NIKE, Inc. (NYSE:NKE) today reported financial results for its fiscal 2014 third quarter ended February 28, 2014. Despite the negative impact of changes in foreign exchange rates, earnings per share for the quarter were up 4 percent due to higher revenues driven by strong demand for NIKE, Inc. brands, gross margin expansion, a lower tax rate and slightly lower average share count, partially offset by the impact of higher SG&A investments in NIKE, Inc. brands and business capabilities.
"Our strong Q3 results demonstrate our relentless focus on delivering innovations that resonate with consumers,” said Mark Parker, President and CEO of NIKE, Inc. “Despite macroeconomic challenges, NIKE delivers consistent results because we focus on the biggest opportunities for growth while we manage risk across our diverse global portfolio. This is how we continue to drive long-term value for our shareholders.”*
Third Quarter Continuing Operations Income Statement Review
- Revenues for NIKE, Inc. rose 13 percent to $7.0
billion, up 14 percent on a currency neutral basis.
- Revenues for the NIKE Brand were $6.6 billion, up 14 percent on a currency neutral basis powered by growth in every geography and key category.
- Revenues for Converse were $420 million, up 16 percent on a currency neutral basis, mainly driven by strong performance in our largest direct distribution markets: the United States, China and the United Kingdom.
- Gross margin expanded 30 basis points to 44.5 percent. Gross margin benefitted from higher average prices and continued growth in the higher margin Direct to Consumer business, partially offset by higher product input costs, unfavorable foreign exchange rates, and higher discounts, reflecting actions to clear excess inventory in select markets.
- Selling and administrative expense increased 16 percent to $2.2 billion. Demand creation expense was $733 million, up 18 percent, driven by marketing support for key product launches, the upcoming World Cup and investments in retail product presentation for wholesale accounts. Operating overhead expense increased 15 percent to $1.4 billion due to investments in infrastructure, digital innovations and higher Direct to Consumer costs driven by comparable store sales growth and new store openings.
- Other expense, net was $45 million, comprised primarily of foreign exchange losses. For the quarter, the Company estimates the year-over-year change in foreign currency related gains and losses included in other expense (income), net, combined with the impact of changes in currency exchange rates on the translation of foreign currency-denominated profits, decreased pretax income by approximately $40 million.
- The effective tax rate was 22.4 percent, compared to 22.8 percent for the same period last year, an improvement primarily due to an increase in earnings from operations outside of the U.S., which are generally subject to a lower tax rate, partially offset by a benefit in the prior-year period from the retroactive reinstatement of the U.S. research and development credit.
- Net income increased 3 percent to $685 million while diluted earnings per share increased 4 percent to $0.76, reflecting a slight decline in the weighted average diluted common shares outstanding.
February 28, 2014 Balance Sheet Review for Continuing Operations
- Inventories for NIKE, Inc. were $3.8 billion, up 12 percent from February 28, 2013. NIKE Brand wholesale unit inventories increased 7 percent to support future demand. Changes in the average NIKE Brand wholesale product cost per unit, combined with the impact of changes in foreign currency exchange rates, drove approximately 5 percentage points of net inventory growth.
- Cash and short-term investments were $5.0 billion, $987 million higher than last year as a result of proceeds from the issuance of debt as well as higher net income.
Share Repurchases
During the third quarter, NIKE, Inc. repurchased a total of 10.4 million shares for approximately $788 million as part of the four-year, $8 billion program approved by the Board of Directors in September 2012. As of the end of the third quarter, a total of 39.6 million shares had been repurchased under this program at a cost of approximately $2.5 billion, an average cost of $63.21 per share.
Futures Orders
As of the end of the quarter, worldwide futures orders for NIKE Brand athletic footwear and apparel scheduled for delivery from March 2014 through July 2014 totaled $10.9 billion, 12 percent higher than orders reported for the same period last year, and 14 percent higher on a currency neutral basis.*
Conference Call
NIKE management will host a conference call beginning at approximately 2:00 p.m. PT on March 20, 2014, to review third quarter results. The conference call will be broadcast live over the Internet and can be accessed at http://investors.nikeinc.com. For those unable to listen to the live broadcast, an archived version will be available at the same location through 9:00 p.m. PT, March 27, 2014.
About NIKE, Inc.
NIKE, Inc., based near Beaverton, Oregon, is the world's leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly-owned NIKE, Inc. subsidiaries include Converse Inc., which designs, markets and distributes athletic lifestyle footwear, apparel and accessories and Hurley International LLC, which designs, markets and distributes surf and youth lifestyle footwear, apparel and accessories. For more information, NIKE’s earnings releases and other financial information are available on the Internet at http://investors.nikeinc.com and individuals can follow @Nike.
* The marked paragraphs contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed from time to time in reports filed by NIKE with the S.E.C., including Forms 8-K, 10-Q, and 10-K. Some forward-looking statements in this release concern changes in futures orders that are not necessarily indicative of changes in total revenues for subsequent periods due to the mix of futures and “at once” orders, exchange rate fluctuations, order cancellations, discounts and returns, which may vary significantly from quarter to quarter, and because a significant portion of the business does not report futures orders.
| NIKE, Inc. | ||||||||||||||||
| CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||
| For the period ended February 28, 2014 | ||||||||||||||||
| THREE MONTHS ENDED | % | NINE MONTHS ENDED | % | |||||||||||||
| (Dollars in millions, except per share data) | 2/28/2014 | 2/28/2013 | Change | 2/28/2014 | 2/28/2013 | Change | ||||||||||
| Income from continuing operations: | ||||||||||||||||
| Revenues | $ | 6,972 | $ | 6,187 | 13 | % | $ | 20,374 | $ | 18,616 | 9 | % | ||||
| Cost of sales | 3,869 | 3,451 | 12 | % | 11,313 | 10,522 | 8 | % | ||||||||
| Gross profit | 3,103 | 2,736 | 13 | % | 9,061 | 8,094 | 12 | % | ||||||||
| Gross margin | 44.5 | % | 44.2 | % | 44.5 | % | 43.5 | % | ||||||||
| Demand creation expense | 733 | 619 | 18 | % | 2,155 | 2,103 | 2 | % | ||||||||
| Operating overhead expense | 1,433 | 1,244 | 15 | % | 4,155 | 3,655 | 14 | % | ||||||||
| Total selling and administrative expense | 2,166 | 1,863 | 16 | % | 6,310 | 5,758 | 10 | % | ||||||||
| % of revenue | 31.1 | % | 30.1 | % | 31.0 | % | 30.9 | % | ||||||||
| Interest expense (income), net | 9 | (2 | ) | - | 25 | (6 | ) | - | ||||||||
| Other expense (income), net | 45 | 17 | - | 86 | (28 | ) | - | |||||||||
| Income before income taxes | 883 | 858 | 3 | % | 2,640 | 2,370 | 11 | % | ||||||||
| Income taxes | 198 | 196 | 1 | % | 638 | 602 | 6 | % | ||||||||
| Effective tax rate | 22.4 | % | 22.8 | % | 24.2 | % | 25.4 | % | ||||||||
| NET INCOME FROM CONTINUING OPERATIONS | 685 | 662 | 3 | % | 2,002 | 1,768 | 13 | % | ||||||||
| NET INCOME FROM DISCONTINUED OPERATIONS | - | 204 | - | - | 49 | - | ||||||||||
| NET INCOME | $ | 685 | $ | 866 | -21 | % | $ | 2,002 | $ | 1,817 | 10 | % | ||||
| Earnings per share from continuing operations: | ||||||||||||||||
| Basic earnings per common share | $ | 0.78 | $ | 0.74 | 5 | % | $ | 2.26 | $ | 1.97 | 15 | % | ||||
| Diluted earnings per common share | $ | 0.76 | $ | 0.73 | 4 | % | $ | 2.20 | $ | 1.93 | 14 | % | ||||
| Earnings per share from discontinued operations: | ||||||||||||||||
| Basic earnings per common share | $ | - | $ | 0.23 | - | $ | - | $ | 0.05 | - | ||||||
| Diluted earnings per common share | $ | - | $ | 0.22 | - | $ | - | $ | 0.05 | - | ||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | 882.3 | 893.9 | 886.6 | 898.9 | ||||||||||||
| Diluted | 904.8 | 911.7 | 909.1 | 916.5 | ||||||||||||
| Dividends declared per common share | $ | 0.24 | $ | 0.21 | $ | 0.69 | $ | 0.60 | ||||||||
| NIKE, Inc. | ||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||
| As of February 28, 2014 | ||||||||||
| February 28, | February 28, | |||||||||
| (Dollars in millions) | 2014 | 20131 | % Change | |||||||
| ASSETS | ||||||||||
| Current assets: | ||||||||||
| Cash and equivalents | $ | 1,864 | $ | 2,557 | -27 | % | ||||
| Short-term investments | 3,165 | 1,485 | 113 | % | ||||||
| Accounts receivable, net | 3,355 | 3,232 | 4 | % | ||||||
| Inventories | 3,825 | 3,424 | 12 | % | ||||||
| Deferred income taxes | 319 | 275 | 16 | % | ||||||
| Prepaid expenses and other current assets | 882 | 861 | 2 | % | ||||||
| Assets of discontinued operations | - | 29 | - | |||||||
| Total current assets | 13,410 | 11,863 | 13 | % | ||||||
| Property, plant and equipment | 6,073 | 5,370 | 13 | % | ||||||
| Less accumulated depreciation | 3,337 | 3,110 | 7 | % | ||||||
| Property, plant and equipment, net | 2,736 | 2,260 | 21 | % | ||||||
| Identifiable intangible assets, net | 386 | 376 | 3 | % | ||||||
| Goodwill | 131 | 131 | 0 | % | ||||||
| Deferred income taxes and other assets | 1,140 | 1,080 | 6 | % | ||||||
| TOTAL ASSETS | $ | 17,803 | $ | 15,710 | 13 | % | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||
| Current liabilities: | ||||||||||
| Current portion of long-term debt | $ | 7 | $ | 57 | -88 | % | ||||
| Notes payable | 119 | 85 | 40 | % | ||||||
| Accounts payable | 1,480 | 1,259 | 18 | % | ||||||
| Accrued liabilities | 2,303 | 1,994 | 15 | % | ||||||
| Income taxes payable | 45 | 138 | -67 | % | ||||||
| Liabilities of discontinued operations | - | 62 | - | |||||||
| Total current liabilities | 3,954 | 3,595 | 10 | % | ||||||
| Long-term debt | 1,201 | 161 | 646 | % | ||||||
| Deferred income taxes and other liabilities | 1,515 | 1,287 | 18 | % | ||||||
| Redeemable preferred stock | - | - | - | |||||||
| Shareholders' equity | 11,133 | 10,667 | 4 | % | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 17,803 | $ | 15,710 | 13 | % | ||||
| 1 Prior year inventories and accrued liabilities have been revised to recognize certain inventories held at third parties. | ||||||||||
| NIKE, Inc. | |||||||||||||||||||||
| DIVISIONAL REVENUES1 | |||||||||||||||||||||
| For the period ended February 28, 2014 | |||||||||||||||||||||
| THREE MONTHS ENDED | % Change Excluding | NINE MONTHS ENDED | % Change Excluding | ||||||||||||||||||
| (Dollars in millions) | 2/28/2014 | 2/28/2013 | % Change | Currency Changes 2 | 2/28/2014 | 2/28/2013 | % Change | Currency Changes 2 | |||||||||||||
| North America | |||||||||||||||||||||
| Footwear | $ | 1,928 | $ | 1,708 | 13 | % | 13 | % | $ | 5,459 | $ | 4,933 | 11 | % | 11 | % | |||||
| Apparel | 925 | 830 | 11 | % | 12 | % | 2,920 | 2,657 | 10 | % | 10 | % | |||||||||
| Equipment | 216 | 199 | 9 | % | 9 | % | 626 | 577 | 8 | % | 9 | % | |||||||||
| Total | 3,069 | 2,737 | 12 | % | 12 | % | 9,005 | 8,167 | 10 | % | 10 | % | |||||||||
| Western Europe | |||||||||||||||||||||
| Footwear | 891 | 695 | 28 | % | 24 | % | 2,415 | 1,958 | 23 | % | 19 | % | |||||||||
| Apparel | 338 | 305 | 11 | % | 8 | % | 1,061 | 999 | 6 | % | 3 | % | |||||||||
| Equipment | 63 | 57 | 11 | % | 7 | % | 191 | 184 | 4 | % | 0 | % | |||||||||
| Total | 1,292 | 1,057 | 22 | % | 19 | % | 3,667 | 3,141 | 17 | % | 13 | % | |||||||||
| Central & Eastern Europe | |||||||||||||||||||||
| Footwear | 207 | 168 | 23 | % | 27 | % | 544 | 460 | 18 | % | 19 | % | |||||||||
| Apparel | 129 | 115 | 12 | % | 17 | % | 403 | 358 | 13 | % | 14 | % | |||||||||
| Equipment | 20 | 20 | 0 | % | 9 | % | 70 | 64 | 9 | % | 11 | % | |||||||||
| Total | 356 | 303 | 17 | % | 22 | % | 1,017 | 882 | 15 | % | 16 | % | |||||||||
| Greater China | |||||||||||||||||||||
| Footwear | 467 | 410 | 14 | % | 12 | % | 1,166 | 1,091 | 7 | % | 5 | % | |||||||||
| Apparel | 199 | 199 | 0 | % | -2 | % | 641 | 608 | 5 | % | 3 | % | |||||||||
| Equipment | 31 | 32 | -3 | % | -7 | % | 93 | 101 | -8 | % | -11 | % | |||||||||
| Total | 697 | 641 | 9 | % | 7 | % | 1,900 | 1,800 | 6 | % | 3 | % | |||||||||
| Japan | |||||||||||||||||||||
| Footwear | 92 | 98 | -6 | % | 14 | % | 281 | 315 | -11 | % | 10 | % | |||||||||
| Apparel | 59 | 70 | -16 | % | 4 | % | 201 | 247 | -19 | % | 1 | % | |||||||||
| Equipment | 26 | 27 | -4 | % | 11 | % | 63 | 70 | -10 | % | 10 | % | |||||||||
| Total | 177 | 195 | -9 | % | 10 | % | 545 | 632 | -14 | % | 7 | % | |||||||||
| Emerging Markets | |||||||||||||||||||||
| Footwear | 631 | 603 | 5 | % | 15 | % | 1,941 | 1,948 | 0 | % | 7 | % | |||||||||
| Apparel | 243 | 206 | 18 | % | 31 | % | 748 | 713 | 5 | % | 13 | % | |||||||||
| Equipment | 63 | 58 | 9 | % | 19 | % | 180 | 177 | 2 | % | 9 | % | |||||||||
| Total | 937 | 867 | 8 | % | 19 | % | 2,869 | 2,838 | 1 | % | 9 | % | |||||||||
| Global Brand Divisions3 | 26 | 29 | -10 | % | -13 | % | 89 | 84 | 6 | % | 4 | % | |||||||||
| Total NIKE Brand | 6,554 | 5,829 | 12 | % | 14 | % | 19,092 | 17,544 | 9 | % | 10 | % | |||||||||
| Converse | 420 | 361 | 16 | % | 16 | % | 1,274 | 1,095 | 16 | % | 15 | % | |||||||||
| Corporate4 | (2 | ) | (3 | ) | - | - | 8 | (23 | ) | - | - | ||||||||||
| Total NIKE, Inc. Revenues From Continuing Operations | $ | 6,972 | $ | 6,187 | 13 | % | 14 | % | $ | 20,374 | $ | 18,616 | 9 | % | 10 | % | |||||
| Total NIKE Brand | |||||||||||||||||||||
| Footwear | $ | 4,216 | $ | 3,682 | 15 | % | 16 | % | $ | 11,806 | $ | 10,705 | 10 | % | 11 | % | |||||
| Apparel | 1,893 | 1,725 | 10 | % | 12 | % | 5,974 | 5,582 | 7 | % | 8 | % | |||||||||
| Equipment | 419 | 393 | 7 | % | 9 | % | 1,223 | 1,173 | 4 | % | 6 | % | |||||||||
| Global Brand Divisions3 | 26 | 29 | -10 | % | -13 | % | 89 | 84 | 6 | % | 4 | % | |||||||||
1 Certain prior year amounts have been reclassified to conform to fiscal year 2014 presentation. These changes had no impact on previously reported results of operations or shareholders' equity. | |||||||||||||||||||||
2 Fiscal 2014 results have been restated using fiscal 2013 exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations. | |||||||||||||||||||||
3 Global Brand Divisions primarily represent NIKE Brand licensing businesses that are not part of a geographic operating segment. | |||||||||||||||||||||
4 Corporate revenues primarily consist of foreign currency revenue-related hedge gains and losses generated by entities within the NIKE Brand geographic operating segments and Converse through our centrally managed foreign exchange risk management program. | |||||||||||||||||||||
| NIKE, Inc. | ||||||||||||||||
| EARNINGS BEFORE INTEREST AND TAXES1,2 | ||||||||||||||||
| For the period ended February 28, 2014 | ||||||||||||||||
| THREE MONTHS ENDED | % | NINE MONTHS ENDED | % | |||||||||||||
| (Dollars in millions) | 2/28/2014 | 2/28/2013 | Change | 2/28/2014 | 2/28/2013 | Change | ||||||||||
| North America | $ | 726 | $ | 653 | 11 | % | $ | 2,188 | $ | 1,863 | 17 | % | ||||
| Western Europe | 275 | 179 | 54 | % | 663 | 501 | 32 | % | ||||||||
| Central & Eastern Europe | 79 | 64 | 23 | % | 208 | 155 | 34 | % | ||||||||
| Greater China | 234 | 218 | 7 | % | 601 | 570 | 5 | % | ||||||||
| Japan | 21 | 24 | -13 | % | 92 | 92 | 0 | % | ||||||||
| Emerging Markets | 229 | 216 | 6 | % | 682 | 735 | -7 | % | ||||||||
| Global Brand Divisions3 | (533 | ) | (414 | ) | -29 | % | (1,461 | ) | (1,280 | ) | -14 | % | ||||
| TOTAL NIKE BRAND | 1,031 | 940 | 10 | % | 2,973 | 2,636 | 13 | % | ||||||||
| Converse | 133 | 121 | 10 | % | 402 | 336 | 20 | % | ||||||||
| Corporate4 | (272 | ) | (205 | ) | -33 | % | (710 | ) | (608 | ) | -17 | % | ||||
| TOTAL EARNINGS BEFORE INTEREST AND TAXES | $ | 892 | $ | 856 | 4 | % | $ | 2,665 | $ | 2,364 | 13 | % | ||||
1 The Company evaluates performance of individual operating segments based on earnings before interest and taxes (also commonly referred to as “EBIT”), which represents net income before interest expense (income), net, and income taxes. | ||||||||||||||||
2 Certain prior year amounts have been reclassified to conform to fiscal year 2014 presentation. These changes had no impact on previously reported results of operations or shareholders' equity. | ||||||||||||||||
3 Global Brand Divisions primarily represent demand creation, operating overhead, information technology, and product creation and design expenses that are centrally managed for the NIKE Brand. Revenues for Global Brand Divisions are primarily attributable to NIKE Brand licensing businesses that are not part of a geographic operating segment. | ||||||||||||||||
4 Corporate consists of unallocated general and administrative expenses, which includes expenses associated with centrally managed departments, depreciation and amortization related to the Company’s corporate headquarters, unallocated insurance and benefit programs, certain foreign currency gains and losses, including certain hedge gains and losses, corporate eliminations and other items. | ||||||||||||||||
| NIKE, Inc. | ||
| NIKE BRAND REPORTED FUTURES GROWTH BY GEOGRAPHY1 | ||
| As of February 28, 2014 | ||
| Reported Futures Orders | Excluding Currency Changes 2 | |
| North America | 9% | 9% |
| Western Europe | 33% | 30% |
| Central & Eastern Europe | 7% | 13% |
| Greater China | -1% | -3% |
| Japan | -6% | -1% |
| Emerging Markets | 12% | 24% |
| Total NIKE Brand Reported Futures | 12% | 14% |
| 1 Futures orders by geography and in total for NIKE Brand athletic footwear and apparel scheduled for delivery from March 2014 through July 2014, excluding NIKE Golf and Hurley. | ||
| The reported futures and advance orders growth is not necessarily indicative of our expectation of revenue growth during this period. This is due to year-over-year changes in shipment timing and because the mix of orders can shift between advance/futures and at-once orders and the fulfillment of certain orders may fall outside of the schedule noted above. In addition, exchange rate fluctuations as well as differing levels of order cancellations, discounts and returns can cause differences in the comparisons between advance/futures orders and actual revenues. Moreover, a significant portion of our revenue is not derived from futures and advance orders, including at-once and close-out sales of NIKE Brand footwear and apparel, sales of NIKE Brand equipment, sales from certain of our Direct to Consumer operations, and sales from Converse, NIKE Golf and Hurley. | ||
| 2 Reported futures have been restated using prior year exchange rates to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations. | ||
Contacts:
Investor Contact:
Kelley
Hall, 503-532-3793
or
Media Contact:
Kellie
Leonard, 503-671-6171
