Nike, Inc. posted a 9% increase in revenues for company's fiscal first qurater, totaling $4.2 billion, compared to $3.9 billion for the same period last year. Changes in currency exchange rates increased revenue growth by 2 percentage points for the quarter. First quarter net income declined 13% to $377.2 million from $432.3 million in the prior year and diluted earnings per share declined 9% to $1.47, versus $1.61 last year. Results for the first quarter included a $40.8 million expense, net of taxes, related to the expensing of stock options, which reduced diluted earnings per share by 16 cents. Excluding stock option expense first quarter net income declined 3% and diluted earnings per share increased 1% to $1.63.
Mark Parker, Nike, Inc. president and CEO, said, “We're off to a strong start. While making major brand investments to drive key markets and implementing new accounting rules to include stock option expenses, we continued to deliver strong top line growth and laid the foundation for another successful year.
“We are confident in the year ahead, the fundamental strength of our business and our brands. We continue to deliver breakthrough innovations, like our global soccer initiative, Joga Bonito, and our Nike+ product concept. We also see significant momentum across our brand portfolio with strong performances from Converse, Brand Jordan and Nike Golf.”
Futures Orders
The company reported worldwide futures orders for athletic footwear and apparel, scheduled for delivery from September 2006 through January 2007, totaling $5.2 billion, 6% higher than such orders reported for the same period last year. Changes in currency exchange rates did not significantly impact this growth.
By region, futures orders for the U.S. increased 8%; Europe (which includes the Middle East and Africa) increased 2%; Asia Pacific grew 11%; and the Americas declined 4%. Changes in currency exchange rates increased the reported futures orders growth in Europe by 1 percentage point. Changes in currency exchange rates increased reported futures orders growth in Asia Pacific by 1 percentage point. In the Americas region changes in currency exchange rates decreased reported futures growth by 5 percentage points.
Regional Highlights
U.S.
U.S. revenues increased 6% in the first quarter to $1.6 billion from $1.5 billion for the same quarter last year. U.S. athletic footwear revenues increased 6% to $1.1 billion. Apparel revenues increased 9% to $431.5 million. Equipment revenues declined 1% to $91.3 million. U.S. pre-tax income declined 2% to $338.9 million.
Europe
First quarter revenues for the European region grew 4% to $1.3 billion from $1.2 billion for the same period last year. Changes in currency exchange rates increased revenue growth by 3 percentage points. Footwear revenues were $679.5 million, down 1% from $685.1 million last year. Apparel revenues increased 12% to $487.0 million and equipment revenues increased 7% to $104.4 million. Pre-tax income declined 8% to $302.5 million.
Asia Pacific
In the first quarter revenues in the Asia Pacific region grew 13% to $518.4 million compared to $459.6 million a year ago. Changes in currency exchange rates did not have a significant impact on revenue growth. Footwear revenues were up 12% to $266.0 million, apparel revenues increased 14% to $200.9 million and equipment revenues grew 13% to $51.5 million. Pre-tax income increased 8% to $98.9 million.
Americas
Revenues in the Americas region increased 13% to $242.5 million, an improvement from $213.7 million in the first quarter of fiscal 2006. Currency exchange rates contributed 3 percentage points to this growth rate. Footwear revenues were up 10% to $172.3 million, apparel revenues increased 26% to $51.2 million and equipment revenues grew 18% to $19.0 million. Pre-tax income was up 9% to $48.4 million.
Other Businesses
For the first quarter, Other business revenues, which include Converse Inc., NIKE Golf, NIKE Bauer Hockey Inc., Cole Haan Holdings Incorporated, Hurley International LLC and Exeter Brands Group LLC, grew 21% to $560.4 million from $462.3 million last year. Pre-tax income increased 120% to $87.9 million for the quarter.
During the first quarter the company settled a previously disclosed arbitration ruling involving Converse and a former South American licensee. The final settlement was lower than the accrual, which resulted in a $14.2 million benefit to Other business pretax income and increased the company's diluted earnings per share for the first quarter by 3 cents.
Income Statement Review
Gross margins were 44.1% compared to 45.3% last year for the first quarter. Selling and administrative expenses were 30.8% of first quarter revenues, compared to 28.6% last year. The effective tax rate for the first quarter was 34.5%.
Balance Sheet Review
At quarter end, global inventories stood at $2.1 billion, an increase of 15% from August 31, 2005. Cash and short-term investments were $1.7 billion at the end of the quarter, compared to $1.9 billion last year.
Share Repurchase
During the first quarter, the company purchased a total of 6,027,300 shares for approximately $476.7 million. During the quarter the company completed its previous four-year $1.5 billion share repurchase program approved by the Board of Directors in June 2004 and started repurchasing shares under the company's new four-year $3 billion share repurchase program approved by the Board of Directors in June 2006. As of the end of the first quarter the company had purchased 4,018,576 shares for approximately $314.1 million under the new plan.
NIKE, Inc. CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED AUGUST 31, 2006 (In millions, except per share data) QUARTER ENDING % INCOME STATEMENT 08/31/2006 08/31/2005 Chg Revenues $4,194.1 $3,862.0 9% Cost of sales 2,344.9 2,113.9 11% Gross margin 1,849.2 1,748.1 6% 44.1% 45.3% Selling and administrative expense 1,289.7 1,104.4 17% 30.8% 28.6% Interest income, net (13.1) (6.4) 105% Other income, net (3.2) (9.9) -68% Income before income taxes 575.8 660.0 -13% Income taxes 198.6 227.7 -13% 34.5% 34.5% Net income $377.2 $432.3 -13% Diluted EPS $1.47 $1.61 -9% Basic EPS $1.49 $1.66 -10% Weighted Average Common Shares Outstanding: Diluted 256.0 268.6 Basic 252.7 260.9 Dividends declared $0.31 $0.25 NIKE, Inc. QUARTER ENDING DIVISIONAL REVENUES 08/31/2006 08/31/2005 % Chg U.S. Region Footwear $1,079.1 $1,021.1 6% Apparel 431.5 395.5 9% Equipment 91.3 92.3 -1% Total 1,601.9 1,508.9 6% EMEA Region Footwear 679.5 685.1 -1% Apparel 487.0 435.2 12% Equipment 104.4 97.2 7% Total 1,270.9 1,217.5 4% Asia Pacific Region Footwear 266.0 237.4 12% Apparel 200.9 176.5 14% Equipment 51.5 45.7 13% Total 518.4 459.6 13% Americas Region Footwear 172.3 156.9 10% Apparel 51.2 40.7 26% Equipment 19.0 16.1 18% Total 242.5 213.7 13% 3,633.7 3,399.7 7% Other businesses 560.4 462.3 21% Total NIKE, Inc. revenues $4,194.1 $3,862.0 9% NIKE, Inc. QUARTER ENDING % PRE-TAX INCOME(1) 08/31/2006 08/31/2005 Chg U.S. Region $338.9 $345.2 -2% EMEA Region 302.5 330.2 -8% Asia Pacific Region 98.9 91.4 8% Americas Region 48.4 44.6 9% Other businesses 87.9 40.0 120% Corporate(2) (300.8) (191.4) -57% Total pre-tax income(1) $575.8 $660.0 -13% (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.