Investor News Details

NIKE, Inc. Reports Fiscal 2012 Third Quarter Results

03/22/2012

 
  • Revenues up 15 percent to $5.8 billion, up 16 percent excluding currency changes
  • Diluted earnings per share up 11 percent to $1.20
  • NIKE Brand futures orders up 15 percent, up 18 percent excluding currency changes
  • Inventories up 32 percent

BEAVERTON, Ore.--(BUSINESS WIRE)-- NIKE, Inc. (NYSE:NKE) today reported financial results for its fiscal 2012 third quarter ended February 29, 2012. Earnings per share for the quarter rose 11 percent as a result of continued strong demand for NIKE, Inc. brands, SG&A expense leverage and a lower average share count, which more than offset the impact of a lower gross margin and a higher effective tax rate.

“We had a strong third quarter. Our relentless focus on innovation delivered powerful new products and services for athletes and consumers, and continues to drive value to our shareholders,” said Mark Parker , President and CEO, NIKE, Inc. “The environment remains volatile, but I’m optimistic about the future. We’re starting a great season of major sports events and we have a pipeline full of innovation to fuel growth over the long term."*

Third Quarter Income Statement Review

  • Revenues for NIKE, Inc. increased 15 percent to $5.8 billion, up 16 percent on a currency-neutral basis. Excluding the impacts of changes in foreign currency, NIKE Brand revenues rose 16 percent with growth in every geography except Japan and in all key categories. Revenues for Other Businesses increased 12 percent with minimal impact from changes in currency exchange rates; Converse, Hurley, NIKE Golf and Umbro all grew compared to the prior year while Cole Haan was essentially flat to last year.
  • Gross margin declined 200 basis points to 43.8 percent due primarily to higher product costs, which more than offset the positive effects of price increases, growing sales in our Direct to Consumer operations, and ongoing product cost reduction initiatives.
  • Selling and administrative expenses grew at a lower rate than revenue, up 10 percent to $1.8 billion. Demand creation expenses increased 6 percent to $615 million driven by marketing support for key product launches, sports marketing expense and investments in retail product presentation for wholesale accounts. Operating overhead expenses increased 12 percent to $1.2 billion due to additional investments made in our wholesale and Direct to Consumer businesses.
  • Other income, net was $11 million, primarily comprised of net foreign exchange gains and other non-operating items. For the quarter, we estimate the year-over-year change in foreign currency related gains and losses included in Other (income) expense, net combined with the impact of changes in foreign currency exchange rates on the translation of foreign currency-denominated profits did not have a significant impact on Income before income taxes.
  • The Effective tax rate was 27.3 percent compared to 26.0 percent for the same period last year. The increase was due to the adjustment of a deferred tax asset related to foreign operations and changes in reserves this year, as well as comparisons to the prior year quarter which benefitted from the retroactive reinstatement of the U.S. R&D tax credit.
  • Net income increased 7 percent to $560 million and Diluted earnings per share increased 11 percent to $1.20, reflecting a 4 percent decline in the weighted average diluted common shares outstanding.

February 29, 2012 Balance Sheet Review

  • Inventories for NIKE, Inc. were $3.4 billion. NIKE, Inc. and NIKE Brand inventories both increased 32 percent from February 28, 2011. Approximately 20 percentage points of the increase in NIKE Brand inventories was due to significantly higher product input costs and changes in product mix. The remaining 12 percentage points of the increase were primarily due to higher wholesale unit inventories in support of strong demand and as a result of more timely deliveries from our product suppliers. Relative to revenues and futures orders, current unit inventories remain broadly consistent with levels reported prior to the 2009 – 2010 economic downturn.
  • Cash and short-term investments were $3.2 billion; $1.3 billion lower than last year as higher working capital investments reduced free cash flow from operations, while dividends and long-term debt repayments increased year-on-year.

Share Repurchases

During the third quarter, a total of 2.5 million shares were repurchased for approximately $239 million as part of our four-year, $5 billion share repurchase program, approved by the Board of Directors in September 2008. As of the end of the third quarter, a total of 48.1 million shares were repurchased for approximately $3.9 billion under this program.

Futures Orders

As of the end of the quarter worldwide futures orders for NIKE Brand athletic footwear and apparel, scheduled for delivery from March through July 2012, totaled $9.4 billion, 15 percent higher than orders reported for the same period last year. Changes in foreign currency exchange rates reduced reported futures orders by 3 percentage points.*

Conference Call

NIKE management will host a conference call beginning at approximately 2:00 p.m. PT on March 22, 2012, 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 29, 2012.

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 subsidiaries include Cole Haan , which designs, markets and distributes luxury shoes, handbags, accessories and coats; Converse Inc., which designs, markets and distributes athletic footwear, apparel and accessories; Hurley International LLC, which designs, markets and distributes action sports and youth lifestyle footwear, apparel and accessories; and Umbro International Limited, which designs, distributes and licenses athletic and casual footwear, apparel and equipment, primarily for global football (soccer). For more information, NIKE’s earnings releases and other financial information are available on the Internet at http://investors.nikeinc.com.

* 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 and discounts, which may vary significantly from quarter to quarter, and because a significant portion of the business does not report futures orders.

(Additional Tables Follow)

NIKE, Inc.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED FEBRUARY 29, 2012
(Dollars in millions, except per share data)
           
 
QUARTER ENDED YEAR TO DATE ENDED
INCOME STATEMENT   2/29/2012   2/28/2011   % Chg   2/29/2012   2/28/2011   % Chg
Revenues
$ 5,846
$ 5,079 15 %
$ 17,658
$ 15,096 17 %
Cost of sales   3,285       2,752   19 %   9,954       8,142   22 %
Gross profit 2,561 2,327 10 % 7,704 6,954 11 %
Gross margin 43.8 % 45.8 % 43.6 % 46.1 %
 
Demand creation expense 615 578 6 % 1,951 1,831 7 %
Operating overhead expense   1,187       1,059   12 %   3,494       3,090   13 %
Total selling and administrative expense 1,802 1,637 10 % 5,445 4,921 11 %
% of revenue 30.8 % 32.2 % 30.8 % 32.6 %
 
Other (income) expense, net (11 ) (17 ) -35 % 16 (38 ) -
Interest expense, net   -       -   -   3       -   -
 
Income before income taxes 770 707 9 % 2,240 2,071 8 %
 
Income taxes   210       184   14 %   566       532   6 %
Effective tax rate 27.3 % 26.0 % 25.3 % 25.7 %
 
 
Net income
$ 560    
$ 523   7 %
$ 1,674    
$ 1,539   9 %
 
Diluted EPS
$ 1.20
$ 1.08 11 % $ 3.56
$ 3.16 13 %
 
Basic EPS
$ 1.22
$ 1.10 11 %
$ 3.63
$ 3.22 13 %
 
Weighted Average Common Shares Outstanding:
Diluted 467.3 485.5 470.2 487.7
Basic   457.5       475.3     460.6       477.6  
Dividends declared $ 0.36     $ 0.31  
$ 1.03    
$ 0.89  
NIKE, Inc.    
 
BALANCE SHEET 2/29/2012   2/28/2011   % Change
(dollars in millions)
ASSETS
Current assets:
Cash and equivalents
$ 2,021
$ 2,132 -5 %
Short-term investments 1,176 2,333 -50 %
Accounts receivable, net 3,296 2,985 10 %
Inventories 3,356 2,536 32 %
Deferred income taxes 311 286 9 %
Prepaid expenses and other current assets   772     513 50 %
 
Total current assets 10,932 10,785 1 %
 
Property, plant and equipment 5,172 4,804 8 %
Less accumulated depreciation   2,967     2,747 8 %
Property, plant and equipment, net 2,205 2,057 7 %
 
Identifiable intangible assets, net 534 472 13 %
Goodwill 202 194 4 %
Deferred income taxes and other assets 921 970 -5 %
     
Total assets
$ 14,794  
$ 14,478 2 %
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
$ 49
$ 198 -75 %
Notes payable 91 139 -35 %
Accounts payable 1,298 1,147 13 %
Accrued liabilities 1,913 1,745 10 %
Income taxes payable   59     113 -48 %
 
Total current liabilities 3,410 3,342 2 %
 
Long-term debt 229 276 -17 %
Deferred income taxes and other liabilities 979 958 2 %
Redeemable preferred stock - - -
Shareholders' equity 10,176 9,902 3 %
     
Total liabilities and shareholders' equity
$ 14,794  
$ 14,478 2 %
NIKE, Inc.                
QUARTER ENDED % Change % Change Excluding Currency Changes 2 YEAR TO DATE ENDED % Change % Change Excluding Currency Changes 2
DIVISIONAL REVENUES1   2/29/2012   2/28/2011       2/29/2012   2/28/2011    
(Dollars in millions) (Dollars in millions)
North America
Footwear
$ 1,470 $ 1,275 15 % 15 %
$ 4,219
$ 3,647 16 % 16 %
Apparel 573 480 19 % 19 % 1,866 1,533 22 % 22 %
Equipment   106       81   31 % 29 %   330       260   27 % 27 %
Total 2,149 1,836 17 % 17 % 6,415 5,440 18 % 18 %
 
Western Europe
Footwear 606 568 7 % 8 % 1,875 1,702 10 % 4 %
Apparel 305 302 1 % 2 % 1,045 984 6 % 0 %
Equipment   51       52   -2 % 1 %   185       165   12 % 5 %
Total 962 922 4 % 6 % 3,105 2,851 9 % 2 %
 
Central & Eastern Europe
Footwear 161 144 12 % 19 % 476 414 15 % 15 %
Apparel 96 92 4 % 11 % 330 275 20 % 19 %
Equipment   18       17   6 % 15 %   64       57   12 % 12 %
Total 275 253 9 % 16 % 870 746 17 % 16 %
 
Greater China
Footwear 449 333 35 % 30 % 1,116 843 32 % 27 %
Apparel 221 201 10 % 6 % 666 574 16 % 11 %
Equipment   24       20   20 % 9 %   90       79   14 % 8 %
Total 694 554 25 % 21 % 1,872 1,496 25 % 19 %
 
Japan
Footwear 108 100 8 % 0 % 310 279 11 % 1 %
Apparel 78 78 0 % -7 % 231 223 4 % -5 %
Equipment   15       17   -12 % -8 %   48       48   0 % -8 %
Total 201 195 3 % -3 % 589 550 7 % -2 %
 
Emerging Markets
Footwear 553 448 23 % 30 % 1,780 1,373 30 % 29 %
Apparel 187 148 26 % 33 % 602 480 25 % 24 %
Equipment   53       47   13 % 18 %   158       136   16 % 16 %
Total 793 643 23 % 30 % 2,540 1,989 28 % 27 %
 
Global Brand Divisions3 27 22 23 % 22 % 85 67 27 % 20 %
           
Total NIKE Brand 5,101 4,425 15 % 16 % 15,476 13,139 18 % 15 %
 
Other Businesses4 753 671 12 % 12 % 2,199 2,013 9 % 8 %
Corporate5 (8 ) (17 ) 53 % 46 % (17 ) (56 ) 70 % 38 %
           
Total NIKE, Inc. Revenues
$ 5,846     $ 5,079   15 % 16 %
$ 17,658    
$ 15,096   17 % 14 %
 
Total NIKE Brand
Footwear
$ 3,347
$ 2,868 17 % 18 %
$ 9,776
$ 8,258 18 % 16 %
Apparel 1,460 1,301 12 % 13 % 4,740 4,069 16 % 13 %
Equipment 267 234 14 % 15 % 875 745 17 % 15 %
Global Brand Divisions3 27 22 23 % 22 % 85 67 27 % 20 %
                                 

1 Certain prior year amounts have been reclassified to conform to fiscal year 2012 presentation. These changes had no impact on previously reported results of operations or shareholders' equity.

2 Fiscal 2012 results have been restated using fiscal 2011 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 Other businesses represent activities of Cole Haan, Converse, Hurley, NIKE Golf and Umbro.

5 Corporate revenues primarily consist of intercompany revenue eliminations and foreign currency revenue-related hedge gains and losses generated by entities within the NIKE Brand geographic operating segments and certain Other Businesses through our centrally managed foreign exchange risk management program.

NIKE, Inc.            
QUARTER ENDED % YEAR TO DATE ENDED %
EARNINGS BEFORE INTEREST AND TAXES1,2   2/29/2012   2/28/2011   Chg   2/29/2012   2/28/2011   Chg
(Dollars in millions)
 
North America
$ 496
$ 419 18 %

$ 1,448
$ 1,218 19 %
Western Europe 149 163 -9 % 464 588 -21 %
Central & Eastern Europe 60 59 2 % 163 177 -8 %
Greater China 273 213 28 % 664 551 21 %
Japan 24 31 -23 % 93 94 -1 %
Emerging Markets 215 173 24 % 652 491 33 %
Global Brand Divisions3   (292 )     (237 ) -23 %   (826 )     (703 ) -17 %
 
Total NIKE Brand 925 821 13 % 2,658 2,416 10 %
 
Other Businesses4 87 85 2 % 230 253 -9 %
Corporate5   (242 )     (199 ) -22 %   (645 )     (598 ) -8 %
 
Total earnings before interest and taxes1,2
$ 770     $ 707   9 %
$ 2,243    
$ 2,071   8 %
 
 
 
 
                         
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, net, and income taxes.

2 Certain prior year amounts have been reclassified to conform to fiscal year 2012 presentation. These changes had no impact on previously reported results of operations or shareholders' equity.

3 Global Brand Divisions primarily represent NIKE Brand licensing businesses that are not part of a geographic operating segment and general and administrative expenses that are centrally managed for the Nike Brand.

4 Other businesses represent activities of Cole Haan, Converse, Hurley, NIKE Golf and Umbro.

5 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

 

Reported Futures Orders

 

Excluding Currency Changes 2

 
North America 22% 22%
Western Europe 4% 10%
Central & Eastern Europe 12% 18%
Greater China 24% 20%
Japan -3% -3%
Emerging Markets 14%   22%
 
Total NIKE Brand Reported Futures 15%   18%
 
 
         
1 Futures orders by geography and in total for NIKE Brand athletic footwear and apparel scheduled for delivery from March through July 2012.
 
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 and discounts 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 our Other Businesses.
 
2 Reported futures restated using prior year exchange rates to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations.

Source: NIKE, Inc.