Far from Cinderella stories, the NCAA Final Four this year features four heavyweights. Because of talent and preparation, these programs expect to win. Nike's (NYSE:NKE) presence will be fully felt during the big games, perhaps even more so this year, since the basketball teams for both the University of Florida and Ohio State University are donning the sports-apparel giant's newest jersey design. Only four teams in the country were selected to sport the new threads, two of which made it to the Final Four. It looks like Nike did a good job filling out its bracket.
When I fill out my brackets for the sports-apparel segment's best long-term winner, Nike's the no-brainer. From its dominance of the domestic sports market, to its commanding presence in Europe and Asia, Nike has both the resources and the dedication to win. Its latest quarterly earnings conference all made this even more apparent.
In our last two looks at Nike's first-quarter and second-quarter conference calls, we've focused largely on its efforts in China. Since Europe has long been a trouble spot for the company, in this edition of Fool on Call, we'll examine how Nike plans to pave the way for a trans-Atlantic turnaround.
A rebound in Europe
In a conference-call analysis earlier this week for global business leader FedEx (NYSE:FDX), we learned that while the U.S. and Asia are currently experiencing a bit of an economic slowdown, Europe is not. A rebound in the European economy may help to explain why Nike is finally beginning to gain traction there. But according to Nike's leadership, there's more to its recent success than a favorable environment.
The company's numbers in Europe were overall positive in the third quarter. Revenues in the region increased 15%, although nine of those points came from a favorable currency exchange. In the call, we learned that the positive traction continues, as evidenced by healthy futures orders in the region; in constant currency, futures orders for apparel and footwear rose 7% in the third quarter. Reflecting on the numbers, CFO Don Blair asserted that this highlights "a significant acceleration versus recent quarters." He adds that this is "an early indicator that the strategies" are working.
I know from previous calls that one of the strategies to which Blair refers is Nike's effort to create brand awareness during last year's World Cup. As an aside, in the fourth quarter, we can expect to see some nice profit gains from Europe, as expenses related to "demand creation" (i.e. advertising) significantly ease off from World Cup levels.
Charlie Denson, president of Nike Brand, in response to an analyst's question on the state of business in Europe, said: "We're not ready to announce a complete turnaround [in Europe], but we're very optimistic about what we've done to date and the quality of the business and where the brand sits." All parts of Europe are performing well, save France and the U.K., the third quarter's only countries to post negative sales growth. But even there, Denson believes "the indicators are starting to point in the right direction." He suggested that results would continue to improve over the next six months.
Improved product presentation
A part of Denson's optimism seems to be founded on recent developments made with key partners like Foot Locker (NYSE:FL). While management did not want to show its hand with any specifics yet, I gleaned some hints from both Denson and CEO Mark Parker.
It appears that the new partnership strategy with retailers like Foot Locker will have a two-pronged attack. One level entails making product presentations more relevant and effective, creating better differentiation between key products and retail partners alike. I'm guessing that Nike has some promotional tool in place to present certain products in certain ways, depending on the retail partner. For example, the wares Nike presents in Foot Locker may be quite different than its offerings at Finish Line (NASDAQ:FINL) or Dick's (NYSE:DKS).
The European market won't be the only testbed for Nike's newly refined "category-based presentations." Denson spoke of a "sea of sameness" that currently plagues U.S. malls, forcing the company to better distinguish product presentations by both the category of merchandise and the type of retail store.
The power of partnerships
Step two in Nike's strategy involves encouraging store growth for its retail partners, specifically Foot Locker. Later in the call, Denson suggested that Foot Locker will play a key role in Nike's turnaround efforts in Europe, but especially in France and the U.K. He states that some of his "cautious optimism" is founded on the growth opportunities for Foot Locker in those respective countries as well as the whole of Western Europe.
Nike plans to further increase its retail presence with another U.K.-based retailer, JJB Sports. Nike intends to establish a "shop-in-shop" presence in JJB stores. Currently, Nike has 15 such stores in operation, with plans to introduce a total of a 100 or so within the next six to 12 months. This would give Nike a distinguished presence in roughly a quarter of JJB's 430 stores throughout the U.K.
The partnership with JJB is significant, because the U.K. is currently Nike's largest market in Europe. France, Italy, and Spain take turns battling for the second spot, but the U.K. is the clear leader.
Preparation is the key to victory
Nike is unquestionably benefiting from an improved economic environment in Europe. But it's also evident that Nike's thorough strategic planning has become key to preparing for success. Europe has been a tough playing field for Nike in recent years, but based on this call, the company seems to be gearing up for a rebound with surprising speed.
Nike is a machine -- a consistent grower, as fellow Fool Ryan Fuhrmann points out. But consistency comes from preparation as much as performance. Coaches contend that a team plays only as well as it practices. Likewise, a business performs only as well as it prepares. If Nike's plans for Europe are any indication, investors should see solid play from the sports-apparel king in the coming quarters.
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Fool contributor Jeremy MacNealy has no financial interest in any company mentioned. The Motley Fool has a disclosure policy.
