by Saucony and the company completes a change in control by Dec. 31, 2005, all options to purchase Saucony’s capital stock will automatically vest 50 percent. Umana entered into a separate agreement with Saucony that provides a $300,000 severance payment if his employment at Saucony is terminated with or without cause. He’ll also be eligible for a bonus of up to $300,000 for Saucony’s 2004 fiscal year, with 75 percent of the bonus, or $225,000, to be earned if Saucony’s earnings per share for its 2004 fiscal year meet or exceed a specified target. The remaining 25 percent of the potential bonus, up to $75,000, will be payable by Saucony based on the discretion of the compensation committee of Saucony’s board of directors.

National Retail Federation releases August sales report
According to the National Retail Federation (NRF), August retail sales in the GAFS category (general merchandise stores, clothing and clothing accessories stores, furniture and home furnishings stores, electronics and appliances stores, and sporting goods, hobby, book and music stores) rose 2.0 percent over last year but dipped 0.4 percent over July. Nevertheless, one strong category continued to be sporting goods.

“August represented another notch in a schizophrenic summer for retail sales,” said NRF Chief Economist Rosalind Wells. “Retailers are hoping that fall and winter sales are more consistent and predictable.”

August retail sales recently released by the U.S. Commerce Department show that total retail sales (which include non-general merchandise categories such as autos, gasoline stations and restaurants) dipped 0.3 percent seasonally adjusted over July and increased 4.6 percent unadjusted year-over-year.

Despite the overall decline, several retail sectors saw strong sales in August. Sales at sporting goods, book, hobby, and music stores rose 1.4 percent adjusted over July and 3.0 percent unadjusted over last year. Hardest-hit sectors in August included clothing and clothing accessories stores, which saw a slight decline in sales with a decrease of 1.4 percent over July and a 0.4 percent drop over last year. Sales at general merchandise stores were also down 0.4 percent over July though they increased 1.4 percent over a year ago.

First quarter GAFS sales increased 9.9 percent and second quarter sales rose 6.8 percent. The NRF has forecast 2004 GAFS sales to grow 6.0 percent over last year.

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