Nike, Inc. saw fiscal second quarter revenues grow 10% to $3.8 billion from $3.5 billion for the same period last year. Changes in currency exchange rates increased revenue growth by 1 percentage point for the quarter. Net income grew 8% in the quarter to $325.6 million from $301.1 million last year with diluted earnings per share increasing 12% to $1.28 from $1.14 last year.
During the quarter, the company also finalized a new long-term tax agreement with the Dutch government, which included a retroactive tax benefit for fiscal 2006 and the first half of fiscal 2007, contributing 13 cents per diluted share to results for the quarter.
Mark Parker, Nike, Inc. President and Chief Executive Officer, said, “The Nike brand and our Nike Inc. portfolio continued to be strong worldwide, driving double-digit top line growth for the quarter. Nike+, Lebron IV, Nike Pro Revolution, Converse's Wade 1.3 and Cole Haan's Dress Air for women were some of the product introductions creating consumer excitement and marketplace energy. At the same time, we delivered strong earnings growth and a significant 19 percent increase in our dividend for shareholders. Our brands are strong, the Company is growing revenues and profits, and we are delivering on our commitment to lead the industry with sharper focus, greater competitiveness and deeper influence through ongoing product innovation and consumer connections.”
Futures Orders
The company reported worldwide futures orders for athletic footwear and apparel, scheduled for delivery from December 2006 through April 2007, totaling $5.6 billion, 7% higher than such orders reported for the same period last year. Changes in currency exchange rates increased reported orders growth by 2 percentage points.
By region, futures orders for the U.S. increased 7%; Europe (which includes the Middle East and Africa) increased 7%; Asia Pacific grew 9%; and the Americas increased 5%. Changes in currency exchange rates increased the reported futures orders growth in Europe by 5 percentage points; in Asia Pacific by 2 percentage points; and in the Americas region decreased reported futures growth by 2 percentage points.
Regional Highlights
U.S.
During the second quarter, U.S. revenues increased 8% to $1.4 billion versus $1.3 billion for the second quarter of fiscal 2006. U.S. athletic footwear revenues increased 8% to $879.4 million; apparel revenues increased 10% to $475.4 million; and equipment revenues increased 2% to $63.2 million. U.S. pre-tax income increased slightly to $266.0 million from $265.7 million a year ago.
Europe
Second quarter revenues for the European region grew 6% to $1.0 billion from $977.4 million for the same period last year. Changes in currency exchange rates increased revenue growth by 3 percentage points. Footwear revenues were up 2% to $541.4 million from $533.2 million last year. Apparel revenues increased 11% to $421.0 million and equipment revenues increased 14% to $73.8 million. Pre-tax income declined 18% to $158.8 million, reflecting lower gross margins and increased demand creation spending versus relatively low levels in the prior year.
Asia Pacific
In the second quarter revenues in the Asia Pacific region grew 15% to $578.2 million compared to $503.3 million a year ago. Changes in currency exchange rates did not have a significant impact on revenue growth. Footwear revenues were up 13% to $277.4 million, apparel revenues increased 17% to $250.6 million and equipment revenues grew 16% to $50.2 million. Pre-tax income increased 21% to $139.9 million.
Americas
Revenues in the Americas region increased 4% to $262.5 million, an improvement from $252.1 million in the second quarter of fiscal 2006. Currency exchange rates contributed 1 percentage point to this growth rate. Footwear revenues were up 4% to $185.1 million, apparel revenues increased 1%to $55.7 million and equipment revenues grew 17% to $21.7 million. Pre-tax income was up 4% to $59.8 million.
Other Businesses
For the second quarter, Other business revenues, which are comprised of results from Cole Haan Holdings Incorporated, Converse Inc., Exeter Brands Group LLC, Hurley International LLC, NIKE Bauer Hockey Inc., and NIKE Golf grew 21% to $526.8 million from $434.8 million last year. Pre-tax income increased 136% to $54.3 million for the quarter.
Income Statement Review
Gross margins were 43.4% during the second quarter compared to 43.5% for the same period in the prior year.
Selling and administrative expenses were 32.0% of second quarter revenues, compared to 30.4% last year. Results for the second quarter included an $18.8 million expense, net of taxes, related to the expensing of stock options, which reduced diluted earnings per share by 8 cents. Excluding stock option expense second quarter net income increased 14% and diluted earnings per share increased 19% to $1.36.
The effective tax rate for the second quarter declined significantly to 27.2%. During the second quarter, the company finalized a tax agreement with the Dutch government that is effective for fiscal years 2006 through 2015. As a result of this new agreement the company realized a tax benefit, which increased the company's diluted earnings per share for the second quarter by 13 cents.
Balance Sheet Review
At quarter end, global inventories stood at $2.2 billion, an increase of 15% from November 30, 2005. Cash and short-term investments were $1.9 billion at the end of the quarter, compared to $2.1 billion last year.
Share Repurchase
During the second quarter, the company purchased a total of 1,478,800 shares for approximately $126 million in conjunction with the company's four- year $3 billion share repurchase program approved by the Board of Directors in June 2006.
NIKE, Inc.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 2006
(In millions, except per share data)
QUARTER ENDED YEAR TO DATE ENDED
INCOME
STATEMENT 11/30/2006 11/30/2005 % Chg 11/30/2006 11/30/2005 % Chg
Revenues $3,821.7 $3,474.7 10% $8,015.8 $7,336.7 9%
Cost of sales 2,164.6 1,963.3 10% 4,509.5 4,077.2 11%
Gross margin 1,657.1 1,511.4 10% 3,506.3 3,259.5 8%
43.4% 43.5% 43.7% 44.4%
Selling and
administrative
expense 1,223.7 1,054.7 16% 2,513.4 2,159.1 16%
32.0% 30.4% 31.4% 29.4%
Interest income,
net (14.1) (5.7) 147% (27.2) (12.1) 125%
Other (income)
expense, net 0.2 (1.4) -114% (3.0) (11.3) -73%
Income before
income taxes 447.3 463.8 -4% 1,023.1 1,123.8 -9%
Income taxes 121.7 162.7 -25% 320.3 390.4 -18%
27.2% 35.1% 31.3% 34.7%
Net income $325.6 $301.1 8% $702.8 $733.4 -4%
Diluted EPS $1.28 $1.14 12% $2.76 $2.77 0%
Basic EPS $1.30 $1.16 12% $2.79 $2.82 -1%
Weighted Average
Common Shares
Outstanding:
Diluted 253.7 263.7 254.4 265.0
Basic 251.2 259.0 252.0 260.0
Dividends declared $0.37 $0.31 $0.68 $0.56
NIKE, Inc.
DIVISIONAL QUARTER ENDED YEAR TO DATE ENDED
REVENUES 11/30/2006 11/30/2005 % Chg 11/30/2006 11/30/2005 % Chg
U.S. Region
Footwear $879.4 $811.5 8% $1,958.5 $1,832.6 7%
Apparel 475.4 433.8 10% 906.9 829.3 9%
Equipment 63.2 61.8 2% 154.5 154.1 0%
Total 1,418.0 1,307.1 8% 3,019.9 2,816.0 7%
EMEA Region
Footwear 541.4 533.2 2% 1,220.9 1,218.3 0%
Apparel 421.0 379.6 11% 908.0 814.8 11%
Equipment 73.8 64.6 14% 178.2 161.8 10%
Total 1,036.2 977.4 6% 2,307.1 2,194.9 5%
Asia Pacific Region
Footwear 277.4 245.4 13% 543.4 482.8 13%
Apparel 250.6 214.6 17% 451.5 391.1 15%
Equipment 50.2 43.3 16% 101.7 89.0 14%
Total 578.2 503.3 15% 1,096.6 962.9 14%
Americas Region
Footwear 185.1 178.1 4% 357.4 335.0 7%
Apparel 55.7 55.4 1% 106.9 96.1 11%
Equipment 21.7 18.6 17% 40.7 34.7 17%
Total 262.5 252.1 4% 505.0 465.8 8%
3,294.9 3,039.9 8% 6,928.6 6,439.6 8%
Other 526.8 434.8 21% 1,087.2 897.1 21%
Total NIKE, Inc.
revenues $3,821.7 $3,474.7 10% $8,015.8 $7,336.7 9%
NIKE, Inc.
PRE-TAX QUARTER ENDED YEAR TO DATE ENDED
INCOME(1),* 11/30/2006 11/30/2005 % Chg 11/30/2006 11/30/2005 % Chg
U.S. Region $266.0 $265.7 0% $604.9 $610.9 -1%
EMEA Region 158.8 194.2 -18% 461.3 524.4 -12%
Asia Pacific
Region 139.9 115.2 21% 238.8 206.6 16%
Americas Region 59.8 57.4 4% 108.2 102.0 6%
Other 54.3 23.0 136% 142.2 63.0 126%
Corporate(2) (231.5) (191.7) -21% (532.3) (383.1) -39%
Total pre-tax
income(1) $447.3 $463.8 -4% $1,023.1 $1,123.8 -9%
(1) The Company evaluates performance of individual operating segments
based on pre-tax income.Total pre-tax income equals Income before income
taxes as shown on the Consolidated Income Statement.
(2) "Corporate" represents items necessary to reconcile to total pre-tax
income, which includes corporate costs that are not allocated to the
operating segments for management reporting and intercompany eliminations
for specific items in the Consolidated Income Statement.
