Nike Inc. reported sales grew 6% in its second quarter ended Nov. 30, to $4.6 billion, from $4.3 billion the prior year. Changes in currency exchange rates increased revenue growth by 1 percentage point for the quarter. Second quarter net income increased 9% to $391.0 million, or 80 cents a share, from $359.4 million, or 71 cents, a year ago.


 


“Our second quarter results demonstrate the power of the Nike brand and the diversity of the Nike, Inc. portfolio,” said Mark Parker, NIKE, Inc. president and CEO. “In challenging times like these it's especially important to stay focused on what we do best – delivering the most innovative and relevant product, strengthening our relationship with consumers and driving excellence into every area of our business. That's how we continue to lead the industry, take market share from competitors and grow our business.”


 


Futures Orders


 


The company reported worldwide futures orders for athletic footwear and apparel, scheduled for delivery from December 2008 through April 2009, totaling $6.7 billion, 1% lower than such orders reported for the same period last year. Excluding the effect of changes in foreign currency exchange rates, reported orders grew 6%.


 


By region, futures orders for the U.S. were up 6%; EMEA (which includes Europe, the Middle East and Africa) decreased 13%; Asia Pacific increased 11% and the Americas grew 6%. By region, changes in currency exchange rates decreased reported futures orders growth by 12 percentage points in Europe; by 1 percentage point in Asia Pacific; and by 20 percentage points in the Americas region.


Regional Highlights


U.S.


 


During the second quarter, U.S. revenues decreased 1% to $1.51 billion versus $1.53 billion for same period last year. U.S. footwear revenues increased 1% to $993.5 million. Apparel revenues decreased 3% to $449.8 million. Equipment revenues decreased 17% to $70.1 million. U.S. pre-tax income decreased 18% to $253.3 million due to lower gross margins and higher selling and administrative expenses, primarily related to Nike-owned retail expansion.


 


Europe


Second quarter revenues for the European region grew 6% to $1.3 billion from $1.2 billion for the same period last year. Changes in currency exchange rates increased revenue growth by 2 percentage points. Footwear revenues increased 6% to $688.3 million. Apparel revenues grew by 7% to $521.6 million and equipment revenues increased 1% to $96.3 million. Pre-tax income increased 19% to $276.5 million.


Asia Pacific


In the second quarter, revenues in the Asia Pacific region grew 22% to $821.4 million compared to $675.6 million a year ago. Changes in currency exchange rates increased revenue growth by 5 percentage points. Footwear revenues were up 20% to $400.1 million, apparel revenues increased 23% to $356.9 million and equipment revenues grew 23% to $64.4 million. Pre-tax income increased 25% to $216.0 million.


Americas


 


Revenues in the Americas region increased 21% to $384.6 million, an improvement from $316.9 million for the same quarter last year. Currency exchange rates reduced this growth rate by 2 percentage points. Footwear revenues were up 23% to $264.1 million, apparel revenues increased 20% to $88.2 million and equipment revenues grew 10% to $32.3 million. Pre-tax income was up 34% to $93.1 million.


Other Businesses


For the second quarter, Other business revenue, which includes Cole Haan, Converse Inc., Hurley International LLC, NIKE Golf, and Umbro Ltd, decreased 4% to $564.5 million from $589.7 million last year and pre-tax income decreased 71 percent to $20.5 million.


 


Current year amounts are not directly comparable to the prior year due to changes in the company's affiliate brands portfolio. In the second quarter of fiscal 2008 the company's Other business segment included Converse Inc., NIKE Golf, Cole Haan, Hurley International LLC, NIKE Bauer Hockey, and the Starter Brand. Following a corporate strategic review the Starter Brand and NIKE Bauer Hockey were sold in the third and fourth quarter of fiscal 2008, respectively, while Umbro was acquired in the fourth quarter of fiscal 2008. For the continuing Other businesses (Converse Inc., NIKE Golf, Cole Haan and Hurley International LLC) second quarter revenues grew 3% while pretax income declined 51%. Pretax income was lower than the prior year, mainly due to gross margin declines within Nike Golf and Cole Haan, reflecting the weaker retail environment, and investments in demand creation and growth initiatives at Converse.


 


Income Statement Review


 


Second quarter gross margins were 44.7% compared to 44.3% for the same period last year. Gross margins were better due to favorable hedge results, price increases, and improved product and regional mix.


 


Selling and administrative expenses were 33.7% of second quarter revenue compared to 32.9% for the same period last year. Selling and administrative expenses for the period were higher than last year due to a 5% increase in demand creation and a 10% increase in operating overhead spending as the company committed funds to support growth initiatives such as owned retail, emerging markets and Other businesses.


 


The effective tax rate for the second quarter was 24.9% compared to 30.3% for the same period last year. The tax rate was lower than prior year mainly due to U.S. Congressional action to extend the research and development tax credit and a one time foreign tax refund.


 


Balance Sheet Review


 


At quarter end, global inventories stood at $2.4 billion, an increase of 9% from November 30, 2007. Cash and short-term investments were $2.7 billion at the end of the quarter, compared to $3.1 billion at the end of the second quarter last year.


 


Share Repurchase Program


 


During the second quarter, the company repurchased a total of 3,497,100 shares for approximately $209.3 million in conjunction with the Company's four-year, $3 billion share repurchase program approved by the Board of Directors in June 2006. As of the end of the second quarter the company has repurchased a total of 49.2 million shares for approximately $2.7 billion under this program. On September 22, the company announced a new, four-year $5 billion share repurchase program to commence upon the completion of its current $3 billion program.


 


Parker concluded, “I see the current state of our industry and the world as an incredible opportunity for Nike to be a better and stronger leader, and we're going to seize that opportunity.”


 

 














































































































































































































































































NIKE, Inc.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 2008
(In millions, except per share data)
       
 
INCOME QUARTER ENDED YEAR TO DATE ENDED
STATEMENT 11/30/2008   11/30/2007   % Chg   11/30/2008   11/30/2007   % Chg
Revenues $4,590.1 $4,339.5 6% $10,022.3   $8,994.6 11%
Cost of sales 2,540.1   2,418.4 5% 5,410.2   4,986.5 8%
Gross margin 2,050.0 1,921.1 7% 4,612.1 4,008.1 15%
44.7% 44.3% 46.0% 44.6%
 
Selling and administrative expense 1,546.8 1,429.5 8% 3,403.2 2,864.2 19%
33.7% 32.9% 34.0% 31.8%
 
Interest income, net 5.0 23.1 -78 % 15.1 47.7 -68 %
Other income (expense), net 12.4   0.9 1278 % 10.8   (5.7) 289%
 
 
Income before income taxes 520.6 515.6 1% 1,234.8 1,185.9 4%
 
Income taxes 129.6   156.2 -17% 333.3   256.8 30%
24.9% 30.3% 27.0%

About The Author

Thomas J. Ryan

Thomas J. Ryan Senior Business Editor | SGB Media tryan@sgbonline.com | 917.375.4699

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