Nike, Inc. posted a strong fiscal third quarter as sales jumped 15.7% to $4.54 billion for the period ended February 29, 2008 from $3.93 billion for the same period last year. Changes in currency exchange rates increased revenue growth by 6 percentage points for the quarter. Third quarter net income grew 32% to $463.8 million, compared to $350.8 million in the prior year and diluted earnings per share increased 35% to 92 cents, versus 68 cents last year.
“A year ago we established the goal of reaching $23 billion in revenues by our fiscal year 2011 and outlined our strategy for achieving that goal while continuing to deliver profitable, sustainable growth and outstanding returns to our shareholders,” said Mark Parker, Nike, Inc. president and CEO. “Our strong third quarter results, driven by sales gains across our diversified portfolio of categories, geographies, and brands, are a clear indication that our strategy is working and that were on track to achieve our financial goals for this fiscal year and beyond.”
Parker continued, “Over the past twelve months weve taken a number of important strategic steps to strengthen the performance and potential of our portfolio of products and brands, steps we believe create stronger platforms for growth and allow us to connect even deeper with consumers. More than ever, the consumer is at the epicenter of everything we do, and delivering the most innovative products and the most exciting consumer experiences is the key to our future growth.”
Futures Orders
The company reported worldwide futures orders for athletic footwear and apparel, scheduled for delivery from March 2008 through July 2008, totaling $6.9 billion, 11% higher than such orders reported for the same period last year. Changes in currency exchange rates increased reported orders growth by 2 percentage points.
The company reported worldwide futures orders for athletic footwear and apparel, scheduled for delivery from March 2008 through July 2008, totaling $6.9 billion, 11% 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 1% ; Europe (which includes the Middle East and Africa) increased 12% ; Asia Pacific grew 32% ; and the Americas increased 20% . Changes in currency exchange rates increased reported futures orders growth in Europe by 3 percentage points and by 7 percentage points in Asia Pacific. In the Americas region changes in currency exchange rates did not have a significant impact on futures growth.
Regional Highlights
U.S.
During the third quarter, U.S. revenues increased 5% to $1.6 billion versus $1.5 billion for the third quarter of fiscal 2007. U.S. athletic footwear revenues increased 5% to $1.1 billion; apparel revenues increased 10% to $407.8 million; and equipment revenues decreased 12% to $68.7 million. U.S. pre-tax income increased 17% to $347.3 million from $296.4 million a year ago.
Europe
Third quarter revenues for the companys European region grew 23% to $1.4 billion from $1.1 billion for the same period last year. Changes in currency exchange rates increased revenue growth by 13 percentage points. Footwear revenues were up 25% to $784.8 million. Apparel revenues increased 21% to $499.5 million and equipment revenues increased 23% to $100.0 million. Pre-tax income increased 31% to $334.3 million.
Third quarter revenues for the companys European region grew 23% to $1.4 billion from $1.1 billion for the same period last year. Changes in currency exchange rates increased revenue growth by 13 percentage points. Footwear revenues were up 25% to $784.8 million. Apparel revenues increased 21% to $499.5 million and equipment revenues increased 23% to $100.0 million. Pre-tax income increased 31% to $334.3 million.
Asia Pacific
In the third quarter, revenues in the Asia Pacific region grew 27% to $748.3 million compared to $589.9 million a year ago. Changes in currency exchange rates increased revenue growth by 7 percentage points. Footwear revenues were up 29% to $411.3 million, apparel revenues increased 25% to $272.6 million and equipment revenues grew 21% to $64.4 million. Pre-tax income increased 46% to $193.0 million.
In the third quarter, revenues in the Asia Pacific region grew 27% to $748.3 million compared to $589.9 million a year ago. Changes in currency exchange rates increased revenue growth by 7 percentage points. Footwear revenues were up 29% to $411.3 million, apparel revenues increased 25% to $272.6 million and equipment revenues grew 21% to $64.4 million. Pre-tax income increased 46% to $193.0 million.
Americas
Revenues in the Americas region increased 20% to $254.4 million from $212.5 million in the third quarter of fiscal 2007. Currency exchange rates contributed 10 percentage points to this growth rate. Footwear revenues were up 16% to $177.9 million, apparel revenues increased 30% to $55.0 million and equipment revenues grew 24% to $21.5 million. Pre-tax income increased 23% to $51.9 million.
Revenues in the Americas region increased 20% to $254.4 million from $212.5 million in the third quarter of fiscal 2007. Currency exchange rates contributed 10 percentage points to this growth rate. Footwear revenues were up 16% to $177.9 million, apparel revenues increased 30% to $55.0 million and equipment revenues grew 24% to $21.5 million. Pre-tax income increased 23% to $51.9 million.
Other Businesses
For the third quarter, Other business revenues, which include Converse Inc., Nike Golf, Cole Haan Holdings Incorporated, Nike Bauer Hockey Corp., Hurley International LLC, and Exeter Brands Group LLC, grew 15% to $600.9 million from $522.7 million last year in the same period. Pre-tax income increased 16% to $77.5 million for the quarter.
For the third quarter, Other business revenues, which include Converse Inc., Nike Golf, Cole Haan Holdings Incorporated, Nike Bauer Hockey Corp., Hurley International LLC, and Exeter Brands Group LLC, grew 15% to $600.9 million from $522.7 million last year in the same period. Pre-tax income increased 16% to $77.5 million for the quarter.
On December 17, 2007, the company completed its sale of the Starter brand to Iconix Brand Group, Inc. resulting in a gain of $29 million which is included in third quarter other income.
On February 21, 2008, the company announced it had reached a definitive agreement to sell Bauer Hockey to an investor group led by Kohlberg & Company and Canadian businessman W. Graeme Roustan for $200 million in cash. This transaction is expected to be completed before the end of the fiscal year.
On January 31, 2008, Nikes £285 million, all-cash offer for the acquisition of 100% of the shares of Umbro plc was approved by Umbro shareholders. The United Kingdoms Office of Fair Trade gave regulatory approval on February 6, 2008 and on March 3, 2008 the acquisition was completed by Nike's wholly-owned subsidiary, NIKE Vapor Ltd.
Commenting on these developments, Parker said, “Our focus on prime growth opportunities extends throughout our portfolio of brands. We are confident that our divestiture decisions are the right ones for Bauer Hockey, Starter, and Nike. Our most recent acquisition, Umbro, is a brand that has tremendous heritage and respect in global football. This acquisition represents an opportunity to create value for shareholders and consumers by applying our product, brand-building and operational capabilities to a business with enormous growth potential around the world.”
Income Statement Review
Third quarter gross margins were 45.1% compared to 44.2% for the same period last year. Selling and administrative expenses were 30.9% of third quarter revenues, compared to 31.7% last year. The effective tax rate for the quarter was 30.6% compared to 32.3% for the same period last year.
Balance Sheet Review
At quarter end, global inventories stood at $2.4 billion, an increase of 10% from February 28, 2007. Cash and short-term investments were $2.9 billion at the end of the quarter, compared to $2.3 billion last year.
| NIKE, Inc. | ||||||||||||||||
| CONSOLIDATED FINANCIAL STATEMENTS | ||||||||||||||||
FOR THE PERIOD ENDED FEBRUARY 29, 2008 | ||||||||||||||||
| (In millions, except per share data) | ||||||||||||||||
| QUARTER ENDED | YEAR TO DATE ENDED | ||||||||||||||
INCOME STATEMENT | 2/29/2008 | 2/28/2007 | % | 2/29/2008 | 2/28/2007 | % | ||||||||||
| Revenues | $4,544.4 | $3,926.9 | 16% | $13,539.0 | $11,942.7 | 13% | ||||||||||
| Cost of sales | 2,496.5 | 2,191.7 | 14% | 7,483.0 | 6,701.2 | 12% | ||||||||||
| Gross margin | 2,047.9 | 1,735.2 | 18% | 6,056.0 | 5,241.5 | 16% | ||||||||||
| 45.1% | 44.2% | 44.7% | 43.9% | |||||||||||||
| Selling and administrative expense | 1,403.2 | 1,243.3 | 13% | 4,267.4 | 3,756.7 | 14% | ||||||||||
| 30.9% | 31.7% | 31.5% | 31.5% | |||||||||||||
| Interest income, net | 18.7 | 15.8 | 18% | 66.4 | 43.0 | 54% | ||||||||||
| Other income (expense), net | 5.3 | 10.3 | -49% | (0.4) | 13.3 | -103% | ||||||||||
| Income before income taxes | 668.7 | 518.0 | 29% | 1,854.6 | 1,541.1 | 20% | ||||||||||
| Income taxes | 204.9 | 167.2 | 23% | 461.7 | 487.5 | -5% | ||||||||||
| 30.6% | 32.3% | 24.9% | 31.6% | |||||||||||||
| Net income | $463.8 | $350.8 | 32% | $1,392.9 | $1,053.6 | 32% | ||||||||||
| Diluted EPS1 | $0.92 | $0.68 | 35% | $2.76 | $2.07 | 33% | ||||||||||
| Basic EPS1 | $0.94 | $0.69 | 36% | $2.80 | $2.09 | 34% | ||||||||||
