We have been told by a lot of really smart people that sports, or at least sports marketing, are dead. Games played by spoiled millionaires just don't have the impact they used to. And certainly those who play the game are long past the days when they could move product; the old formulas just don't work anymore.
Then along comes a group of young women, wearing USA across their chests, as they run through the best soccer teams in the world. The emotion they brought out on that July 10th afternoon, well, we just won't see its like for years, or even decades. And the singularity of that event didn't even last the month.
On July 25th, an athlete in a yellow jersey, riding a bicycle up the Champs de Elysses raced a memory of doctors and hospital beds and near-misses. Lance Armstrong didn't just win the Tour de France, the most grueling and demanding of all sporting events, he conquered death.
And by the way, we sold quite a few Mia Hamm shirts and yellow replica jerseys along the way. The emotion generated by sports not only sells product but is a great motivator for our employees worldwide, plus we can watch sports on TV all weekend and tell our spouses that we're doing research. Try to duplicate that somewhere else.
Likewise, Nike's death and its $31 stock price were slightly premature. And while this bit of news was not as dramatic as its counterparts on the pitch and the Champs de Elysses, the message is nonetheless just as strong. We are coming back. A rebound in slow motion is better than no rebound at all.
If sales and earnings were somewhat disappointing, a lot of the other news was very good. Gross profit margins rose from 36.5 percent to 37.4 percent. In view of declining sales, operating expenses were trimmed by almost $200 million. One of the most critical indicators in our industry - inventory - was reduced to healthy levels about as fast as we have ever done it in our four downturns.
Europe stays strong. Sometimes it feels like we get punished by Wall Street for growing quicker outside the U.S. We'll grant you it's a lot easier to walk down to the local mall to find out what's selling than it is to keep up with the latest trends in London or Milan. But that shouldn't obscure the fact that our business in Europe has been built on a solid foundation, and the perception of Nike as the local sports brand of choice continues to grow.
Asia is coming back. Despite the recent volatility, we continue to believe that the Asia Pacific region offers us our best opportunities for growth.
And we think we are seeing the bottom in USA apparel. Clearly, the apparel market has a greater variety of competitors than athletic footwear, and the past year proved to us that we need to be more responsive in this fast-changing business.
Most important of all, futures orders for the Company - the best barometer on our near term economic outlook - are going back up. Rest assured we will work hard to make the year 2000 a good year for all our shareholders.
I suppose it would be irresponsible for any Chairman's letter in the year 1999 to go without mentioning the Internet. The subject - and the stock valuations attached to Internet companies - dominates every business publication. While there is plenty of controversy swirling around this new medium, we absolutely believe it is creating an entire business revolution, and we truly intend to be a part of that revolution. If we had a clear-cut strategy I would not reveal it publicly, but ours is a strategy, that, in a word from that world, is iterating. You can get your best understanding of that by watching our web pages. I believe you will see a lot of action in the next 12 months.
As we go off to get those sales and earnings up, we are reminded that ours truly is a unique business. We have similar goals as others, but different inspiration. Who else has Mia and Brandi and Michelle and Lance Armstrong to inspire them in a very personal way. How can we fail with those people in our corner?
Lastly, a word about Bill Bowerman, the most important coach of American track, Nike's co-founder and an original Board member. As Bill retires from the Board this year, his spirit and commitment to excellence will continue to guide Nike.
On a June day in 1959, as a 21-year-old University of Oregon senior, I went over to MacArthur Court next to Hayward Field to clean out my locker for the last time. It was an emotional moment, but not as big as that which was to follow, as I went to go upstairs to the athletic department to say goodbye to Bill Bowerman, and tell him thanks for all he had meant to me. I had actually worked a couple hours on what I was going to say, but when I got there, I just couldn't get it out.
This spring Bill Bowerman moved from Eugene to Fossil, Oregon, the home of his youth and the current home of his son John. It is now a four-hour drive to Beaverton, something he has chosen at age 88 not to do five times a year. And so he decided not to stand for re-election to the Board. I find as I try to write a sentence or two on his meaning to the Company, that though many things have changed in the last 40 years, I am as paralyzed today as I was that June day in 1959.
So I will let somebody else's words do the work: "I have asked my son which of his instructors he considered had done the most for him and without a moment's hesitation he named you. I am sure there are many boys who feel the same as my son does, and I hope they have told you so. You are a teacher who is a friend and who imparts a spiritual development and inspiration." Mrs. Jay Bowerman, Bill's mother, wrote that in 1934 to Bill Hayward, her son's coach.
If words are not adequate to describe Bill Bowerman's contributions to Nike employees and shareholders, those of his own mother from 65 years ago come as close as I can get.
Philip H. Knight
Chairman of the Board and Chief Executive Officer