To our shareholders,
Each year we devote this space to my thoughts about Nike. Each year I wonder why we do it. There is something artificial about the effort. We attempt to freeze time and take a snapshot of a company that is in constant motion. It’s like trying to sketch Asafa Powell running the 100m.
But that won’t stop me from trying.
So what does Nike’s evolution look like at this moment? Profitable.
Fiscal Year ’05 is a record year for sales and profitability. Again. We closed the year with our seventh consecutive quarter of double-digit earnings per share growth. Footwear revenues are up 11% over last year. Apparel revenues are up 10%. Equipment revenues are up 15%. A dollar invested in Nike stock one year ago was worth $1.17 at year-end.
Looks like we’re finally figuring out some things.
Like soccer. Ten years ago our boots were dismissed by athletes and retailers. “You don’t get it,” they said. But we knew we could learn. And we knew we could innovate.
Today Nike is the footwear market-share leader in Europe. We saw FC Barcelona win the Spanish League. Juventus win the Italian League. PSV win the Dutch League. Arsenal win the FA Cup. Ronaldinho named FIFA Player of the Year. Thierry Henry win Europe’s Golden Boot Award. Brasil win the Copa America. All in Nike Gear.
Next year the World Cup finals will be in Berlin. Some people think this will be ground zero for an epic battle of the brands. Not so. The soccer wars won’t be won in someone’s backyard. They’ll be won on pitches and patches of green around the world. I think we get it now.
In Athens we showed that Nike, more than anybody else, “gets” running. Nike athletes won Olympic gold in every men’s running event except the marathon. It would have been a sweep but for the full moon, which prompted a crazed spectator to jump from the crowd and mug race leader Vanderlei Lima.
As this book goes to print, Lance Armstrong is competing in his final Tour de France. If he wins, it will be an unprecedented seven consecutive victories. But win or lose, the Lance Armstrong story transcends the great race. He represents the strength it takes to overcome . . . anything.
A year ago, we cooked up a little yellow bracelet that said LiveSTRONG. Our goal was to sell 5 million bands to benefit the Lance Armstrong Foundation. We’re at 50 million and counting.
Lance gives us a peek at the true nature of evolution. It isn’t about change for the sake of change. Evolution is a search for significance. New and different isn’t enough. New and better is the way.
We’re clearly getting better at presenting our products to consumers. This year marked the best year ever for NikeTown stores. We now have seven NikeWomen stores in key cities throughout the U.S. and one just opened in Munich, Germany. We’re on firm footing with our key retail partners. And we’re opening 1.5 retail doors per day in China, which helped double revenues there over last year. Any country where a 110-meter hurdler can become a national hero is a country where Nike can succeed.
Looks like we’re evolving into a truly global company.
Revenues in every Nike region outside the U.S. are up double digits over last year. Even in the U.S., where momentum flagged a few years ago, we’re seeing revenues up 7%. And one year after launching a direct presence in Russia, we see strong brand acceptance and growth. But we still have a lot of work to do. Evolution isn’t always easy.
Last year I wrote, “You want to see an opportunity for Nike akin to becoming global? Look to the subs.” Since I mention that now, you can assume I was right. This year revenue for the subsidiaries is up a collective 22%.
Cole Haan was named Footwear Company of the Year in Footwear News. We acquired Starter and launched footwear for that brand. And Converse has continued to flourish as part of the Nike, Inc. portfolio of brands. Plenty of opportunity remains throughout the portfolio. Hurley continues to gain traction in the fast growing surf-culture market. And while the lack of a hockey season gave Bauer NIKE Hockey its challenges, we’re looking forward to the NHL getting back on the ice next year.
This year we published our first Corporate Responsibility Report in three years. A truly evolutionary report. In it we list our contract supplier base, a first for our industry. Some have said it will erode a competitive advantage, leaving our supply chain open to those who want to steal away suppliers. Is it a risk? Maybe, but this kind of transparency can be key to unlocking collaboration. We believe the best way to deal with change is to create it.
In the case of Nike, evolution isn’t the result of natural selection. It comes from talking with consumers and serving athletes. It comes from the bright, passionate people who make and manage Nike products—Nike Free footwear, Nike Pro first layer apparel, the Air Jordan XX shoe, the Hi-Vis Total 90 football, and customizable NIKEiD products.
It comes from those magic moments that reaffirm the sanctity of sports. You never know when they’re going to happen, but you just know they’re coming somewhere. Tiger Woods chips from the back of the 16th at Augusta, the ball rolling impossibly slow to the hole, hanging on the edge, the Swoosh teasing the field before it drops into the cup. The Boston Red Sox who shook off a dozen strangleholds to bust a curse 86 years in the haunting. Paula Radcliffe, devastated after pulling up at mile 23 of the Olympic marathon, goes on to tough out a three-second win at the New York City Marathon. These are the incremental moments in the evolution of human potential, and I feel privileged to be witness to them.
This is my 25th letter to you as Chairman of Nike. It is the first letter that I will sign without CEO in the title. That challenge now falls to Bill Perez. He’s used to managing multiple brands in a global environment. He holds strong beliefs about corporate citizenship. He steps in at a time when Nike is at an all-time high in revenues and earnings. His timing is excellent.
Philip H. Knight
Chairman of the Board, Nike, Inc.