Nike Handily Tops Q4 Estimates

Nike, Inc.  reported fiscal 2017 financial results for its fourth quarter and full year ended May 31, 2017.

International geographies and the Direct-to-Consumer (DTC) businesses globally led strong revenue growth in the fourth quarter and full year. Diluted earnings per share for the quarter rose 22 percent to 60 cents a share, driven by global revenue growth, lower selling and administrative expense, a lower tax rate and a lower average share count which were slightly offset by lower gross margin.

Fiscal 2017 diluted earnings per share rose 16 percent to $2.51, reflecting revenue growth of 6 percent, a lower tax rate and a lower average share count which was slightly offset by lower gross margin.

“Nike continues to create both near-term wins in today’s dynamic environment and a lasting foundation for future growth,” said Mark Parker, chairman, president and CEO, Nike, Inc. “Through our Consumer Direct Offense, we’re putting even more firepower behind our greatest opportunities in Fiscal 2018. It will be a big year for Nike innovation and we’ll bring those stories to life through deeper consumer connections in our key cities around the world.”**

Fourth Quarter Income Statement Review

• Revenues for Nike, Inc. rose 5 percent to $8.7 billion, up 7 percent on a currency-neutral basis.
• Revenues for the Nike Brand were $8.1 billion, up 7 percent on a currency-neutral basis driven by double-digit growth in Western Europe, Greater China, and the Emerging Markets, and strong growth in Sportswear and Running.
• Revenues for Converse were $554 million, up 10 percent on a currency-neutral basis, primarily driven by the market transition in Italy and growth in DTC.
• Gross margin declined 180 basis points to 44.1 percent as higher average selling prices were more than offset by unfavorable changes in foreign currency exchange rates and higher product costs.
• Selling and administrative expense decreased 4 percent to $2.7 billion. Demand creation expense was $789 million, down 10 percent, as fiscal 2017 spend was weighted towards the beginning of the year due to significant investments around the Olympics and the European Football Championship. Operating overhead expense decreased 1 percent to $1.9 billion, as continued investments in DTC were offset by administrative cost efficiencies.
• Other income, net was $28 million comprised primarily of net foreign currency exchange hedge gains.
• The effective tax rate was 13.7 percent, compared to 21.2 percent for the same period last year, primarily due to an increase in the proportion of earnings from operations outside of the United States, which are generally subject to a lower tax rate.
• Net income increased 19 percent to $1.0 billion primarily due to global revenue growth, lower selling and administrative expense and a lower tax rate which were slightly offset by a gross margin decline, while diluted earnings per share increased 22 percent to 60 cents a share, reflecting a nearly 3 percent decline in the weighted average diluted common shares outstanding.

Wall Street on average was expecting 50 cents a share on sales of $8.63 billion.

Fiscal 2017 Income Statement Review

• Revenues for Nike, Inc. rose 6 percent to $34.4 billion, up 8 percent on a currency-neutral basis. Also, on a currency-neutral basis: Revenues for the Nike Brand were $32.2 billion, up 8 percent. Nike Brand sales to wholesale customers increased 5 percent while DTC revenues grew to $9.1 billion, up 18 percent, driven by a 30 percent increase in digital commerce sales, the addition of new stores and 7 percent growth in comparable store sales. As of May 31, 2017, the Nike Brand had 985 DTC stores in operation as compared to 919 a year ago. Nike Brand revenue growth was driven by growth in every geography as well as key categories including Sportswear, Running and the Jordan Brand. Revenues for Converse were $2.0 billion, up 6 percent, driven by growth in the United States and Europe due to the market transition in Italy.
• Gross margin declined 160 basis points to 44.6 percent as higher average selling prices were more than offset by the negative impact of changes in foreign currency exchange rates and higher product costs.
• Selling and administrative expense increased 1 percent to $10.6 billion. Demand creation expense was $3.3 billion, up 2 percent, primarily due to higher sports marketing costs and significant investments around the Olympics and the European Football Championship in the first half of the fiscal year. Operating overhead expense remained flat at $7.2 billion, as continued investments in DTC were offset by administrative cost efficiencies and lower variable compensation.
• Other income, net was $196 million comprised primarily of net foreign currency exchange hedge gains.
• The effective tax rate was 13.2 percent, compared to 18.7 percent for the same period last year primarily due to a one-time benefit in the first quarter of the fiscal year related to the resolution with the U.S. Internal Revenue Service of a foreign tax credit matter, and a decrease in foreign earnings taxed in the U.S.
• Net income increased 13 percent to $4.2 billion reflecting strong global revenue growth, selling and administrative expense leverage and a lower tax rate which were slightly offset by a decline in gross margin. Diluted earnings per share increased 16 percent to $2.51, reflecting growth in net income and the additional benefit of a decline in the weighted average diluted common shares outstanding.

May 31, 2017 Balance Sheet Review

• Inventories for Nike, Inc. were $5.1 billion, up 4 percent from May 31, 2016, as a 3 percent decrease in Nike Brand wholesale unit inventories was more than offset by increases in average product cost per unit and growth in our DTC businesses.
• Cash and short-term investments were $6.2 billion, $722 million higher than last year as growth in net income, proceeds from the issuance of debt in the second quarter of fiscal 2017 and proceeds from employee exercises of stock options were partially offset by share repurchases, dividends, and investments in infrastructure and working capital.

Share Repurchases

During the fourth quarter, Nike, Inc. repurchased a total of 14.9 million shares for approximately $820 million as part of the four-year, $12 billion program approved by the Board of Directors in November 2015. As of May 31, 2017, a total of 79.8 million shares had been repurchased under this program for approximately $4.4 billion.

Photo courtesy Nike