BEAVERTON, Ore.--(BUSINESS WIRE)--NIKE, Inc. (NYSE:NKE) today reported financial results for its fiscal 2017 third quarter ended February 28, 2017. Consumer demand in all geographies drove revenue growth across the NIKE Brand portfolio. Diluted earnings per share were up 24 percent and grew faster than revenue, primarily due to selling and administrative expense leverage, higher other income (net), a lower effective tax rate and a lower average share count.
“The power of NIKE’s diverse, global portfolio delivered another solid quarter of growth and profitability,” said Mark Parker, Chairman, President and CEO, NIKE, Inc. “To expand our leadership and ignite NIKE’s next phase of growth, we’re delivering a relentless flow of innovation through performance and style, increasing speed throughout the business and creating more direct connections with consumers leveraging digital and membership.”**
Third Quarter Income Statement Review
- Revenues for NIKE, Inc. increased 5 percent to $8.4 billion, up 7 percent on a currency-neutral basis.
- Revenues for the NIKE Brand were $7.9 billion, up 7 percent on a currency-neutral basis, driven by double-digit growth in Western Europe, Greater China and the Emerging Markets as well as the Sportswear and Jordan Brand categories.
- Revenues for Converse were $498 million, up 3 percent on a currency-neutral basis, driven by growth in North America.
- Gross margin contracted 140 basis points to 44.5 percent, as higher average selling prices were more than offset by higher product costs, unfavorable changes in foreign exchange rates and the impact of higher off-price sales.
- Selling and administrative expense decreased 3 percent to $2.5 billion. Demand creation expense was $749 million, down 7 percent as fiscal 2017 spend was weighted towards the first six months due to significant investments around the Olympics and the European Championships. Operating overhead expense decreased 1 percent to $1.7 billion, as continued investments in Direct-to-Consumer (DTC) were offset by lower bad debt expense compared to the prior year and lower administrative costs as Edit-to-Amplify initiatives are driving productivity in core operational spending.
- Other income, net was $88 million comprised primarily of net foreign currency exchange gains, and to a lesser extent, non-operating items.
- The effective tax rate was 13.8 percent, compared to 16.3 percent for the same period last year, primarily due to a reduction in tax reserves and an increase in the mix of earnings from operations outside of the U.S., which are generally subject to a lower tax rate.
- Net income increased 20 percent to $1.1 billion and diluted earnings per share increased 24 percent to $0.68 as revenue growth, selling and administrative expense leverage, higher other income (net), a lower tax rate and a three percent decline in the weighted average diluted common shares outstanding more than offset lower gross margin.
February 28, 2017 Balance Sheet Review
- Inventories for NIKE, Inc. were $4.9 billion, up 7 percent compared to the prior year as a 3 percent decrease in NIKE Brand wholesale unit inventories was offset by increases in average product costs per unit and higher inventories associated with growth in DTC.
- Cash and short-term investments were $6.2 billion, $1.1 billion higher than the prior year as growth in net income and proceeds from the issuance of debt in the second quarter of fiscal 2017 as well as proceeds from employee exercises of stock options more than offset share repurchases, higher dividends and investments in infrastructure.
Share Repurchases
During the third quarter, NIKE, Inc. repurchased a total of 8.9 million shares for approximately $475 million as part of the four-year, $12 billion program approved by the Board of Directors in November 2015. As of February 28, 2017, a total of 64.9 million shares had been repurchased under this program for approximately $3.6 billion.
Futures Orders
Worldwide futures orders for the NIKE Brand will be referenced on our earnings conference calls as deemed appropriate. NIKE Brand and geography Futures Orders growth versus the prior year will be posted on the NIKE, Inc. Investor Relations website at http://investors.NIKE.com following the call.
Conference Call
NIKE, Inc. management will host a conference call beginning at approximately 2:00 p.m. PT on March 21, 2017, to review fiscal third quarter results. The conference call will be broadcast live over the Internet and can be accessed at http://investors.NIKE.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, March 28, 2017.
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. subsidiary brands include Converse, which designs, markets and distributes athletic lifestyle footwear, apparel and accessories; and Hurley, which designs, markets and distributes surf and youth lifestyle footwear, apparel and accessories. For more information, NIKE, Inc.’s earnings releases and other financial information are available on the Internet at http://investors.NIKE.com and individuals can follow @NIKE.
* See additional information in the accompanying Divisional Revenues table regarding this non-GAAP financial measure.
** 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 Securities and Exchange Commission (SEC), including Forms 8-K, 10-Q, and 10-K.
NIKE, Inc. | |||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||||||||||
THREE MONTHS ENDED | % | NINE MONTHS ENDED | % | ||||||||||||||||||||
(Dollars in millions, except per share data) | 2/28/2017 | 2/29/2016 | Change | 2/28/2017 | 2/29/2016 | Change | |||||||||||||||||
Revenues | $ | 8,432 | $ | 8,032 | 5 | % | $ | 25,673 | $ | 24,132 | 6 | % | |||||||||||
Cost of sales | 4,682 | 4,343 | 8 | % | 14,184 | 12,947 | 10 | % | |||||||||||||||
Gross profit | 3,750 | 3,689 | 2 | % | 11,489 | 11,185 | 3 | % | |||||||||||||||
Gross margin | 44.5 | % | 45.9 | % | 44.8 | % | 46.3 | % | |||||||||||||||
Demand creation expense | 749 | 804 | -7 | % | 2,552 | 2,405 | 6 | % | |||||||||||||||
Operating overhead expense | 1,747 | 1,762 | -1 | % | 5,346 | 5,298 | 1 | % | |||||||||||||||
Total selling and administrative expense | 2,496 | 2,566 | -3 | % | 7,898 | 7,703 | 3 | % | |||||||||||||||
% of revenue | 29.6 | % | 31.9 | % | 30.8 | % | 31.9 | % | |||||||||||||||
Interest expense (income), net | 19 | 5 | — | 41 | 14 | — | |||||||||||||||||
Other (income) expense, net | (88 | ) | (17 | ) | — | (168 | ) | (82 | ) | — | |||||||||||||
Income before income taxes | 1,323 | 1,135 | 17 | % | 3,718 | 3,550 | 5 | % | |||||||||||||||
Income tax expense | 182 | 185 | -2 | % | 486 | 636 | -24 | % | |||||||||||||||
Effective tax rate | 13.8 | % | 16.3 | % | 13.1 | % | 17.9 | % | |||||||||||||||
NET INCOME | $ | 1,141 | $ | 950 | 20 | % | $ | 3,232 | $ | 2,914 | 11 | % | |||||||||||
Earnings per common share: | |||||||||||||||||||||||
Basic | $ | 0.69 | $ | 0.56 | 23 | % | $ | 1.95 | $ | 1.71 | 14 | % | |||||||||||
Diluted | $ | 0.68 | $ | 0.55 | 24 | % | $ | 1.91 | $ | 1.67 | 14 | % | |||||||||||
Weighted average common shares outstanding: | |||||||||||||||||||||||
Basic | 1,653.1 | 1,693.8 | 1,661.5 | 1,703.2 | |||||||||||||||||||
Diluted | 1,686.3 | 1,737.3 | 1,696.4 | 1,748.5 | |||||||||||||||||||
Dividends declared per common share | $ | 0.18 | $ | 0.16 | $ | 0.52 | $ | 0.46 | |||||||||||||||
NIKE, Inc. | |||||||||||
CONSOLIDATED BALANCE SHEETS | |||||||||||
February 28, | February 29, |
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(Dollars in millions) | 2017 | 2016 |
% Change |
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ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and equivalents | $ | 4,021 | $ | 3,044 | 32 | % | |||||
Short-term investments | 2,139 | 2,062 | 4 | % | |||||||
Accounts receivable, net | 3,752 | 3,368 | 11 | % | |||||||
Inventories | 4,932 | 4,590 | 7 | % | |||||||
Prepaid expenses and other current assets | 1,361 | 1,782 | -24 | % | |||||||
Total current assets | 16,205 | 14,846 | 9 | % | |||||||
Property, plant and equipment, net | 3,793 | 3,329 | 14 | % | |||||||
Identifiable intangible assets, net | 283 | 281 | 1 | % | |||||||
Goodwill | 139 | 131 | 6 | % | |||||||
Deferred income taxes and other assets1 | 2,732 | 2,381 | 15 | % | |||||||
TOTAL ASSETS | $ | 23,152 | $ | 20,968 | 10 | % | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
Current liabilities: | |||||||||||
Current portion of long-term debt | $ | 6 | $ | 7 | -14 | % | |||||
Notes payable | 23 | — | 100 | % | |||||||
Accounts payable | 1,938 | 1,714 | 13 | % | |||||||
Accrued liabilities1 | 3,228 | 3,223 | 0 | % | |||||||
Income taxes payable | 76 | 35 | 117 | % | |||||||
Total current liabilities | 5,271 | 4,979 | 6 | % | |||||||
Long-term debt | 3,472 | 2,031 | 71 | % | |||||||
Deferred income taxes and other liabilities1 | 1,687 | 1,658 | 2 | % | |||||||
Redeemable preferred stock | — | — | — | ||||||||
Shareholders' equity | 12,722 | 12,300 | 3 | % | |||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 23,152 | $ | 20,968 | 10 | % | |||||
1 During the fourth quarter of fiscal 2016, NIKE, Inc. adopted Accounting Standards Update No. 2015-17, which requires all deferred tax assets and deferred tax liabilities to be classified as non-current. All periods presented have been updated to reflect these changes. |
NIKE, Inc. | ||||||||||||||||||||||||||
DIVISIONAL REVENUES | ||||||||||||||||||||||||||
% Change |
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Excluding |
Excluding |
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THREE MONTHS ENDED | % |
Currency |
NINE MONTHS ENDED | % |
Currency |
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(Dollars in millions) | 2/28/2017 | 2/29/2016 | Change |
Changes1 |
2/28/2017 | 2/29/2016 | Change |
Changes1 |
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North America | ||||||||||||||||||||||||||
Footwear | $ | 2,490 | $ | 2,404 | 4 | % | 3 | % | $ | 7,227 | $ | 6,932 | 4 | % | 4 | % | ||||||||||
Apparel | 1,154 | 1,115 | 3 | % | 3 | % | 3,744 | 3,583 | 4 | % | 4 | % | ||||||||||||||
Equipment | 138 | 164 | -16 | % | -16 | % | 492 | 514 | -4 | % | -4 | % | ||||||||||||||
Total | 3,782 | 3,683 | 3 | % | 3 | % | 11,463 | 11,029 | 4 | % | 4 | % | ||||||||||||||
Western Europe | ||||||||||||||||||||||||||
Footwear | 990 | 985 | 1 | % | 6 | % | 3,002 | 2,958 | 1 | % | 6 | % | ||||||||||||||
Apparel | 445 | 392 | 14 | % | 21 | % | 1,430 | 1,217 | 18 | % | 23 | % | ||||||||||||||
Equipment | 64 | 65 | -2 | % | 5 | % | 215 | 207 | 4 | % | 9 | % | ||||||||||||||
Total | 1,499 | 1,442 | 4 | % | 10 | % | 4,647 | 4,382 | 6 | % | 11 | % | ||||||||||||||
Central & Eastern Europe | ||||||||||||||||||||||||||
Footwear | 232 | 237 | -2 | % | 1 | % | 694 | 658 | 5 | % | 9 | % | ||||||||||||||
Apparel | 110 | 102 | 8 | % | 8 | % | 368 | 361 | 2 | % | 5 | % | ||||||||||||||
Equipment | 20 | 20 | 0 | % | 0 | % | 68 | 67 | 1 | % | 6 | % | ||||||||||||||
Total | 362 | 359 | 1 | % | 3 | % | 1,130 | 1,086 | 4 | % | 7 | % | ||||||||||||||
Greater China | ||||||||||||||||||||||||||
Footwear | 776 | 719 | 8 | % | 14 | % | 2,155 | 1,918 | 12 | % | 18 | % | ||||||||||||||
Apparel | 271 | 235 | 15 | % | 22 | % | 895 | 787 | 14 | % | 19 | % | ||||||||||||||
Equipment | 28 | 28 | 0 | % | 7 | % | 100 | 101 | -1 | % | 4 | % | ||||||||||||||
Total | 1,075 | 982 | 9 | % | 15 | % | 3,150 | 2,806 | 12 | % | 18 | % | ||||||||||||||
Japan | ||||||||||||||||||||||||||
Footwear | 153 | 133 | 15 | % | 8 | % | 470 | 383 | 23 | % | 8 | % | ||||||||||||||
Apparel | 67 | 52 | 29 | % | 21 | % | 197 | 158 | 25 | % | 10 | % | ||||||||||||||
Equipment | 16 | 20 | -20 | % | -24 | % | 52 | 48 | 8 | % | -4 | % | ||||||||||||||
Total | 236 | 205 | 15 | % | 8 | % | 719 | 589 | 22 | % | 8 | % | ||||||||||||||
Emerging Markets | ||||||||||||||||||||||||||
Footwear | 673 | 596 | 13 | % | 17 | % | 2,060 | 1,940 | 6 | % | 15 | % | ||||||||||||||
Apparel | 222 | 228 | -3 | % | 3 | % | 719 | 721 | 0 | % | 8 | % | ||||||||||||||
Equipment | 55 | 55 | 0 | % | 2 | % | 163 | 168 | -3 | % | 3 | % | ||||||||||||||
Total | 950 | 879 | 8 | % | 13 | % | 2,942 | 2,829 | 4 | % | 12 | % | ||||||||||||||
Global Brand Divisions2 | 19 | 17 | 12 | % | 12 | % | 55 | 61 | -10 | % | -10 | % | ||||||||||||||
Total NIKE Brand | 7,923 | 7,567 | 5 | % | 7 | % | 24,106 | 22,782 | 6 | % | 8 | % | ||||||||||||||
Converse | 498 | 489 | 2 | % | 3 | % | 1,488 | 1,442 | 3 | % | 4 | % | ||||||||||||||
Corporate3 | 11 | (24 | ) | — | — | 79 | (92 | ) | — | — | ||||||||||||||||
Total NIKE, Inc. Revenues | $ | 8,432 | $ | 8,032 | 5 | % | 7 | % | $ | 25,673 | $ | 24,132 | 6 | % | 8 | % | ||||||||||
Total NIKE Brand | ||||||||||||||||||||||||||
Footwear | $ | 5,314 | $ | 5,074 | 5 | % | 7 | % | $ | 15,608 | $ | 14,789 | 6 | % | 8 | % | ||||||||||
Apparel | 2,269 | 2,124 | 7 | % | 9 | % | 7,353 | 6,827 | 8 | % | 10 | % | ||||||||||||||
Equipment | 321 | 352 | -9 | % | -7 | % | 1,090 | 1,105 | -1 | % | 1 | % | ||||||||||||||
Global Brand Divisions2 | 19 | 17 | 12 | % | 12 | % | 55 | 61 | -10 | % | -10 | % | ||||||||||||||
1 Fiscal 2017 results have been restated using fiscal 2016 exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the impact of translation arising from foreign currency exchange rate fluctuations, which is considered a non-GAAP financial measure. |
2 Global Brand Divisions revenues are primarily attributable to NIKE Brand licensing businesses that are not part of a geographic operating segment. |
3 Corporate revenues primarily consist of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse but managed through our central foreign exchange risk management program. |
NIKE, Inc. | |||||||||||||||||||||||
EARNINGS BEFORE INTEREST AND TAXES1 | |||||||||||||||||||||||
THREE MONTHS ENDED | % | NINE MONTHS ENDED | % | ||||||||||||||||||||
(Dollars in millions) | 2/28/2017 | 2/29/2016 | Change | 2/28/2017 | 2/29/2016 | Change | |||||||||||||||||
North America | $ | 980 | $ | 903 | 9 | % | $ | 2,896 | $ | 2,827 | 2 | % | |||||||||||
Western Europe | 290 | 334 | -13 | % | 918 | 1,126 | -18 | % | |||||||||||||||
Central & Eastern Europe | 57 | 69 | -17 | % | 196 | 243 | -19 | % | |||||||||||||||
Greater China | 381 | 358 | 6 | % | 1,127 | 1,015 | 11 | % | |||||||||||||||
Japan | 49 | 36 | 36 | % | 147 | 119 | 24 | % | |||||||||||||||
Emerging Markets | 193 | 202 | -4 | % | 601 | 701 | -14 | % | |||||||||||||||
Global Brand Divisions2 | (598 | ) | (625 | ) | 4 | % | (1,988 | ) | (1,874 | ) | -6 | % | |||||||||||
TOTAL NIKE BRAND | 1,352 | 1,277 | 6 | % | 3,897 | 4,157 | -6 | % | |||||||||||||||
Converse | 109 | 127 | -14 | % | 340 | 359 | -5 | % | |||||||||||||||
Corporate3 | (119 | ) | (264 | ) | 55 | % | (478 | ) | (952 | ) | 50 | % | |||||||||||
TOTAL EARNINGS BEFORE INTEREST AND TAXES |
1,342 | 1,140 | 18 | % | 3,759 | 3,564 | 5 | % | |||||||||||||||
Interest expense (income), net | 19 | 5 | — | 41 | 14 | — | |||||||||||||||||
TOTAL INCOME BEFORE INCOME TAXES |
$ | 1,323 | $ | 1,135 | 17 | % | $ | 3,718 | $ | 3,550 | 5 | % | |||||||||||
1 The Company evaluates performance of individual operating segments based on earnings before interest and taxes (commonly referred to as “EBIT”), which represents net income before interest expense (income), net and income tax expense and is considered a non-GAAP financial measure. | |
2 Global Brand Divisions primarily represent demand creation, operating overhead 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. |
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3 Corporate consists largely of unallocated general and administrative expenses, including expenses associated with centrally managed departments; depreciation and amortization related to the Company’s corporate headquarters; unallocated insurance, benefit and compensation programs, including stock-based compensation; and certain foreign currency gains and losses, including certain hedge gains and losses. |