Attached files
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| 8-K - FORM 8-K - Q3FY15 ER - NIKE, Inc. | form8kerq32015.htm |
Investor Contact: | Media Contact: | |
Kelley Hall | Kellie Leonard | |
(503) 532-3793 | (503) 671-6171 | |
NIKE, INC. REPORTS FISCAL 2015 THIRD QUARTER RESULTS
• | Revenues up 7 percent to $7.5 billion; 13 percent growth excluding currency changes |
• | Diluted earnings per share up 19 percent to $0.89 |
• | Worldwide futures orders up 2 percent; 11 percent growth excluding currency changes |
• | Inventories as of February 28, 2015 up 12 percent |
BEAVERTON, Ore., March 19, 2015 - NIKE, Inc. (NYSE:NKE) today reported financial results for its fiscal 2015 third quarter ended February 28, 2015. Diluted earnings per share for the quarter were up 19 percent due to higher revenues as a result of continued strong demand for NIKE, Inc. brands and gross margin expansion, partially offset by higher SG&A investments and a higher effective tax rate.
“Our strong third quarter results show that our growth strategies are working, even under challenging macroeconomic conditions,” said Mark Parker, President and CEO, NIKE, Inc. “NIKE has the ability to deliver consistent shareholder value due to the strength of our brand, our relentless commitment to innovation and our powerful portfolio that allows us to invest in the opportunities with the highest potential for growth as well as manage risk.”*
Third Quarter Income Statement Review
• | Revenues for NIKE, Inc. rose 7 percent to $7.5 billion, up 13 percent on a currency neutral basis. |
◦ | Revenues for the NIKE Brand were $6.9 billion, up 11 percent on a currency neutral basis driven by growth in every geography and in most key categories. |
◦ | Revenues for Converse were $538 million, up 33 percent on a currency neutral basis, mainly driven by continued growth and timing of shipments in North America, the transition to direct distribution in AGS (Austria, Germany, Switzerland) and growth in the Direct to Consumer (DTC) business. |
• | Gross margin expanded 140 basis points to 45.9 percent. Gross margin benefitted from a continued shift in mix to higher margin products, partially offset by higher product input and warehousing costs. |
• | Selling and administrative expense increased 10 percent to $2.4 billion. Demand creation expense was $731 million, flat to the prior year as increased investments in digital brand marketing and sports marketing were offset by lower advertising expense due to product launch timing. Operating overhead expense increased 15 percent to $1.6 billion, reflecting growth in the DTC business and targeted investments in infrastructure and consumer-focused digital capabilities. |
• | Other income, net was $5 million, comprised primarily of net foreign exchange 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 exchange rates on the translation of foreign currency-denominated profits, decreased pretax income by approximately $20 million. |
• | The effective tax rate was 24.4 percent, compared to 22.5 percent for the same period last year, primarily due to the impact of tax expense on intercompany transactions, partially offset by the retroactive reinstatement of the U.S. research and development tax credit. |
• | Net income increased 16 percent to $791 million, driven by strong revenue growth and gross margin expansion, while diluted earnings per share increased 19 percent to $0.89, reflecting a 2 percent decline in the weighted average diluted common shares outstanding. |
February 28, 2015 Balance Sheet Review
• | Inventories for NIKE, Inc. were $4.2 billion, up 12 percent from February 28, 2014, driven by a 12 percent increase in NIKE Brand wholesale inventories as well as higher inventories associated with growth in DTC. NIKE Brand wholesale inventories were higher due to a 17 percent increase in units, while changes in the average product cost per unit, combined with the impact of changes in foreign currency exchange rates, decreased growth by approximately 5 percentage points. |
• | Cash and short-term investments were $5.4 billion, $332 million higher than last year as growth in net income and collateral received from counterparties as a result of hedging activities more than offset share repurchases, higher dividends and investments in working capital. |
Share Repurchases
During the third quarter, NIKE, Inc. repurchased a total of 6.5 million shares for approximately $612 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 74.1 million shares had been repurchased under this program for approximately $5.3 billion, an average cost of $71.13 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 March 2015 through July 2015 were 2 percent higher than orders reported for the same period last year. Excluding currency changes, reported orders would have increased 11 percent.*
Conference Call
NIKE management will host a conference call beginning at approximately 2:00 p.m. PT on March 19, 2015, to review 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 26, 2015.
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.nike.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 portion of the business does not report futures orders. |
(Tables Follow)
NIKE, Inc. | ||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||
THREE MONTHS ENDED | % | NINE MONTHS ENDED | % | |||||||||||
(Dollars in millions, except per share data) | 2/28/2015 | 2/28/20141 | Change | 2/28/2015 | 2/28/20141 | Change | ||||||||
Revenues | $ | 7,460 | $ | 6,972 | 7% | $ | 22,822 | $ | 20,374 | 12% | ||||
Cost of sales | 4,034 | 3,869 | 4% | 12,348 | 11,313 | 9% | ||||||||
Gross profit | 3,426 | 3,103 | 10% | 10,474 | 9,061 | 16% | ||||||||
Gross margin | 45.9 | % | 44.5 | % | 45.9 | % | 44.5 | % | ||||||
Demand creation expense | 731 | 733 | 0% | 2,394 | 2,155 | 11% | ||||||||
Operating overhead expense | 1,648 | 1,436 | 15% | 4,903 | 4,163 | 18% | ||||||||
Total selling and administrative expense | 2,379 | 2,169 | 10% | 7,297 | 6,318 | 15% | ||||||||
% of revenue | 31.9 | % | 31.1 | % | 32.0 | % | 31.0 | % | ||||||
Interest expense (income), net | 6 | 9 | — | 24 | 25 | — | ||||||||
Other (income) expense, net | (5 | ) | 45 | — | — | 86 | — | |||||||
Income before income taxes | 1,046 | 880 | 19% | 3,153 | 2,632 | 20% | ||||||||
Income taxes | 255 | 198 | 29% | 745 | 637 | 17% | ||||||||
Effective tax rate | 24.4 | % | 22.5 | % | 23.6 | % | 24.2 | % | ||||||
NET INCOME | $ | 791 | $ | 682 | 16% | $ | 2,408 | $ | 1,995 | 21% | ||||
Earnings per common share: | ||||||||||||||
Basic | $ | 0.92 | $ | 0.77 | 19% | $ | 2.79 | $ | 2.25 | 24% | ||||
Diluted | $ | 0.89 | $ | 0.75 | 19% | $ | 2.72 | $ | 2.19 | 24% | ||||
Weighted average common shares outstanding: | ||||||||||||||
Basic | 861.4 | 882.3 | 863.2 | 886.6 | ||||||||||
Diluted | 883.8 | 904.8 | 885.5 | 909.1 | ||||||||||
Dividends declared per common share | $ | 0.28 | $ | 0.24 | $ | 0.80 | $ | 0.69 | ||||||
1 Prior year amounts have been revised to correctly expense internally developed patent and trademark costs as incurred. | ||||||||||||||
NIKE, Inc. | |||||||
CONSOLIDATED BALANCE SHEETS | |||||||
February 28, | February 28, | % Change | |||||
(Dollars in millions) | 2015 | 2014 1 | |||||
ASSETS | |||||||
Current assets: | |||||||
Cash and equivalents | $ | 3,015 | $ | 1,864 | 62% | ||
Short-term investments | 2,346 | 3,165 | -26% | ||||
Accounts receivable, net | 3,294 | 3,355 | -2% | ||||
Inventories | 4,246 | 3,785 | 12% | ||||
Deferred income taxes | 328 | 319 | 3% | ||||
Prepaid expenses and other current assets | 1,978 | 821 | 141% | ||||
Total current assets | 15,207 | 13,309 | 14% | ||||
Property, plant and equipment | 6,401 | 6,073 | 5% | ||||
Less accumulated depreciation | 3,539 | 3,337 | 6% | ||||
Property, plant and equipment, net | 2,862 | 2,736 | 5% | ||||
Identifiable intangible assets, net | 281 | 285 | -1% | ||||
Goodwill | 131 | 131 | 0% | ||||
Deferred income taxes and other assets | 2,060 | 1,202 | 71% | ||||
TOTAL ASSETS | $ | 20,541 | $ | 17,663 | 16% | ||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Current portion of long-term debt | $ | 108 | $ | 7 | 1,443% | ||
Notes payable | 61 | 119 | -49% | ||||
Accounts payable | 1,821 | 1,480 | 23% | ||||
Accrued liabilities | 3,563 | 2,263 | 57% | ||||
Income taxes payable | 33 | 27 | 22% | ||||
Total current liabilities | 5,586 | 3,896 | 43% | ||||
Long-term debt | 1,082 | 1,201 | -10% | ||||
Deferred income taxes and other liabilities | 1,505 | 1,515 | -1% | ||||
Redeemable preferred stock | — | — | — | ||||
Shareholders' equity | 12,368 | 11,051 | 12% | ||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 20,541 | $ | 17,663 | 16% | ||
1 Prior year amounts have been revised to correct immaterial misstatements. | |||||||
NIKE, Inc. | ||||||||||||||||
DIVISIONAL REVENUES | ||||||||||||||||
% Change Excluding Currency Changes1 | % Change Excluding Currency Changes1 | |||||||||||||||
THREE MONTHS ENDED | % | NINE MONTHS ENDED | % | |||||||||||||
(Dollars in millions) | 2/28/2015 | 2/28/2014 | Change | 2/28/2015 | 2/28/2014 | Change | ||||||||||
North America | ||||||||||||||||
Footwear | $ | 2,081 | $ | 1,928 | 8% | 8% | $ | 6,189 | $ | 5,459 | 13% | 14% | ||||
Apparel | 987 | 925 | 7% | 7% | 3,223 | 2,920 | 10% | 11% | ||||||||
Equipment | 186 | 216 | -14% | -14% | 596 | 626 | -5% | -5% | ||||||||
Total | 3,254 | 3,069 | 6% | 6% | 10,008 | 9,005 | 11% | 11% | ||||||||
Western Europe | ||||||||||||||||
Footwear | 986 | 891 | 11% | 22% | 2,976 | 2,415 | 23% | 26% | ||||||||
Apparel | 363 | 338 | 7% | 18% | 1,245 | 1,061 | 17% | 19% | ||||||||
Equipment | 67 | 63 | 6% | 16% | 221 | 191 | 16% | 17% | ||||||||
Total | 1,416 | 1,292 | 10% | 21% | 4,442 | 3,667 | 21% | 23% | ||||||||
Central & Eastern Europe | ||||||||||||||||
Footwear | 187 | 207 | -10% | 8% | 590 | 544 | 8% | 18% | ||||||||
Apparel | 111 | 129 | -14% | 4% | 394 | 403 | -2% | 7% | ||||||||
Equipment | 21 | 20 | 5% | 19% | 73 | 70 | 4% | 13% | ||||||||
Total | 319 | 356 | -10% | 7% | 1,057 | 1,017 | 4% | 13% | ||||||||
Greater China | ||||||||||||||||
Footwear | 562 | 467 | 20% | 22% | 1,465 | 1,166 | 26% | 27% | ||||||||
Apparel | 212 | 199 | 7% | 8% | 680 | 641 | 6% | 7% | ||||||||
Equipment | 27 | 31 | -13% | -4% | 93 | 93 | 0% | 3% | ||||||||
Total | 801 | 697 | 15% | 17% | 2,238 | 1,900 | 18% | 19% | ||||||||
Japan | ||||||||||||||||
Footwear | 99 | 92 | 8% | 23% | 307 | 281 | 9% | 18% | ||||||||
Apparel | 46 | 59 | -22% | -12% | 167 | 201 | -17% | -10% | ||||||||
Equipment | 21 | 26 | -19% | -2% | 51 | 63 | -19% | -10% | ||||||||
Total | 166 | 177 | -6% | 8% | 525 | 545 | -4% | 5% | ||||||||
Emerging Markets | ||||||||||||||||
Footwear | 655 | 631 | 4% | 14% | 2,010 | 1,941 | 4% | 12% | ||||||||
Apparel | 240 | 243 | -1% | 10% | 772 | 748 | 3% | 12% | ||||||||
Equipment | 60 | 63 | -5% | 7% | 182 | 180 | 1% | 10% | ||||||||
Total | 955 | 937 | 2% | 12% | 2,964 | 2,869 | 3% | 12% | ||||||||
Global Brand Divisions2 | 28 | 26 | 8% | 13% | 85 | 89 | -4% | -5% | ||||||||
Total NIKE Brand | 6,939 | 6,554 | 6% | 11% | 21,319 | 19,092 | 12% | 14% | ||||||||
Converse | 538 | 420 | 28% | 33% | 1,547 | 1,274 | 21% | 24% | ||||||||
Corporate3 | (17 | ) | (2 | ) | — | — | (44 | ) | 8 | — | — | |||||
Total NIKE, Inc. Revenues | $ | 7,460 | $ | 6,972 | 7% | 13% | $ | 22,822 | $ | 20,374 | 12% | 15% | ||||
Total NIKE Brand | ||||||||||||||||
Footwear | $ | 4,570 | $ | 4,216 | 8% | 14% | $ | 13,537 | $ | 11,806 | 15% | 17% | ||||
Apparel | 1,959 | 1,893 | 3% | 9% | 6,481 | 5,974 | 8% | 11% | ||||||||
Equipment | 382 | 419 | -9% | -3% | 1,216 | 1,223 | -1% | 2% | ||||||||
Global Brand Divisions2 | 28 | 26 | 8% | 13% | 85 | 89 | -4% | -5% | ||||||||
1 Fiscal 2015 results have been restated using fiscal 2014 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. | ||||||||||||||||
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 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 | ||||||||||||||
THREE MONTHS ENDED | % | NINE MONTHS ENDED | % | |||||||||||
(Dollars in millions) | 2/28/2015 | 2/28/20143 | Change | 2/28/2015 | 2/28/20143 | Change | ||||||||
North America | $ | 830 | $ | 729 | 14% | $ | 2,585 | $ | 2,189 | 18% | ||||
Western Europe | 335 | 275 | 22% | 1,000 | 663 | 51% | ||||||||
Central & Eastern Europe | 51 | 79 | -35% | 176 | 208 | -15% | ||||||||
Greater China | 251 | 234 | 7% | 727 | 601 | 21% | ||||||||
Japan | 22 | 21 | 5% | 62 | 92 | -33% | ||||||||
Emerging Markets | 234 | 228 | 3% | 626 | 681 | -8% | ||||||||
Global Brand Divisions4 | (552 | ) | (528 | ) | -5% | (1,637 | ) | (1,444 | ) | -13% | ||||
TOTAL NIKE BRAND | 1,171 | 1,038 | 13% | 3,539 | 2,990 | 18% | ||||||||
Converse | 163 | 133 | 23% | 437 | 402 | 9% | ||||||||
Corporate5 | (282 | ) | (282 | ) | 0% | (799 | ) | (735 | ) | -9% | ||||
TOTAL EARNINGS BEFORE INTEREST AND TAXES | $ | 1,052 | $ | 889 | 18% | $ | 3,177 | $ | 2,657 | 20% | ||||
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 taxes. | ||||||||||||||
2 Certain prior year amounts have been reclassified to conform to fiscal 2015 presentation. These changes had no impact on previously reported results of operations or shareholders' equity. | ||||||||||||||
3 Prior year amounts have been revised to correctly expense internally developed patent and trademark costs as incurred. | ||||||||||||||
4 Global Brand Divisions primarily represent demand creation, operating overhead, information technology, 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. | ||||||||||||||
5 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 February 28, 2015 | ||
Reported Futures Orders | Excluding Currency Changes2 | |
North America | 15% | 15% |
Western Europe | -14% | 7% |
Central & Eastern Europe | -1% | 21% |
Greater China | 22% | 23% |
Japan | -4% | 13% |
Emerging Markets | -17% | -6% |
Total NIKE Brand Reported Futures | 2% | 11% |
1 Futures orders for NIKE Brand footwear and apparel scheduled for delivery from March 2015 through July 2015. The U.S. Dollar futures orders amount is calculated based upon our internal forecast of the currency exchange rates under which our revenues will be translated during this period. | ||
The reported futures 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, changes in the mix of orders between futures and at-once orders and because 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 futures orders and actual revenues. Moreover, a portion of our revenue is not derived from futures orders, including at-once and closeout sales of NIKE Brand footwear and apparel, sales of NIKE Brand equipment, sales from our DTC 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. | ||