NIKE, Inc. Reports Fiscal 2014 Second Quarter Results

  • Revenues from continuing operations up 8 percent to $6.4 billion
  • Diluted earnings per share from continuing operations up 4 percent to $0.59
  • Worldwide futures orders up 12 percent, 13 percent growth excluding currency changes
  • Inventories as of November 30, 2013 up 11 percent

BEAVERTON, Ore.--()--NIKE, Inc. (NYSE:NKE) today reported financial results for its fiscal 2014 second quarter ended November 30, 2013. Earnings per share for the quarter were up 4 percent due to higher revenues as a result of strong demand for NIKE, Inc. brands, gross margin expansion, and a lower tax rate partially offset by the impact of higher SG&A investments in NIKE, Inc. brands and business capabilities.

“Our strong second quarter results show why NIKE leads the industry,” said Mark Parker, President and CEO of NIKE, Inc. “Our powerful portfolio fuels growth across our categories and geographies. Because we never stop innovating, we enhance our ability to serve the athlete, inspire consumers and elevate the marketplace. We will continue to seize the best opportunities to drive sustainable, profitable growth for our shareholders.”*

Second Quarter Continuing Operations Income Statement Review

  • Revenues for NIKE, Inc. increased 8 percent to $6.4 billion, up 9 percent on a currency neutral basis.
    • Revenues for the NIKE Brand were $6.1 billion, up 9 percent on a currency neutral basis, with growth in every product type, geography and key category.
    • Revenues for Converse were $360 million, up 11 percent on a currency neutral basis, driven by strong performance in our largest owned markets: North America, the United Kingdom, and China.
  • Gross margin increased 140 basis points to 43.9 percent. Gross margin benefitted from a shift in the mix of the Company’s revenues to higher margin products and businesses, higher average prices, easing raw materials product input costs and continued strength in the higher margin Direct-to-Consumer business. These benefits were partially offset by unfavorable changes in foreign exchange rates and higher labor product input costs.
  • Selling and administrative expense grew 14 percent to $2.1 billion. Demand creation expense was $691 million, up 13 percent versus relatively low levels in the prior year, driven by marketing support for key product launches, consumer running events and upcoming global sporting events, including the World Cup and Winter Olympics. Operating overhead expense increased 14 percent to $1.4 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 $13 million, comprised primarily of a charge relating to an adverse legal judgment in Western Europe and 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 $32 million.
  • The effective tax rate was 25.1 percent, compared to 26.8 percent for the same period last year, an improvement primarily due to an increase in the amount of earnings from non-U.S. operations, which are generally subject to a lower tax rate.
  • Net income increased 3 percent to $537 million while diluted earnings per share increased 4 percent to $0.59, reflecting a slight decline in the weighted average diluted common shares outstanding.

November 30, 2013 Balance Sheet Review for Continuing Operations

  • Inventories for NIKE, Inc. were $3.7 billion, up 11 percent from November 30, 2012. NIKE Brand wholesale unit inventories increased 7 percent to support future demand. Changes in foreign currency exchange rates and product cost drove an approximate 4 percentage point net increase in NIKE, Inc. inventory growth.
  • Cash and short-term investments were $5.2 billion, $1.7 billion higher than last year as a result of proceeds from the issuance of debt and sale of the Umbro and Cole Haan businesses in the prior fiscal year, as well as higher net income.

Share Repurchases

During the second quarter, NIKE, Inc. repurchased a total of 5.5 million shares for approximately $402 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 second quarter, a total of 29.2 million shares had been repurchased under this program at a cost of approximately $1.7 billion, an average of $58.82 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 December 2013 through April 2014 totaled $10.4 billion, 12 percent higher than orders reported for the same period last year, and 13 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 December 19, 2013, 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 26, 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 November 30, 2013
                         
THREE MONTHS ENDED % SIX MONTHS ENDED %
(Dollars in millions, except per share data)       11/30/2013     11/30/2012     Change     11/30/2013     11/30/2012     Change
Income from continuing operations:
Revenues $ 6,431 $ 5,955 8 % $ 13,402 $ 12,429 8 %
Cost of sales         3,605         3,425       5 %       7,444         7,071       5 %
Gross profit 2,826 2,530 12 % 5,958 5,358 11 %
Gross margin 43.9 % 42.5 % 44.5 % 43.1 %
 
Demand creation expense 691 613 13 % 1,422 1,484 -4 %
Operating overhead expense         1,397         1,223       14 %       2,722         2,411       13 %
Total selling and administrative expense 2,088 1,836 14 % 4,144 3,895 6 %
% of revenue 32.5 % 30.8 % 30.9 % 31.3 %
 
Interest expense (income), net 8 (1 ) - 16 (4 ) -
Other expense (income), net         13         (17 )     -         41         (45 )     -  
Income before income taxes 717 712 1 % 1,757 1,512 16 %
Income taxes         180         191       -6 %       440         406       8 %
Effective tax rate 25.1 % 26.8 % 25.0 % 26.9 %
                                       
NET INCOME FROM CONTINUING OPERATIONS         537         521       3 %       1,317         1,106       19 %
NET LOSS FROM DISCONTINUED OPERATIONS         -         (137 )     -         -         (155 )     -  
NET INCOME       $ 537       $ 384       40 %     $ 1,317       $ 951       38 %
 
Earnings per share from continuing operations:
Basic earnings per common share $ 0.60 $ 0.58 3 % $ 1.48 $ 1.23 20 %
Diluted earnings per common share $ 0.59 $ 0.57 4 % $ 1.45 $ 1.20 21 %
 
Earnings per share from discontinued operations:
Basic earnings per common share $ - $ (0.15 ) - $ - $ (0.18 ) -
Diluted earnings per common share $ - $ (0.15 ) - $ - $ (0.16 ) -
 
Weighted average common shares outstanding:
Basic 888.0 897.0 888.7 901.4
Diluted 910.6 913.1 910.7 918.3
 
Dividends declared per common share       $ 0.24       $ 0.21             $ 0.45       $ 0.39        
 
NIKE, Inc.
CONSOLIDATED BALANCE SHEETS
As of November 30, 2013
             
November 30, November 30,
(Dollars in millions)       2013     2012     % Change
ASSETS
Current assets:
Cash and equivalents $ 2,086 $ 2,291 -9 %
Short-term investments 3,101 1,234 151 %
Accounts receivable, net 3,208 3,188 1 %
Inventories 3,695 3,318 11 %
Deferred income taxes 315 327 -4 %
Prepaid expenses and other current assets 1,202 733 64 %
Assets of discontinued operations         -       344     -  
Total current assets 13,607 11,435 19 %
Property, plant and equipment 5,869 5,310 11 %
Less accumulated depreciation         3,224       3,052     6 %
Property, plant and equipment, net 2,645 2,258 17 %
Identifiable intangible assets, net 385 374 3 %
Goodwill 131 131 0 %
Deferred income taxes and other assets         1,052       973     8 %
TOTAL ASSETS       $ 17,820     $ 15,171     17 %
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 7 $ 58 -88 %
Notes payable 180 100 80 %
Accounts payable 1,612 1,519 6 %
Accrued liabilities 2,005 1,879 7 %
Income taxes payable 47 45 4 %
Liabilities of discontinued operations         -       198     -  
Total current liabilities 3,851 3,799 1 %
Long-term debt 1,201 170 606 %
Deferred income taxes and other liabilities 1,424 1,188 20 %
Redeemable preferred stock - - -
Shareholders' equity         11,344       10,014     13 %
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       $ 17,820     $ 15,171     17 %
 
NIKE, Inc.
DIVISIONAL REVENUES1
For the period ended November 30, 2013
                                 

% Change

% Change

Excluding

Excluding

THREE MONTHS ENDED %

Currency

SIX MONTHS ENDED %

Currency

(Dollars in millions)       11/30/2013     11/30/2012     Change    

Changes 2

    11/30/2013     11/30/2012     Change    

Changes 2

North America
Footwear $ 1,627 $ 1,480 10 % 10 % $ 3,531 $ 3,225 9 % 10 %
Apparel 986 903 9 % 9 % 1,995 1,827 9 % 9 %
Equipment         188       181       4 %     3 %       410       378       8 %     9 %
Total 2,801 2,564 9 % 9 % 5,936 5,430 9 % 9 %
Western Europe
Footwear 695 547 27 % 23 % 1,524 1,263 21 % 17 %
Apparel 324 306 6 % 3 % 723 694 4 % 1 %
Equipment         55       55       0 %     -2 %       128       127       1 %     -3 %
Total 1,074 908 18 % 15 % 2,375 2,084 14 % 11 %
Central & Eastern Europe
Footwear 144 124 16 % 16 % 337 292 15 % 14 %
Apparel 135 114 18 % 21 % 274 243 13 % 13 %
Equipment         16       14       14 %     10 %       50       44       14 %     13 %
Total 295 252 17 % 18 % 661 579 14 % 14 %
Greater China
Footwear 358 324 10 % 8 % 699 681 3 % 0 %
Apparel 245 228 7 % 4 % 442 409 8 % 5 %
Equipment         26       30       -13 %     -15 %       62       69       -10 %     -13 %
Total 629 582 8 % 5 % 1,203 1,159 4 % 1 %
Japan
Footwear 101 109 -7 % 15 % 189 217 -13 % 8 %
Apparel 89 110 -19 % 1 % 142 177 -20 % 0 %
Equipment         20       21       -5 %     17 %       37       43       -14 %     9 %
Total 210 240 -13 % 9 % 368 437 -16 % 5 %
Emerging Markets
Footwear 686 728 -6 % 2 % 1,310 1,345 -3 % 3 %
Apparel 279 284 -2 % 5 % 505 507 0 % 5 %
Equipment         65       62       5 %     14 %       117       119       -2 %     4 %
Total 1,030 1,074 -4 % 3 % 1,932 1,971 -2 % 4 %
Global Brand Divisions3         31       28       11 %     15 %       63       55       15 %     13 %
Total NIKE Brand         6,070       5,648       7 %     9 %       12,538       11,715       7 %     8 %
Converse 360 316 14 % 11 % 854 734 16 % 14 %
Corporate4         1       (9 )     -       -         10       (20 )     -       -  
Total NIKE, Inc. Revenues From Continuing Operations       $ 6,431     $ 5,955       8 %     9 %     $ 13,402     $ 12,429       8 %     8 %
 
Total NIKE Brand
Footwear $ 3,611 $ 3,312 9 % 11 % $ 7,590 $ 7,023 8 % 9 %
Apparel 2,058 1,945 6 % 7 % 4,081 3,857 6 % 7 %
Equipment 370 363 2 % 4 % 804 780 3 % 4 %
Global Brand Divisions3         31       28       11 %     15 %       63       55       15 %     13 %

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 intercompany revenue eliminations and 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 TAXES1,2
For the period ended November 30, 2013
                         
THREE MONTHS ENDED % SIX MONTHS ENDED %
(Dollars in millions)       11/30/2013     11/30/2012     Change     11/30/2013     11/30/2012     Change
North America $ 649 $ 565 15 % $ 1,462 $ 1,210 21 %
Western Europe 123 110 12 % 388 322 20 %
Central & Eastern Europe 48 37 30 % 129 91 42 %
Greater China 197 187 5 % 367 352 4 %
Japan 47 45 4 % 71 68 4 %
Emerging Markets 243 298 -18 % 453 519 -13 %
Global Brand Divisions3         (462 )       (410 )     -13 %       (928 )       (866 )     -7 %
TOTAL NIKE BRAND         845         832       2 %       1,942         1,696       15 %
Converse 100 91 10 % 269 215 25 %
Corporate4         (220 )       (212 )     -4 %       (438 )       (403 )     -9 %
TOTAL EARNINGS BEFORE INTEREST AND TAXES       $ 725       $ 711       2 %     $ 1,773       $ 1,508       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 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 Global Brand Divisions primarily represent NIKE Brand licensing businesses that are not part of a geographic operating segment and selling general and administrative expenses that are centrally managed for the NIKE Brand.

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 November 30, 2013
         
Reported Futures Excluding Currency
        Orders    

Changes 2

North America 11% 11%
Western Europe 26% 23%
Central & Eastern Europe 13% 14%
Greater China 4% 1%
Japan -10% 1%
Emerging Markets       7%     15%
Total NIKE Brand Reported Futures       12%     13%
1 Futures orders by geography and in total for NIKE Brand athletic footwear and apparel scheduled for delivery from December 2013 through April 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.

Contacts

NIKE, Inc.
Investor Contact:
Kelley Hall, 503-532-3793
or
Media Contact:
Kellie Leonard, 503-671-6171

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Contacts

NIKE, Inc.
Investor Contact:
Kelley Hall, 503-532-3793
or
Media Contact:
Kellie Leonard, 503-671-6171