NIKE, Inc. (NYSE:NKE) reported financial results for its fiscal 2013 third quarter ended February 28, 2013.
- Revenues from continuing operations up 9 percent to $6.2 billion, up 10 percent excluding currency changes
- Diluted earnings per share from continuing operations up 20 percent to $0.73
- Worldwide futures orders up 6 percent, 7 percent growth excluding currency changes
- Inventories up 4 percent
BEAVERTON, Ore., March 21, 2013
– NIKE, Inc. (NYSE:NKE) today reported financial results for its fiscal
2013 third quarter ended February 28, 2013. 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 gross margin expansion, a lower tax rate and a
lower average share count.
"Our team delivered strong results in Q3. We did it with a relentless
flow of innovation into our key categories," said Mark Parker,
President and CEO of NIKE, Inc. "Given the diversity of our portfolio,
we're able to capture big opportunities that drive sustainable,
profitable growth. At the same time we continue to invest in new ways to
enhance athletic performance, build strong consumer communities, and
improve how we design and manufacture our products. That’s how we
increase our potential and drive shareholder value."*
Third Quarter Continuing Operations Income Statement Review
- Revenues for NIKE, Inc. increased 9
percent to $6.2 billion, up 10 percent on a currency-neutral basis.
Excluding the impact of changes in foreign currency, NIKE Brand revenues
rose 10 percent, with growth in all geographies except Greater China
and Japan and in all key categories except Sportswear and Action Sports.
Revenues for Other Businesses increased 9 percent as growth at Converse
and NIKE Golf more than offset lower revenues at Hurley.
- Gross margin increased 30 basis points to
44.2 percent. Gross margin benefitted from the combination of pricing
actions and easing material costs, which more than offset higher labor
costs. This benefit was partially offset by higher discounts,
particularly in Greater China as the Company continues work to manage
marketplace inventory. Additionally gross margin was impacted by
unfavorable changes in foreign exchange rates and a shift in the mix of
the Company’s revenues to lower margin geographies.
- Selling and administrative expense grew
at the same rate as revenue, up 9 percent to $1.9 billion. Demand
creation expense was $619 million, up 5 percent from the prior year
driven by sports marketing expense, and marketing support for key
product initiatives and brand events. Operating overhead expense
increased 11 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 expense, net was $17 million,
comprised primarily of foreign exchange losses. For the quarter, the
Company estimates the year-over-year change in currency related gains
and losses included in other expense, net, combined with the impact of
changes in currency exchange rates on the translation of foreign
currency-denominated profits, decreased pretax income by approximately
$19 million.
- The effective tax rate was 22.8 percent,
compared to 27.7 percent for the same period last year. The decrease was
largely due to the benefit from the U.S. legislative reinstatement of
the research and development tax credit, as well as a lower effective
tax rate on foreign operations due to the geographical mix of earnings.
- Net income from continuing operations increased 16 percent to $662 million while diluted earnings per share increased 20 percent to $0.73, reflecting a 2 percent decline in the weighted average diluted common shares outstanding.
February 28, 2013 Balance Sheet Review for Continuing Operations
- Inventories for NIKE, Inc. were $3.3
billion, up 4 percent from February 29, 2012. NIKE Brand inventories
increased 4 percent. NIKE Brand wholesale unit inventories increased 7
percent to support future demand, while the impact of changes in foreign
currency exchange rates and changes in product cost drove a 3
percentage point decline in NIKE Brand inventory growth.
- Cash and short-term investments were $4.0
billion; $845 million higher than last year mainly as a result of
higher net income, proceeds from the sale of the Umbro and Cole Haan
businesses and continued focus on working capital management.
Share Repurchases
During the third quarter, NIKE, Inc. repurchased a total of 4.9
million shares for approximately $253 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 third quarter, a total of 11.1 million shares were
repurchased under this program at a cost of approximately $548 million.
Futures Orders
As of the end of the quarter, worldwide futures orders for NIKE Brand
athletic footwear and apparel, scheduled for delivery from March
through July 2013 totaled $9.9 billion, 6 percent higher than orders
reported for the same period last year. Excluding currency changes,
reported orders would have increased 7 percent.*
Discontinued Operations
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, allowing the
Company to focus resources on driving growth in the NIKE, Jordan,
Converse and Hurley brands.
As previously announced, the Company completed the sale of certain
assets of the Umbro brand during the second quarter ended November 30,
2012 and recorded a loss on the sale of these assets of $107 million,
net of tax, that was included in the net loss from discontinued
operations for the second fiscal quarter of 2013.
On February 1, 2013, the Company completed the sale of Cole Haan to
Apax Partners for an agreed upon purchase price of $570 million and
received at closing $561 million, net of $9 million of purchase price
adjustments. For the third quarter ended February 28, 2013, the Company
recorded a gain on sale of $231 million, net of tax, representing the
sales price less the asset value of Cole Haan and other miscellaneous
charges. For the third quarter of 2013, the Company’s net income from
discontinued operations was $204 million, which includes the gain
recorded for the sale of Cole Haan, net of tax, less net operating
losses and divesture transaction costs for Cole Haan and Umbro during
the period.
Under the Cole Haan sale agreement, the Company will provide certain
transition services to Cole Haan and will license NIKE proprietary
technologies for a transition period. The continuing cash flows related
to these items are not expected to be significant to Cole Haan and the
Company will have no significant continuing involvement with Cole Haan
beyond the transition services.
Conference Call
NIKE management will host a conference call beginning at
approximately 2:00 p.m. PT on March 21, 2013, to review third 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, March 28, 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.
Investor Contact: Kelley Hall, (503) 532-3793
Media Contact: Kellie Leonard, (503) 671-6171