NIKE, Inc. Reports Fiscal 2013 Second Quarter Results
NIKE, Inc. Reports Fiscal 2013 Second Quarter Results
- Revenues from continuing operations up 7 percent to $6.0 billion, up 10 percent excluding currency changes
- Diluted earnings per share from continuing operations up 11 percent to $1.14
- Worldwide futures orders up 6 percent, 7 percent growth excluding currency changes
- Inventories up 9 percent
BEAVERTON, Ore.--(BUSINESS WIRE)-- NIKE, Inc. (NYS: NKE) today reported financial results for its fiscal 2013 second quarter ended November 30, 2012. For continuing operations, strong demand for NIKE, Inc. brands propelled double-digit revenue growth on a currency neutral basis, and diluted earnings per share grew faster than revenue due to SG&A leverage, an increase in other income and a lower average share count, which more than offset the impact of a slightly lower gross margin and an increase in the effective tax rate.
"Our strong second quarter results show that our growth strategies are working, even under challenging macroeconomic conditions," said Mark Parker, President and CEO, NIKE, Inc. "We have a focused and flexible portfolio that allows us to target the biggest growth opportunities at all levels - brand, category and product. We stay connected with our consumers and that enables us to deliver innovations that excite the marketplace, grow the business and deliver more value to shareholders."*
Second Quarter Continuing Operations Income Statement Review
- Revenues for NIKE, Inc. increased 7 percent to $6.0 billion, up 10 percent on a currency-neutral basis. Excluding the impact of changes in foreign currency, NIKE Brand revenues rose 11 percent, with growth in all key categories, product types and geographies except Greater China. Revenues for Other Businesses increased 6 percent on a currency-neutral basis, as Converse, Hurley and NIKE Golf all increased revenues during the quarter.
- Gross margin declined 30 basis points to 42.5 percent. Gross margin benefitted from pricing actions and easing material costs; however, these benefits were more than offset by higher labor costs and unfavorable changes in foreign exchange rates. Additionally, gross margin was negatively impacted by a shift in the mix of the Company's revenues to lower margin products and businesses.
- Selling and administrative expenses grew at a slower rate than revenue, up 6 percent to $1.8 billion. Demand creation expenses were $613 million, relatively unchanged from the prior year. Operating overhead expenses increased 10 percent to $1.2 billion due to additional investments made in the wholesale business to support growth initiatives and higher Direct to Consumer costs as a result of higher volume driven expenses in existing NIKE-owned stores and the cost of new stores opened in the last year.
- Other income, net was $17 million, comprised primarily of foreign exchange gains and other non-operating items. For the quarter, the Company estimates the year-over-year change in currency related gains and losses included in other 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 $10 million.
- The effective tax rate was 26.8 percent, compared to 24.1 percent for the same period last year. The increase was largely as a result of an increase in our effective tax rate on foreign operations.
- Net income from continuing operations increased 9 percent to $521 million while diluted earnings per share increased 11 percent to $1.14, reflecting a 3 percent decline in the weighted average diluted common shares outstanding.
November 30, 2012 Balance Sheet Review for Continuing Operations
- Inventories for NIKE, Inc. were $3.3 billion, up 9 percent from November 30, 2011. NIKE Brand inventories increased 8 percent; of which 6 percentage points of growth were due to higher NIKE Brand wholesale unit inventories to support future demand and 2 percentage points of growth were due to higher average product cost per unit.
- Cash and short-term investments were $3.5 billion, $160 million higher than last year mainly as a result of higher net income and proceeds from the sale of the Umbro brand.
During the second quarter, NIKE, Inc. repurchased a total of 4.0 million shares for approximately $384 million and concluded the Company's previous four-year, $5 billion share repurchase program approved by the Board of Directors in September 2008. During this program the Company purchased a total of 59.4 million shares at an average price of $84.16.
Following the completion of the previous program, the Company began repurchases under the four-year, $8 billion program approved in September 2012. Of the total shares repurchased during the second quarter, 3.1 million shares were purchased under this program at a cost of approximately $294 million.
As of the end of the quarter worldwide futures orders for NIKE Brand athletic footwear and apparel, scheduled for delivery from December 2012 through April 2013 totaled $9.3 billion, 6 percent higher than orders reported for the same period last year. Excluding currency changes, reported orders would have increased 7 percent.*
The Company continually evaluates its existing portfolio of businesses to ensure resources are invested in those businesses that are accretive to the NIKE Brand, and represent the largest growth potential and highest returns. On May 31, 2012, the Company announced its intention to divest of the Umbro and Cole Haan businesses, which will allow it to focus resources on driving growth in the NIKE, Jordan, Converse and Hurley brands.
On November 30, 2012, the Company completed the sale of certain assets of the Umbro brand to Iconix Brand Group for $225 million. For the second quarter ended November 30, 2012, the Company recorded a loss of $107 million, net of tax, on the sale of these assets, representing the sale price less the value of the Umbro assets sold, the release of the associated cumulative translation adjustment, and other miscellaneous charges, offset by a tax benefit on the loss. This loss is included in the Net Loss from Discontinued Operations.
On November 16, 2012, the Company announced it had reached a definitive agreement to sell Cole Haan to Apax Partners for $570 million. As of November 30, 2012, the Company classified Cole Haan as an asset held-for-sale and included the results of Cole Haan's operations in the Net Loss from Discontinued Operations. The Company expects to complete the sale of Cole Haan in the third quarter of fiscal 2013, and to record a gain on the sale at that time.
For the second fiscal quarter of 2013, the Company's Net Loss from Discontinued Operations was $137 million. This includes the loss recorded for the sale of the Umbro brand of $107 million, net of tax, in addition to net operating losses and divesture transaction costs for Umbro and Cole Haan during the period, net of tax.
NIKE management will host a conference call beginning at approximately 2:00 p.m. PT on December 20, 2012, to review second 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, December 27, 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 Converse Inc., which designs, markets and distributes athletic footwear, apparel and accessories and Hurley International LLC, which designs, markets and distributes action sports 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 significant portion of the business does not report futures orders.
CONSOLIDATED STATEMENTS OF INCOME
For the period ended November 30, 2012
|THREE MONTHS ENDED||%||SIX MONTHS ENDED||%|
|(Dollars in millions, except per share data)||11/30/2012||11/30/2011||Change||11/30/2012||11/30/2011||Change|
|Income from continuing operations:|
|Cost of sales||3,425||3,170||8||%||7,071||6,445||10||%|
|Demand creation expense||613||616||0||%||1,484||1,280||16||%|
|Operating overhead expense||1,223||1,115||10||%||2,411||2,181||11||%|
|Total selling and administrative expense||1,836||1,731||6||%||3,895||3,461||13||%|
|% of revenue||30.8||%||31.2||%||31.3||%||30.3||%|
|Interest (income) expense, net||(1||)||3||-||(4||)||3||-|
|Other (income) expense, net||(17||)||10||-||(45||)||27||-|
|Income before income taxes||712||632||13||%||1,512||1,503||1||%|
|Effective tax rate||26.8||%||24.1||%||26.9||%||24.1||%|
|NET INCOME FROM CONTINUING OPERATIONS||521||480||9||%||1,106||1,141||-3||%|
|NET LOSS FROM DISCONTINUED OPERATIONS||(137||)||(11||)||-||(155||)||(27||)||-|
|Earnings per share from continuing operations:|
|Basic earnings per common share||$||1.16||$||1.05||10||%||$||2.45||$||2.47||-1||%|
|Diluted earnings per common share||$||1.14||$||1.03||11||%||$||2.41||$||2.42||0||%|
|Earnings per share from discontinued operations:|
|Basic earnings per common share||$||(0.30||)||$||(0.03||)||-||$||(0.34||)||$||(0.06||)||-|
|Diluted earnings per common share||$||(0.30||)||$||(0.03||)||-||$||(0.34||)||$||(0.06||)||-|
|Weighted Average Common Shares Outstanding:|
|Dividends declared per common share||$||0.42||$||0.36||$||0.78||$||0.67|
CONSOLIDATED BALANCE SHEETS
As of November 30, 2012
|November 30,||November 30,|
|(Dollars in millions)||2012||2011||% Change|
|Cash and equivalents||$||2,291||$||1,929||19||%|
|Accounts receivable, net||3,188||3,016||6||%|
|Deferred income taxes||327||289||13||%|
|Prepaid expenses and other current assets||733||768||-5||%|
|Assets of discontinued operations||344||576||-40||%|
|Total current assets||11,435||11,049||3||%|
|Property, plant and equipment||5,310||4,883||9||%|
|Less accumulated depreciation||3,052||2,780||10||%|
|Property, plant and equipment, net||2,258||2,103||7||%|
|Identifiable intangible assets, net||374||364||3||%|
|Deferred income taxes and other assets||973||918||6||%|
|LIABILITIES AND SHAREHOLDERS' EQUITY|
|Current portion of long-term debt||$||58||$||114||-49||%|
|Income taxes payable||45||
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