NIKE, Inc. (NYSE:NKE) today reported financial results for its fiscal 2015 first quarter ended August 31, 2014. Strong demand for NIKE, Inc. brands propelled revenue growth, and diluted earnings per share grew faster than revenue due to gross margin expansion, a lower tax rate and lower average share count.
"Fiscal year 2015 is off to a strong start. Our connection to consumers and ability to innovate, combined with our powerful global portfolio, is a complete offense,” said Mark Parker, President and CEO of NIKE, Inc. “NIKE has never been better positioned to realize our tremendous growth potential."*
First Quarter Income Statement Review
- Revenues for NIKE, Inc. increased 15 percent on
both a reported and currency neutral basis, to $8.0 billion.
- Revenues for the NIKE Brand were $7.4 billion, up 15 percent on a currency neutral basis, with growth in every product type, geography and key category, except Action Sports and Golf.
- Revenues for Converse were $575 million, up 16 percent on a currency neutral basis, driven by market conversions in Europe and Asia as well as continued growth in our direct distribution markets such as the United States and United Kingdom.
- Gross margin increased 170 basis points to 46.6 percent. The increase was primarily attributable to a shift in the product mix to higher margin products, higher average prices and continued growth in the higher-margin DTC business, partially offset by higher product input costs.
- Selling and administrative expense increased 21% to $2.5 billion. Demand creation expense was $897 million, up 23 percent versus the prior year, mainly driven by marketing investments in the World Cup. Operating overhead expense increased 19 percent to $1.6 billion due to higher costs for the expanding DTC business and investments in operational infrastructure.
- Other expense (income), net was $3 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, increased pretax income by approximately $32 million.
- The effective tax rate was 21.7 percent, compared to 25.0 percent for the same period last year, primarily due to the resolution of tax audits across several jurisdictions and an increase in earnings from operations outside of the U.S., which are generally subject to a lower tax rate.
- Net income increased 23 percent to $962 million, while diluted earnings per share increased 27 percent to $1.09, reflecting a 3 percent decline in the weighted average diluted common shares outstanding.
August 31, 2014 Balance Sheet Review
- Inventories for NIKE, Inc. were $4.0 billion, up 14 percent from August 31, 2013, driven by a 13 percent increase in NIKE Brand wholesale inventories as well as higher inventories associated with growth in DTC and Converse. NIKE Brand wholesale inventories were higher due to a 12 percent increase in units, while changes in the average product cost per unit, combined with the impact of changes in foreign currency exchange rates, drove approximately 1 percentage point of growth.
- Cash and short-term investments were $4.6 billion, $1.0 billion lower than last year as growth in net income was more than offset by share repurchases, investments in working capital and higher dividends.
Share Repurchases
During the first quarter, NIKE, Inc. repurchased a total of 10.6 million shares for approximately $819 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 first quarter, a total of 62.5 million shares had been repurchased under this program for $4.2 billion, an average cost of approximately $67.74 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 September 2014 through January 2015 were 11 percent higher than orders reported for the same period last year. Excluding currency changes, reported orders would have increased 14 percent.*
Conference Call
NIKE management will host a conference call beginning at approximately 2:00 p.m. PT on September 25, 2014 to review first 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, October 2, 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 portion of the business does not report futures orders.
| NIKE, Inc. | ||||||||
| CONSOLIDATED STATEMENTS OF INCOME | ||||||||
| THREE MONTHS ENDED | % | |||||||
| (Dollars in millions, except per share data) | 8/31/2014 | 8/31/20131 | Change | |||||
| Revenues | $ | 7,982 | $ | 6,971 | 15% | |||
| Cost of sales | 4,261 | 3,839 | 11% | |||||
| Gross profit | 3,721 | 3,132 | 19% | |||||
| Gross margin | 46.6% | 44.9% | ||||||
| Demand creation expense | 897 | 731 | 23% | |||||
| Operating overhead expense | 1,583 | 1,327 | 19% | |||||
| Total selling and administrative expense | 2,480 | 2,058 | 21% | |||||
| % of revenue | 31.1% | 29.5% | ||||||
| Interest expense (income), net | 9 | 8 | - | |||||
| Other expense (income), net | 3 | 28 | - | |||||
| Income before income taxes | 1,229 | 1,038 | 18% | |||||
| Income taxes | 267 | 259 | 3% | |||||
| Effective tax rate | 21.7% | 25.0% | ||||||
| NET INCOME | $ | 962 | $ | 779 | 23% | |||
| Earnings per common share: | ||||||||
| Basic | $ | 1.11 | $ | 0.88 | 26% | |||
| Diluted | $ | 1.09 | $ | 0.86 | 27% | |||
| Weighted average common shares outstanding: | ||||||||
| Basic | 864.9 | 889.4 | ||||||
| Diluted | 886.2 | 910.7 | ||||||
| Dividends declared per common share | $ | 0.24 | $ | 0.21 | ||||
| 1 Prior year amounts have been revised to correctly expense internally developed patent and trademark costs as incurred. | ||||||||
| NIKE, Inc. | |||||||||||
| CONSOLIDATED BALANCE SHEETS | |||||||||||
| August 31, | August 31, | ||||||||||
| (Dollars in millions) | 2014 | 20131 | % Change | ||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and equivalents | $ | 2,303 | $ | 2,661 | -13% | ||||||
| Short-term investments | 2,276 | 2,917 | -22% | ||||||||
| Accounts receivable, net | 3,587 | 3,207 | 12% | ||||||||
| Inventories | 4,030 | 3,521 | 14% | ||||||||
| Deferred income taxes | 348 | 308 | 13% | ||||||||
| Prepaid expenses and other current assets | 996 | 947 | 5% | ||||||||
| Total current assets | 13,540 | 13,561 | 0% | ||||||||
| Property, plant and equipment | 6,371 | 5,684 | 12% | ||||||||
| Less accumulated depreciation | 3,476 | 3,127 | 11% | ||||||||
| Property, plant and equipment, net | 2,895 | 2,557 | 13% | ||||||||
| Identifiable intangible assets, net | 282 | 288 | -2% | ||||||||
| Goodwill | 131 | 131 | 0% | ||||||||
| Deferred income taxes and other assets | 1,673 | 1,094 | 53% | ||||||||
| TOTAL ASSETS | $ | 18,521 | $ | 17,631 | 5% | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term debt | $ | 6 | $ | 57 | -89% | ||||||
| Notes payable | 146 | 94 | 55% | ||||||||
| Accounts payable | 1,970 | 1,576 | 25% | ||||||||
| Accrued liabilities | 2,441 | 1,962 | 24% | ||||||||
| Income taxes payable | 250 | 195 | 28% | ||||||||
| Liabilities of discontinued operations | - | 12 | - | ||||||||
| Total current liabilities | 4,813 | 3,896 | 24% | ||||||||
| Long-term debt | 1,195 | 1,207 | -1% | ||||||||
| Deferred income taxes and other liabilities | 1,408 | 1,322 | 7% | ||||||||
| Redeemable preferred stock | - | - | - | ||||||||
| Shareholders' equity | 11,105 | 11,206 | -1% | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 18,521 | $ | 17,631 | 5% | ||||||
| 1 Prior year amounts have been revised to correct immaterial misstatements. | |||||||||||
| NIKE, Inc. | ||||||||||
| DIVISIONAL REVENUES | ||||||||||
% Change | ||||||||||
Excluding | ||||||||||
| THREE MONTHS ENDED | % | Currency | ||||||||
| (Dollars in millions) | 8/31/2014 | 8/31/2013 | Change | Changes 1 | ||||||
| North America | ||||||||||
| Footwear | $ | 2,183 | $ | 1,904 | 15% | 15% | ||||
| Apparel | 1,105 | 1,009 | 10% | 10% | ||||||
| Equipment | 225 | 222 | 1% | 1% | ||||||
| Total | 3,513 | 3,135 | 12% | 12% | ||||||
| Western Europe | ||||||||||
| Footwear | 1,127 | 829 | 36% | 29% | ||||||
| Apparel | 498 | 399 | 25% | 18% | ||||||
| Equipment | 89 | 73 | 22% | 17% | ||||||
| Total | 1,714 | 1,301 | 32% | 25% | ||||||
| Central & Eastern Europe | ||||||||||
| Footwear | 223 | 193 | 16% | 17% | ||||||
| Apparel | 134 | 139 | -4% | -1% | ||||||
| Equipment | 35 | 34 | 3% | 7% | ||||||
| Total | 392 | 366 | 7% | 9% | ||||||
| Greater China | ||||||||||
| Footwear | 440 | 341 | 29% | 31% | ||||||
| Apparel | 202 | 197 | 3% | 4% | ||||||
| Equipment | 37 | 36 | 3% | 4% | ||||||
| Total | 679 | 574 | 18% | 20% | ||||||
| Japan | ||||||||||
| Footwear | 100 | 88 | 14% | 17% | ||||||
| Apparel | 46 | 53 | -13% | -10% | ||||||
| Equipment | 14 | 17 | -18% | -19% | ||||||
| Total | 160 | 158 | 1% | 4% | ||||||
| Emerging Markets | ||||||||||
| Footwear | 628 | 624 | 1% | 7% | ||||||
| Apparel | 252 | 226 | 12% | 18% | ||||||
| Equipment | 54 | 52 | 4% | 14% | ||||||
| Total | 934 | 902 | 4% | 10% | ||||||
| Global Brand Divisions2 | 29 | 32 | -9% | -17% | ||||||
| Total NIKE Brand | 7,421 | 6,468 | 15% | 15% | ||||||
| Converse | 575 | 494 | 16% | 16% | ||||||
| Corporate3 | (14) | 9 | - | - | ||||||
| Total NIKE, Inc. Revenues | $ | 7,982 | $ | 6,971 | 15% | 15% | ||||
| Total NIKE Brand | ||||||||||
| Footwear | $ | 4,701 | $ | 3,979 | 18% | 18% | ||||
| Apparel | 2,237 | 2,023 | 11% | 11% | ||||||
| Equipment | 454 | 434 | 5% | 5% | ||||||
| Global Brand Divisions2 | 29 | 32 | -9% | -17% | ||||||
1 Fiscal 2015 results have been restated using fiscal 2014 exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations. | ||||||||||
2 Global Brand Divisions primarily represent NIKE Brand licensing businesses that are not part of a geographic operating segment. | ||||||||||
3 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 | |||||||||||
| THREE MONTHS ENDED | % | ||||||||||
| (Dollars in millions) | 8/31/2014 | 8/31/20132 | Change | ||||||||
| North America | $ | 970 | $ | 813 | 19 | % | |||||
| Western Europe | 404 | 265 | 52 | % | |||||||
| Central & Eastern Europe | 68 | 81 | -16 | % | |||||||
| Greater China | 218 | 170 | 28 | % | |||||||
| Japan | 11 | 24 | -54 | % | |||||||
| Emerging Markets | 156 | 210 | -26 | % | |||||||
| Global Brand Divisions3 | (533 | ) | (466 | ) | -14 | % | |||||
| TOTAL NIKE BRAND | 1,294 | 1,097 | 18 | % | |||||||
| Converse | 186 | 169 | 10 | % | |||||||
| Corporate4 | (242 | ) | (220 | ) | -10 | % | |||||
| TOTAL EARNINGS BEFORE INTEREST AND TAXES | $ | 1,238 | $ | 1,046 | 18 | % | |||||
| 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 Prior year amounts have been revised to correctly expense internally developed patent and trademark costs as incurred. | |||||||||||
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 August 31, 2014 | ||||
| Reported Futures Orders | Excluding Currency Changes 2 | |||
| North America | 15% | 15% | ||
| Western Europe | 17% | 20% | ||
| Central & Eastern Europe | 11% | 17% | ||
| Greater China | 5% | 6% | ||
| Japan | -5% | 0% | ||
| Emerging Markets | 3% | 9% | ||
| Total NIKE Brand Reported Futures | 11% | 14% | ||
1 Futures orders by geography and in total for NIKE Brand athletic footwear and apparel scheduled for delivery from September 2014 through January 2015, excluding NIKE Golf and Hurley. | ||||
| The reported futures 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, changes in the mix of orders between 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 futures orders and actual revenues. Moreover, a portion of our revenue is not derived from futures orders, including sales of at-once and closeout NIKE Brand footwear and apparel, NIKE Brand equipment, DTC operation sales 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
