NIKE, Inc. (NYSE:NKE) today reported financial results for its fiscal 2013 first quarter ended August 31, 2012. Strong demand for NIKE, Inc. brands propelled first quarter revenue to new record highs. As expected, diluted earnings per share were lower due to lower gross margin, higher SG&A and an increase in the tax rate.
“We had a strong first quarter and a great start to the fiscal year. NIKE, Inc. delivered an amazing array of innovation across some of the biggest moments in sport,” said Mark Parker, President and CEO, NIKE, Inc. “Innovation is how great companies sustain growth and build competitive separation,” Parker added. “We’ll continue to make strategic investments across our portfolio of businesses to capture our full potential over the long term and drive shareholder value.”*
First Quarter Income Statement Review
- Revenues for NIKE, Inc. increased 10 percent to $ 6.7 billion, up 15 percent on a currency-neutral basis. Excluding the impacts of changes in foreign currency, NIKE Brand revenues rose 16 percent, with growth in all key categories and every geography except Japan. Revenues on a currency-neutral basis for Other Businesses increased 9 percent, while Businesses to be Divested grew by 6 percent.
- Gross margin declined 80 basis points to 43.5 percent. Gross margin continued to benefit from pricing actions and product cost reduction initiatives, however, this was more than offset by higher input costs, primarily materials and labor. In addition, gross margin was negatively impacted by a shift in the Company’s mix to lower margin businesses within the NIKE Brand and the conversion of the China market to direct distribution for Converse.
- Selling and administrative expenses grew at a faster rate than revenue, up 18 percent to $2.2 billion. Demand creation expenses increased 29 percent to $891 million due to marketing support for key product initiatives, as well as support for the Olympics and European Football Championships. Operating overhead expenses increased 12 percent to $1.3 billion due to additional investments made in the wholesale business to support growth initiatives and higher Direct to Consumer costs from the addition of new stores over the last year.
- Other income, net was $29 million, comprised primarily of foreign exchange related gains. For the quarter, the Company estimates the year-over-year change in foreign currency related gains and losses included in other income, net, combined with the impact of changes in foreign currency exchange rates on the translation of foreign currency-denominated profits, decreased pretax income by approximately $28 million.
- The effective tax rate was 27.5 percent compared to 24.3 percent for the same period last year. The effective tax rate was higher due to a larger percentage of earnings coming from higher tax countries, primarily the United States, as well as a higher effective tax rate on operations abroad.
- Net income decreased 12 percent to $567 million while diluted earnings per share decreased 10 percent to $1.23, reflecting a 3 percent decline in the weighted average diluted common shares outstanding. In a press release issued on May 31, 2012, the Company announced its intention to divest of the Cole Haan and Umbro businesses. Pro Forma diluted earnings per share, excluding the results of the Businesses to be Divested, would have been approximately $1.27, down 9 percent compared to the first quarter of fiscal 2012 on a comparable basis.**
August 31, 2012 Balance Sheet Review
- Inventories for NIKE, Inc. were $3.4 billion, up 10 percent from August 31, 2011, in line with revenue growth, and reflecting strong demand for NIKE, Inc. products.
- Cash and short-term investments were $3.3 billion, $433 million lower than last year as share repurchases and dividend payments increased year-on-year and the Company made debt repayments.
Share Repurchases
During the first quarter, NIKE, Inc. repurchased a total of 8.2 million shares for approximately $779 million as part of its four-year, $5 billion share repurchase program, approved by the Board of Directors in September 2008. As of the end of the first quarter, the Company has purchased a total of 58.5 million shares for approximately $4.9 billion under this program. On September 19, 2012, the Company announced that its Board of Directors approved a new four-year, $8 billion program to repurchase shares of NIKE’s Class B Common Stock. During the second quarter of fiscal 2013 the Company’s current $5 billion share repurchase program was completed, and the new program commenced.
Futures Orders
As of the end of the quarter worldwide futures orders for NIKE Brand athletic footwear and apparel, scheduled for delivery from September 2012 through January 2013, totaled $8.9 billion, 6 percent higher than orders reported for the same period last year. Excluding currency changes, reported orders would have increased 8 percent.*
Conference Call
NIKE management will host a conference call beginning at approximately 2:00 p.m. PT on September 27, 2012, to review first quarter results. The conference call will be broadcast live over the Internet and can be accessed here. 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 4, 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 Cole Haan, which designs, markets and distributes luxury shoes, handbags, accessories and coats; Converse Inc., which designs, markets and distributes athletic footwear, apparel and accessories; Hurley International LLC, which designs, markets and distributes action sports and youth lifestyle footwear, apparel and accessories; and Umbro International Limited., a leading United Kingdom-based global football (soccer) brand. 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 and discounts, which may vary significantly from quarter to quarter, and because a significant portion of the business does not report futures orders.
** The marked paragraph contains references to non-GAAP items. Presentations of comparable GAAP measures and quantitative reconciliations can be found in the tables of this press release or on NIKE’s website, http://investors.nikeinc.com.
