NIKE, Inc. Reports Fiscal 2014 First Quarter Results

NIKE, Inc. Reports Fiscal 2014 First Quarter Results

  • Revenues from continuing operations up 8 percent to $7.0 billion

  • Diluted earnings per share from continuing operations up 37 percent to $0.86

  • Worldwide futures orders up 8 percent, 10 percent growth excluding currency changes

  • Inventories as of August 31, 2013 up 6 percent

BEAVERTON, Ore.--(BUSINESS WIRE)-- NIKE, Inc. (NYS: NKE) today reported financial results for its fiscal 2014 first quarter ended August 31, 2013. Strong demand for NIKE, Inc. brands propelled revenue growth, and diluted earnings per share grew faster than revenue due to gross margin expansion, SG&A leverage, a lower tax rate and a lower average share count.

"We had a great first quarter driven by our unrelenting commitment to delivering innovative products and services to athletes around the world," said Mark Parker, President and CEO of NIKE, Inc. "Our powerful portfolio of businesses combined with unmatched leadership and resources allows us to capitalize on opportunities that drive long-term value for our shareholders. I am more excited than ever about our potential to continue to innovate with purpose, and fuel NIKE's growth."*


First Quarter Continuing Operations Income Statement Review

Starting in the first quarter of fiscal 2014, the Company changed the reporting structure for what was historically identified as Other Businesses. Hurley and NIKE Golf have been included in the overall financial results for the NIKE Brand and for individual geographies, reflecting the operational integration of these businesses into the NIKE Brand category offense. Converse will now be reported as a separate segment, reflecting the ongoing operation of this brand as a stand-alone business.

  • Revenues for NIKE, Inc. increased 8 percent to $7.0 billion. Changes in foreign currency exchange rates did not have a significant impact on total reported revenue growth.

    • Revenues for the NIKE Brand were $6.5 billion, up 7 percent on a currency neutral basis, with growth in every product type and every geography except Greater China. For the first quarter, NIKE Brand revenues were higher in Running, Basketball, Football (Soccer) and Men's Training, offsetting a slight decline in Sportswear.

    • Revenues for Converse were $494 million, up 16 percent on a currency neutral basis, driven by strong performance in our largest owned markets: the United Kingdom, North America and China.

  • Gross margin increased 120 basis points to 44.9 percent. Gross margin benefitted from easing raw material costs, a shift in the mix of the Company's revenues to higher margin products, lower discounts and growth in the higher margin Direct to Consumer business. These benefits were partially offset by higher labor costs and unfavorable changes in foreign exchange rates.

  • Selling and administrative expense was in line with the same period last year at $2.1 billion. Demand creation expense was $731 million, down 16 percent versus the prior year, which included higher spending supporting key product initiatives, as well as the Olympics and European Football Championships. Operating overhead expense increased 12 percent to $1.3 billion due to investments in digital innovation and other growth businesses, as well as higher Direct to Consumer costs driven by growth and new store openings.

  • Other expense, net was $28 million, comprised primarily of foreign currency 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 $38 million.

  • The effective tax rate was 25.0 percent, compared to 26.9 percent for the same period last year, an improvement due primarily to a lower effective tax rate on operations outside the United States.

  • Net income increased 33 percent to $780 million while diluted earnings per share increased 37 percent to $0.86, reflecting a 1 percent decline in the weighted average diluted common shares outstanding.

August 31, 2013 Balance Sheet Review for Continuing Operations

  • Inventories for NIKE, Inc. were $3.5 billion, up 6 percent from August 31, 2012. NIKE Brand wholesale unit inventories increased 8 percent to support future demand. Changes in foreign currency exchange rates and product cost drove approximately a 2 percentage point decline in NIKE, Inc. inventory growth.

  • Cash and short-term investments were $5.6 billion, $2.3 billion higher than last year mainly as a result of proceeds from the issuance of debt and sale of the Umbro and Cole Haan businesses in the prior fiscal year, in addition to higher net income and continued focus on working capital productivity.

Share Repurchases

During the first quarter, NIKE, Inc. repurchased a total of 8.4 million shares for approximately $526 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 23.7 million shares had been repurchased under this program at a cost of approximately $1.3 billion.

Futures Orders

As of the end of the quarter, worldwide futures orders for NIKE Brand athletic footwear and apparel scheduled for delivery from September 2013 through January 2014 were 8 percent higher than orders reported for the same period last year. Excluding currency changes, reported orders would have increased 10 percent.*

Conference Call

NIKE management will host a conference call beginning at approximately 2:00 p.m. PT on September 26, 2013, 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 3, 2013.

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 significant portion of the business does not report futures orders.

(Additional Tables Follow)

NIKE, Inc.

CONSOLIDATED STATEMENTS OF INCOME

For the period ended August 31, 2013

THREE MONTHS ENDED

%

(Dollars in millions, except per share data)

8/31/2013

8/31/2012

Change

Income from continuing operations:

Revenues

$

6,971

$

6,474

8%

Cost of sales

3,839

3,646

5%

Gross profit

3,132

2,828

11%

Gross margin

44.9%

43.7%

Demand creation expense

731

871

-16%

Operating overhead expense

1,325

1,188

12%

Total selling and administrative expense

2,056

2,059

0%

% of revenue

29.5%

31.8%

Interest expense (income), net

8

(3)

-

Other expense (income), net

28

(28)

-

Income before income taxes

1,040

800

30%

Income taxes

260

215

21%

Effective tax rate

25.0%

26.9%

NET INCOME FROM CONTINUING OPERATIONS

780

585

33%

NET (LOSS) INCOME FROM DISCONTINUED OPERATIONS

-

(18)

-

NET INCOME

$

780

$

567

38%

Earnings per share from continuing operations:

Basic earnings per common share

$

0.88

$

0.65

35%

Diluted earnings per common share

$

0.86

$

0.63

37%

Earnings per share from discontinued operations:

Basic earnings per common share

$

-

$

(0.03)

-

Diluted earnings per common share

$

-

$

(0.02)

-

Weighted average common shares outstanding:

Basic

889.4

905.6

Diluted

910.7

922.8

Dividends declared per common share

$

0.21

$

0.18

NIKE, Inc.

CONSOLIDATED BALANCE SHEETS

As of August 31, 2013

August 31,

August 31,

(Dollars in millions)

2013

2012

% Change

ASSETS

Current assets:

Cash and equivalents

$

2,936

$

2,165

36%

Short-term investments

2,642

1,102

140%

Accounts receivable, net

3,207

3,291

-3%

Inventories

3,472

3,263

6%

Deferred income taxes

308

270

14%

Prepaid expenses and other current assets

1,053

720

46%

Assets of discontinued operations

-

636

-

Total current assets

13,618

11,447

19%

Property, plant and equipment

5,684

5,175

10%

Less accumulated depreciation

3,127

2,951

6%

Property, plant and equipment, net

2,557

2,224

15%

Identifiable intangible assets, net

383

372

3%

Goodwill

131

131

0%

Deferred income taxes and other assets

985

940

5%

TOTAL ASSETS

$

17,674

$

15,114

17%

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt

$

57

$

9

533%

Notes payable

111

129

-14%

Accounts payable

1,559

1,492

4%

Accrued liabilities

1,913

1,864

3%

Income taxes payable

211

114

85%

Liabilities of discontinued operations

12

151

-92%

Total current liabilities

3,863

3,759

3%

Long-term debt

1,207

226

434%

Deferred income taxes and other liabilities

1,322

1,082

22%

Redeemable preferred stock

-

-

-