Investor News Details

NIKE, Inc. Reports Fiscal 2015 First Quarter Results

09/25/2014

Revenues up 15 percent to $8.0 billion
Diluted earnings per share up 27 percent to $1.09
Worldwide futures orders up 11 percent, 14 percent growth excluding currency changes
Inventories as of August 31, 2014 up 14 percent

BEAVERTON, Ore.--(BUSINESS WIRE)-- 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.

Source: NIKE, Inc.

NIKE, Inc.

Investor Contact:

Kelley Hall, 503-532-3793

or

Media Contact:

Kellie Leonard, 503-671-6171