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NIKE, Inc. Reports Fiscal 2014 Fourth Quarter and Full Year Results

June 26, 2014
  • Fourth quarter revenues from continuing operations up 11 percent to $7.4 billion
  • Fourth quarter diluted earnings per share from continuing operations up 3 percent to $0.78
  • Fiscal 2014 revenues from continuing operations up 10 percent to $27.8 billion
  • Fiscal 2014 diluted earnings per share from continuing operations up 11 percent to $2.97
  • Worldwide futures orders up 11 percent; 12 percent growth excluding currency changes
  • Inventories as of May 31, 2014 up 13 percent

BEAVERTON, Ore.--(BUSINESS WIRE)-- NIKE, Inc. (NYSE:NKE) today reported fiscal 2014 financial results for its fourth quarter and full year ended May 31, 2014. Despite the negative impact of changes in foreign exchange rates, diluted earnings per share for the quarter increased 3 percent as revenue growth, gross margin expansion and a lower average share count more than offset increased SG&A investments and a higher tax rate.

Fiscal 2014 diluted earnings per share rose 11 percent to $2.97, reflecting 10 percent revenue growth, gross margin expansion, a lower tax rate and a lower average share count, which more than offset the impacts of higher SG&A investments and foreign exchange headwinds.

“These results demonstrate the energy and excitement NIKE brings to the market,” said President and CEO Mark Parker. “Our ability to relentlessly innovate for consumers drove our growth in FY14, and will continue to fuel it for years to come. And as we grow, we remain focused on managing all areas of our business to drive sustainable, profitable growth for our shareholders.”*

Fourth Quarter Continuing Operations Income Statement Review

  • Revenues for NIKE, Inc. rose 11 percent to $7.4 billion, up 13 percent on a currency neutral basis.
    • Revenues for the NIKE Brand were $7.0 billion, up 13 percent on a currency neutral basis powered by growth in every key category and geography except Japan, where revenues were in line with the fourth quarter last year.
    • Revenues for Converse were $410 million, up 15 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 170 basis points to 45.6 percent. The increase was primarily attributable to higher average selling prices and continued growth in the higher margin Direct to Consumer (DTC) business, partially offset by higher product input costs and unfavorable foreign exchange rates.
  • Selling and administrative expense increased 21 percent to $2.4 billion. Demand creation expense was $876 million, up 36 percent, driven by marketing support for the World Cup and key product initiatives. Operating overhead expense increased 13 percent to $1.6 billion due to higher costs for the expanding DTC business, as well as investments in infrastructure and digital innovation.
  • Other expense, net was $17 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 $30 million.
  • The effective tax rate was 23.5 percent, compared to 22.9 percent for the fourth quarter last year. The effective tax rate for the prior period was lower due to a reduction in tax reserves related to foreign operations.
  • Net income increased 1 percent to $698 million while diluted earnings per share increased 3 percent to $0.78, reflecting a decrease in the weighted average diluted common shares outstanding.

Fiscal 2014 Continuing Operations Income Statement Review

  • Revenues for NIKE, Inc. rose 10 percent to $27.8 billion, up 11 percent on a currency neutral basis.
    • Revenues for the NIKE Brand were $26.1 billion, up 11 percent excluding the impact of changes in foreign currency.
    • NIKE Brand wholesale revenues increased 8 percent on a currency neutral basis while DTC revenues grew to $5.3 billion, up 22 percent excluding the impact of changes in foreign currency, driven by 10 percent growth in comparable store sales, new store expansion and a 42 percent increase in e-commerce sales. As of May 31, 2014, the NIKE Brand had 768 DTC stores in operation as compared to 678 a year ago.
    • On a currency neutral basis, NIKE Brand revenue growth was driven by growth in every geography, key category and across the Brand’s Men’s, Women’s and Young Athletes’ (Kids’) businesses.
    • Revenues for Converse were $1.7 billion, up 15 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 120 basis points to 44.8 percent. The increase was primarily due to higher average selling prices and continued growth in the higher margin Direct to Consumer business, partially offset by higher product input costs and unfavorable foreign exchange rates.
  • Selling and administrative expense grew 12 percent to $8.8 billion. Demand creation expense was $3.0 billion, up 10 percent, due to an increase in sports marketing expense, as well as marketing support for the World Cup and key product launches. Operating overhead expense increased 14 percent to $5.7 billion due to higher costs for the expanding DTC business, investments in digital innovation and operational infrastructure.
  • Other expense, net was $103 million for the fiscal year, mainly comprised of foreign exchange losses. For the year, 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 $139 million.
  • The effective tax rate was 24.0 percent, lower than the effective tax rate of 24.7 percent last year primarily due to an increase in earnings from low tax jurisdictions.
  • Net income increased 10 percent to $2.7 billion while diluted earnings per share increased 11 percent to $2.97, reflecting a decline in the weighted average diluted common shares outstanding.

May 31, 2014 Balance Sheet Review for Continuing Operations

  • Inventories for NIKE, Inc. were $3.9 billion, up 13 percent from May 31, 2013. NIKE Brand wholesale unit inventories increased 12 percent. 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 net NIKE Brand wholesale inventory growth.
  • Cash and short-term investments were $5.1 billion, $823 million lower than last year as growth in net income was more than offset by share repurchases and higher dividends, as well as capital investments in the business.

Share Repurchases

During the fourth quarter, NIKE, Inc. repurchased a total of 12.3 million shares for approximately $912 million as part of the four-year, $8 billion program approved by the Board of Directors in September 2012. As of the end of fiscal 2014, a total of 51.9 million shares had been repurchased under this program for approximately $3.4 billion, at an average cost of $65.83 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 June through November 2014 totaled $13.3 billion, 11 percent higher than orders reported for the same period last year, and 12 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 June 26, 2014, to review fiscal fourth quarter and full year 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, July 3, 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, changes in the timing of shipments, 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 May 31, 2014
 
THREE MONTHS ENDED % TWELVE MONTHS ENDED %
(Dollars in millions, except per share data)   5/31/2014    

5/31/20131

 

Change   5/31/2014    

5/31/20131

 

Change
Income from continuing operations:
Revenues $ 7,425 $ 6,697 11 % $ 27,799 $ 25,313 10 %
Cost of sales   4,040     3,757   8 %   15,353     14,279   8 %
Gross profit 3,385 2,940 15 % 12,446 11,034 13 %
Gross margin 45.6 % 43.9 % 44.8 % 43.6 %
 
Demand creation expense 876 642 36 % 3,031 2,745 10 %
Operating overhead expense   1,572     1,387   13 %   5,735     5,051   14 %
Total selling and administrative expense 2,448 2,029 21 % 8,766 7,796 12 %
% of revenue 33.0 % 30.3 % 31.5 % 30.8 %
 
Interest expense (income), net 8 3 - 33 (3 ) -
Other expense (income), net   17     13   -     103     (15 ) -  
Income before income taxes 912 895 2 % 3,544 3,256 9 %
Income taxes   214     205   4 %   851     805   6 %
Effective tax rate 23.5 % 22.9 % 24.0 % 24.7 %
             
NET INCOME FROM CONTINUING OPERATIONS   698     690   1 %   2,693     2,451   10 %
NET (LOSS) INCOME FROM DISCONTINUED OPERATIONS   -     (28 ) -     -     21   -  
NET INCOME $ 698   $ 662   5 % $ 2,693   $ 2,472   9 %
 
Earnings per share from continuing operations:
Basic earnings per common share $ 0.80 $ 0.77 4 % $ 3.05 $ 2.74 11 %
Diluted earnings per common share $ 0.78 $ 0.76 3 % $ 2.97 $ 2.68 11 %
 
Earnings per share from discontinued operations:
Basic earnings per common share $ - $ (0.03 ) - $ - $ 0.02 -
Diluted earnings per common share $ - $ (0.03 ) - $ - $ 0.02 -
 
Weighted average common shares outstanding:
Basic 873.7 892.6 883.4 897.3
Diluted 895.2 913.4 905.8 916.4
 
Dividends declared per common share $ 0.24   $ 0.21     $ 0.93   $ 0.81    
1 Prior year amounts have been revised to properly expense internally developed patent and trademark costs as incurred.
 
 
NIKE, Inc.
CONSOLIDATED BALANCE SHEETS
As of May 31, 2014
 
May 31, May 31,
(Dollars in millions) 2014 20131 % Change
ASSETS
Current assets:
Cash and equivalents $ 2,220 $ 3,337 -33%
Short-term investments 2,922 2,628 11%
Accounts receivable, net 3,434 3,117 10%
Inventories 3,947 3,484 13%
Deferred income taxes 355 308 15%
Prepaid expenses and other current assets 818 756 8%
Assets of discontinued operations   -   - -
Total current assets 13,696 13,630 0%
Property, plant and equipment 6,220 5,500 13%
Less accumulated depreciation   3,386   3,048 11%
Property, plant and equipment, net 2,834 2,452 16%
Identifiable intangible assets, net 282 289 -2%
Goodwill 131 131 0%
Deferred income taxes and other assets   1,651   1,043 58%
TOTAL ASSETS $ 18,594 $ 17,545 6%
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 7 $ 57 -88%
Notes payable 167 98 70%
Accounts payable 1,930 1,669 16%
Accrued liabilities 2,491 2,036 22%
Income taxes payable 432 84 414%
Liabilities of discontinued operations   -   18 -
Total current liabilities 5,027 3,962 27%
Long-term debt 1,199 1,210 -1%
Deferred income taxes and other liabilities 1,544 1,292 20%
Redeemable preferred stock - - -
Shareholders' equity   10,824   11,081 -2%
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 18,594 $ 17,545 6%

1 Prior year amounts have been revised to recognize certain inventories held at third parties and to properly expense internally developed patent and trademark costs as incurred.

 
 
NIKE, Inc.
DIVISIONAL REVENUES1
For the period ended May 31, 2014
 

% Change

% Change

Excluding

Excluding

THREE MONTHS ENDED %

Currency

TWELVE MONTHS ENDED %

Currency

(Dollars in millions)   5/31/2014   5/31/2013 Change

Changes 2

  5/31/2014   5/31/2013 Change

Changes 2

North America
Footwear $ 2,036 $ 1,818 12% 12% $ 7,495 $ 6,751 11% 11%
Apparel 1,017 934 9% 9% 3,937 3,591 10% 10%
Equipment   241   239 1% 1%   867   816 6% 6%
Total 3,294 2,991 10% 10% 12,299 11,158 10% 10%
Western Europe
Footwear 884 699 26% 20% 3,299 2,657 24% 20%
Apparel 366 290 26% 19% 1,427 1,289 11% 7%
Equipment   62   63 -2% -4%   253   247 2% -1%
Total 1,312 1,052 25% 18% 4,979 4,193 19% 14%
Central & Eastern Europe
Footwear 219 212 3% 8% 763 672 14% 15%
Apparel 129 110 17% 25% 532 468 14% 17%
Equipment   22   25 -12% -7%   92   89 3% 7%
Total 370 347 7% 12% 1,387 1,229 13% 15%
Greater China
Footwear 434 404 7% 6% 1,600 1,495 7% 5%
Apparel 235 236 0% -2% 876 844 4% 1%
Equipment   33   38 -13% -12%   126   139 -9% -11%
Total 702 678 4% 2% 2,602 2,478 5% 3%
Japan
Footwear 128 124 3% 12% 409 439 -7% 11%
Apparel 75 90 -17% -11% 276 337 -18% -2%
Equipment   23   30 -23% -17%   86   100 -14% 2%
Total 226 244 -7% 0% 771 876 -12% 5%
Emerging Markets
Footwear 701 673 4% 19% 2,642 2,621 1% 10%
Apparel 313 249 26% 44% 1,061 962 10% 21%
Equipment   66   72 -8% 8%   246   249 -1% 9%
Total 1,080 994 9% 25% 3,949 3,832 3% 13%
Global Brand Divisions3   36   31 16% 10%   125   115 9% 6%
Total NIKE Brand   7,020   6,337 11% 13%   26,112   23,881 9% 11%
Converse 410 354 16% 15% 1,684 1,449 16% 15%
Corporate4   (5)   6 - -   3   (17) - -
Total NIKE, Inc. Revenues From Continuing Operations $ 7,425 $ 6,697 11% 13% $ 27,799 $ 25,313 10% 11%
 
Total NIKE Brand
Footwear $ 4,402 $ 3,930 12% 14% $ 16,208 $ 14,635 11% 12%
Apparel 2,135 1,909 12% 14% 8,109 7,491 8% 10%
Equipment 447 467 -4% -1% 1,670 1,640 2% 4%
Global Brand Divisions3   36   31 16% 10%   125   115 9% 6%
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.
SUPPLEMENTAL NIKE BRAND REVENUE DETAILS1
For the period ended May 31, 2014

% Change

Excluding

YEAR ENDED %

Currency

(Dollars in millions)   5/31/2014 5/31/2013 Change

Changes 2

NIKE Brand Revenues by:
Sales to Wholesale Customers $ 20,683 $ 19,401 7% 8%
Sales Direct to Consumers 5,304 4,365 22% 22%
Global Brand Divisions     125   115 9% 6%
Total NIKE Brand Revenues   $ 26,112 $ 23,881 9% 11%
 
NIKE Brand Revenues on a Wholesale Equivalent Basis:3
Sales to Wholesale Customers $ 20,683 $ 19,401 7% 8%
Sales from our Wholesale Operations to Direct to Consumer Operations     3,107   2,499 24% 25%
Total NIKE Brand Wholesale Equivalent Revenues   $ 23,790 $ 21,900 9% 10%
 
NIKE Brand Wholesale Equivalent Revenues by:3
Men's $ 14,001 $ 13,073 7% 9%
Women’s 4,971 4,494 11% 12%
Young Athletes' 3,737 3,251 15% 16%
Others4     1,081   1,082 0% 1%
Total NIKE Brand Wholesale Equivalent Revenues   $ 23,790 $ 21,900 9% 10%
 
NIKE Brand Wholesale Equivalent Revenues by:3
Running $ 4,623 $ 4,274 8% 10%
Basketball 3,119 2,629 19% 19%
Football (Soccer) 2,270 1,930 18% 21%
Men’s Training 2,479 2,391 4% 5%
Women’s Training 1,149 1,067 8% 10%
Action Sports 738 683 8% 9%
Sportswear 5,877 5,569 6% 7%
Golf 789 792 0% 1%
Others5     2,746   2,565 7% 8%
Total NIKE Brand Wholesale Equivalent Revenues   $ 23,790 $ 21,900 9% 10%

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 by excluding the impact of translation arising from foreign currency exchange rate fluctuations.

 

3 References to NIKE Brand wholesale equivalent revenues are intended to provide context as to the total size of our NIKE Brand market footprint if we had no Direct to Consumer operations. NIKE Brand wholesale equivalent revenues consist of 1) sales to external wholesale customers, and 2) internal sales from our wholesale operations to our Direct to Consumer operations which are charged at prices that are comparable to prices charged to external wholesale customers.

 

4 Others include all unisex products, equipment, and other products not allocated to Men's, Women's, and Young Athletes', as well as certain adjustments that are not allocated to products designated by Gender-Age.

 

5 Others include all other categories and certain adjustments that are not allocated at the category level.

 
 
NIKE, Inc.
EARNINGS BEFORE INTEREST AND TAXES1,2
For the period ended May 31, 2014
 
THREE MONTHS ENDED

%

TWELVE MONTHS ENDED %
(Dollars in millions)   5/31/2014    

5/31/20133

Change   5/31/2014    

5/31/20133

Change
North America $ 887 $ 778 14 % $ 3,075 $ 2,641 16 %
Western Europe 192 142 35 % 855 643 33 %
Central & Eastern Europe 71 79 -10 % 279 234 19 %
Greater China 215 243 -12 % 816 813 0 %
Japan 39 47 -17 % 131 139 -6 %
Emerging Markets 273 253 8 % 955 988 -3 %
Global Brand Divisions4   (560 )   (466 ) -20 %   (2,021 )   (1,746 ) -16 %
TOTAL NIKE BRAND   1,117     1,076   4 %   4,090     3,712   10 %
Converse 94 89 6 % 496 425 17 %
Corporate5   (291 )   (267 ) -9 %   (1,009 )   (884 ) -14 %
TOTAL EARNINGS BEFORE INTEREST AND TAXES $ 920   $ 898   2 % $ 3,577   $ 3,253   10 %

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 Prior year amounts have been revised to properly expense internally developed patent and trademark costs as incurred.

 

4 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.

 

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
As of May 31, 2014
 
Reported Futures Excluding Currency
  Orders

Changes 2

North America 11% 11%
Western Europe 25% 22%
Central & Eastern Europe 10% 14%
Greater China 6% 6%
Japan -6% 0%
Emerging Markets 2% 9%
Total NIKE Brand Reported Futures 11% 12%

1 Futures orders by geography and in total for NIKE Brand athletic footwear and apparel scheduled for delivery from June 2014 through November 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.

Source: NIKE, Inc.

NIKE, Inc.

Investor Contact:

Kelley Hall, 503-532-3793

or

Media Contact:

Kellie Leonard, 503-671-6171