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NIKE, Inc. Reports Fiscal 2013 First Quarter Results

September 27, 2012

  • Revenues up 10 percent to $6.7 billion, up 15 percent excluding currency changes
  • Diluted earnings per share down 10 percent to $1.23
  • Worldwide futures orders up 6 percent, 8 percent growth excluding currency changes
  • Inventories up 10 percent

BEAVERTON, Ore.--(BUSINESS WIRE)-- NIKE, Inc. (NYSE:NKE) today reported financial results for its fiscal 2013 first quarter ended August 31, 2012. Strong demand for NIKE, Inc. brands propelled first quarter revenue to new record highs. As expected, diluted earnings per share were lower due to lower gross margin, higher SG&A and an increase in the tax rate.

“We had a strong first quarter and a great start to the fiscal year. NIKE, Inc. delivered an amazing array of innovation across some of the biggest moments in sport,” said Mark Parker, President and CEO, NIKE, Inc. “Innovation is how great companies sustain growth and build competitive separation,” Parker added. “We’ll continue to make strategic investments across our portfolio of businesses to capture our full potential over the long term and drive shareholder value.”*

First Quarter Income Statement Review

  • Revenues for NIKE, Inc. increased 10 percent to $ 6.7 billion, up 15 percent on a currency-neutral basis. Excluding the impacts of changes in foreign currency, NIKE Brand revenues rose 16 percent, with growth in all key categories and every geography except Japan. Revenues on a currency-neutral basis for Other Businesses increased 9 percent, while Businesses to be Divested grew by 6 percent.
  • Gross margin declined 80 basis points to 43.5 percent. Gross margin continued to benefit from pricing actions and product cost reduction initiatives, however, this was more than offset by higher input costs, primarily materials and labor. In addition, gross margin was negatively impacted by a shift in the Company’s mix to lower margin businesses within the NIKE Brand and the conversion of the China market to direct distribution for Converse.
  • Selling and administrative expenses grew at a faster rate than revenue, up 18 percent to $2.2 billion. Demand creation expenses increased 29 percent to $891 million due to marketing support for key product initiatives, as well as support for the Olympics and European Football Championships. Operating overhead expenses increased 12 percent to $1.3 billion due to additional investments made in the wholesale business to support growth initiatives and higher Direct to Consumer costs from the addition of new stores over the last year.
  • Other income, net was $29 million, comprised primarily of foreign exchange related gains. For the quarter, the Company estimates the year-over-year change in foreign currency related gains and losses included in other income, net, combined with the impact of changes in foreign currency exchange rates on the translation of foreign currency-denominated profits, decreased pretax income by approximately $28 million.
  • The effective tax rate was 27.5 percent compared to 24.3 percent for the same period last year. The effective tax rate was higher due to a larger percentage of earnings coming from higher tax countries, primarily the United States, as well as a higher effective tax rate on operations abroad.
  • Net income decreased 12 percent to $567 million while diluted earnings per share decreased 10 percent to $1.23, reflecting a 3 percent decline in the weighted average diluted common shares outstanding. In a press release issued on May 31, 2012, the Company announced its intention to divest of the Cole Haan and Umbro businesses. Pro Forma diluted earnings per share, excluding the results of the Businesses to be Divested, would have been approximately $1.27, down 9 percent compared to the first quarter of fiscal 2012 on a comparable basis.**

August 31, 2012 Balance Sheet Review

  • Inventories for NIKE, Inc. were $3.4 billion, up 10 percent from August 31, 2011, in line with revenue growth, and reflecting strong demand for NIKE, Inc. products.
  • Cash and short-term investments were $3.3 billion, $433 million lower than last year as share repurchases and dividend payments increased year-on-year and the Company made debt repayments.

Share Repurchases

During the first quarter, NIKE, Inc. repurchased a total of 8.2 million shares for approximately $779 million as part of its four-year, $5 billion share repurchase program, approved by the Board of Directors in September 2008. As of the end of the first quarter, the Company has purchased a total of 58.5 million shares for approximately $4.9 billion under this program. On September 19, 2012, the Company announced that its Board of Directors approved a new four-year, $8 billion program to repurchase shares of NIKE's Class B Common Stock. During the second quarter of fiscal 2013 the Company's current $5 billion share repurchase program was completed, and the new program commenced.

Futures Orders

As of the end of the quarter worldwide futures orders for NIKE Brand athletic footwear and apparel, scheduled for delivery from September 2012 through January 2013, totaled $8.9 billion, 6 percent higher than orders reported for the same period last year. Excluding currency changes, reported orders would have increased 8 percent.*

Conference Call

NIKE management will host a conference call beginning at approximately 2:00 p.m. PT on September 27, 2012, 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 4, 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, Inc. 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, a leading United Kingdom-based global football (soccer) brand. 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 and discounts, which may vary significantly from quarter to quarter, and because a significant portion of the business does not report futures orders.

** The marked paragraph contains references to non-GAAP items. Presentations of comparable GAAP measures and quantitative reconciliations can be found in the tables of this press release or on NIKE’s website, http://investors.nikeinc.com.

(Additional Tables Follow)

NIKE, Inc.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED AUGUST 31, 2012
(Dollars in millions, except per share data)
     
 
QUARTER ENDED
INCOME STATEMENT   8/31/2012   8/31/2011   % Chg
Revenues $ 6,669 $ 6,081 10 %
Cost of sales   3,766       3,388   11 %
Gross profit 2,903 2,693 8 %
Gross margin 43.5 % 44.3 %
 
Demand creation expense 891 692 29 %
Operating overhead expense   1,262       1,131   12 %
Total selling and administrative expense 2,153 1,823 18 %
% of revenue 32.3 % 30.0 %
 
Other (income) expense, net (29 ) 18 -
Interest (income) expense, net   (3 )     -   -
 
Income before income taxes 782 852 -8 %
 
Income taxes   215       207   4 %
Effective tax rate 27.5 % 24.3 %
 
 
Net income $ 567     $ 645   -12 %
 
Diluted EPS $ 1.23 $ 1.36 -10 %
 
Basic EPS $ 1.25 $ 1.39 -10 %
 
Weighted Average Common Shares Outstanding:
Diluted 461.4 474.3
Basic   452.8       465.0  
Dividends declared $ 0.36     $ 0.31  
NIKE, Inc.      
 
BALANCE SHEET   8/31/2012   8/31/2011   % Change
(Dollars in millions)
ASSETS
Current assets:
Cash and equivalents $ 2,165 $ 1,608 35 %
Short-term investments 1,102 2,092 -47 %
Accounts receivable, net 3,431 3,279 5 %
Inventories 3,411 3,107 10 %
Deferred income taxes 282 315 -10 %
Prepaid expenses and other current assets   745     638 17 %
 
Total current assets 11,136 11,039 1 %
 
Property, plant and equipment 5,359 5,034 6 %
Less accumulated depreciation   3,068     2,868 7 %
Property, plant and equipment, net 2,291 2,166 6 %
 
Identifiable intangible assets, net 536 536 0 %
Goodwill 202 204 -1 %
Deferred income taxes and other assets 949 858 11 %
     
Total assets $ 15,114   $ 14,803 2 %
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 9 $ 116 -92 %
Notes payable 129 164 -21 %
Accounts payable 1,551 1,421 9 %
Accrued liabilities 1,974 1,968 0 %
Income taxes payable   113     91 24 %
 
Total current liabilities 3,776 3,760 0 %
 
Long-term debt 226 238 -5 %
Deferred income taxes and other liabilities 1,065 906 18 %
Redeemable preferred stock - - -
Shareholders' equity 10,047 9,899 1 %
     
Total liabilities and shareholders' equity $ 15,114   $ 14,803 2 %
NIKE, Inc.        
QUARTER ENDED % Change % Change Excluding Currency Changes 2
DIVISIONAL REVENUES1   8/31/2012   8/31/2011    
(Dollars in millions)
North America
Footwear $ 1,732 $ 1,444 20 % 20 %
Apparel 795 632 26 % 26 %
Equipment   179       124   44 % 44 %
Total 2,706 2,200 23 % 23 %
 
Western Europe
Footwear 714 731 -2 % 10 %
Apparel 382 416 -8 % 2 %
Equipment   71       81   -12 % -4 %
Total 1,167 1,228 -5 % 6 %
 
Central & Eastern Europe
Footwear 178 180 -1 % 12 %
Apparel 134 123 9 % 22 %
Equipment   30       31   -3 % 11 %
Total 342 334 2 % 16 %
 
Greater China
Footwear 356 314 13 % 12 %
Apparel 178 177 1 % -1 %
Equipment   38       37   3 % 0 %
Total 572 528 8 % 7 %
 
Japan
Footwear 106 103 3 % 1 %
Apparel 61 72 -15 % -15 %
Equipment   16       19   -16 % -17 %
Total 183 194 -6 % -7 %
 
Emerging Markets
Footwear 604 567 7 % 20 %
Apparel 211 182 16 % 29 %
Equipment   52       51   2 % 16 %
Total 867 800 8 % 22 %
 
Global Brand Divisions3 27 32 -16 % -7 %
     
Total NIKE Brand 5,864 5,316 10 % 16 %
 
Other Businesses4 635 585 9 % 9 %
Businesses to be Divested5 195 188 4 % 6 %
Corporate6 (25 ) (8 ) - -
     
Total NIKE, Inc. Revenues $ 6,669     $ 6,081   10 % 15 %
 
Total NIKE Brand
Footwear $ 3,690 $ 3,339 11 % 16 %
Apparel 1,761 1,602 10 % 15 %
Equipment 386 343 13 % 17 %
Global Brand Divisions3 27 32 -16 % -7 %
                 

1 Certain prior year amounts have been reclassified to conform to fiscal year 2013 presentation. These changes had no impact on previously reported results of operations or shareholders' equity.

2 Fiscal 2013 results have been restated using fiscal 2012 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 Converse, Hurley, and NIKE Golf.

5 Businesses to be Divested represent the operating results for Cole Haan and Umbro, which the Company intends to divest, along with the costs for executing these divestitures.

6 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 %
EARNINGS BEFORE INTEREST AND TAXES1,2   8/31/2012   8/31/2011   Chg
(Dollars in millions)
 
North America $ 630 $ 539 17 %
Western Europe 214 223 -4 %
Central & Eastern Europe 61 70 -13 %
Greater China 164 171 -4 %
Japan 24 34 -29 %
Emerging Markets 223 190 17 %
Global Brand Divisions3   (375 )     (266 ) -41 %
Total NIKE Brand 941 961 -2 %
 
Other Businesses4 121 104 16 %
Businesses to be Divested5 (18 ) (18 ) 0 %
Corporate6   (265 )     (195 ) -36 %
Total Earnings Before Interest and Taxes1,2 $ 779     $ 852   -9 %
 
             
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 2013 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 Converse, Hurley, and NIKE Golf.

5 Businesses to be Divested represent the operating results for Cole Haan and Umbro, which the Company intends to divest, along with the costs for executing these divestitures.

6 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.      
 
SUPPLEMENTAL EBIT DETAILS FOR BUSINESSES TO BE DIVESTED - COLE HAAN AND UMBRO 1 QUARTER ENDED
  8/31/2012   8/31/2011   % Chg
(Dollars in millions)
 
Revenues $ 195 $ 188 4 %
Cost of sales   120       113     6 %
Gross profit 75 75 0 %
Gross margin 38.5 % 39.9 %
 
Selling and administrative expense 95 93 2 %
% of revenue 48.7 % 49.5 %
 
Other (income) expense, net   (2 )     -     -  
Earnings before interest and taxes $ (18 )   $ (18 )   0 %
 
             
1 The Company evaluates performance of individual businesses based on earnings before interest and taxes (also commonly referred to as “EBIT”), which represents net income before interest expense, net, and income taxes.
NIKE, Inc.      
NET INCOME AND DILUTED EPS RECONCILIATION QUARTER ENDED %
EXCLUDING BUSINESSES TO BE DIVESTED1   8/31/2012   8/31/2011   Chg
(In millions, except per share data)
 
Net income, as reported $ 567 $ 645 -12 %
Subtract:
Net Loss from Businesses to be Divested2   (19 )     (15 )
 
Net income, excluding Businesses to be Divested $ 586     $ 660   -11 %
 
 
Diluted EPS, as reported $ 1.23 $ 1.36 -10 %
Subtract:
Net Loss per share from Businesses to be Divested2   (0.04 )     (0.03 )
 
Diluted EPS, excluding Businesses to be Divested $ 1.27     $ 1.39   -9 %
 
Diluted weighted average common shares outstanding 461.4 474.3
 
             
1 This schedule is intended to satisfy the quantitative reconciliation for non-GAAP financial measures in accordance with Regulation G of the Securities and Exchange Commission. In addition, this schedule is provided to enhance the visibility of the underlying business trends relating to the Company's on-going operations by excluding the results relating to the businesses the Company intends to divest.
 
2 In the fourth quarter of fiscal 2012, the Company announced its intention to divest of its Cole Haan and Umbro businesses. Net loss from Businesses to be Divested represent the operating results for these two businesses, along with the costs for executing these divestitures.
NIKE, Inc.
 
 
NIKE BRAND REPORTED FUTURES GROWTH BY GEOGRAPHY1 Reported Futures Orders

Excluding Currency Changes 2

 
North America 13% 13%
Western Europe -1% 6%
Central & Eastern Europe 4% 7%
Greater China -5% -6%
Japan 5% 7%
Emerging Markets 9% 14%
 
Total NIKE Brand Reported Futures 6% 8%
 
 
     
1 Futures orders by geography and in total for NIKE Brand athletic footwear and apparel scheduled for delivery from September 2012 through January 2013.
 
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, sales from our Other Businesses, and sales from our Businesses to be Divested.
 
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.