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we do not expect the region to be profitable
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jma325
Posted 2015-11-05 8:10 PM (#214238)
Subject: we do not expect the region to be profitable


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? China Still Sluggish In line with our expectations, sales in China only grew by 2% for the quarter. For the full year, revenue growth came in at 3%. At $2.6 billion in annual revenues, China contributes less than 10% to the company’s top line. Given that China is one of the largest markets for athletic footwear and apparel in the world, the geography provides a significant growth opportunity for Nike. We have already written about the problems Nike faces in establishing a strong foothold in this market. (See: Nike’s China Problem) Previously beset by the accumulation of unsold inventory and indifferent response to new product launches, Nike decided to reset its strategy for China in fiscal 2014. The company believes that it has made good progress on that front and expects to achieve sustainable double-digit growth from the region soon. In 2014, Nike tested new merchandising concepts in China, which drove comparable store sales for the quarter up 22%.The sports retailer also changed the assortment of inventory it sells to wholesale partners in China, undertook the re-profiling of multiple stores in the region and reduced the levels of inventory considerably. However, these newly re-profiled stores only form a small part of Nike’s business in China, and any profitability gains made from these stores are likely to be offset by the expenses the company undertakes in the re-profiling of the rest of its stores. Therefore, we do not expect the region to be profitable before interest and taxes anytime soon. Europe Continues To Surprise Nike brand revenues in Western Europe grew by 18% (in constant currency terms) in Q4 2014, further confirming that Nike is gaining ground over market leader Adidas. Similar to the operations in China, Nike undertook a rebasing FIFA Coins of its operations in Europe two years ago. The company introduced shop-in-shop concepts at sports retailers like JD Sports, Foot Locker and Intersport, in addition to trying out new store concepts in its own retail stores and online. The strategy has been successful, with Nike now the leader in the footwear market in all countries key to its business in Europe and is the preferred sports brand in each of the top 10 cities in Western Europe. For the full year, earnings before interest and taxes grew by a third in Western Europe, more proof that the company is gaining significant returns on its investments in the region. Nike brand revenues in Central and Eastern Europe saw 12% annual revenue growth in Q4 fueled by high demand in Russia, Poland, Greece and Turkey.We expect high growth in this market in fiscal 2015 due to growing economic prosperity in the region.

Edited by jma325 2015-11-05 8:11 PM
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