Nike Profit Tops Analysts’ Estimates as North America Sales Gain

“We had a strong third quarter. Our relentless focus on innovation delivered powerful new products and services for athletes and consumers, and continues to drive value to our shareholders,” said Mark Parker, president and CEO of Nike, Inc. “The environment remains volatile, but I’m optimistic about the future. We’re starting a great season of major sports events and we have a pipeline full of innovation to fuel growth over the long term.”

Third Quarter Income Statement Review

Revenues for Nike, Inc. increased 15 percent to $5.8 billion, up 16 percent on a currency-neutral basis. Excluding the impacts of changes in foreign currency, Nike Brand revenues rose 16 percent with growth in every geography except Japan and in all key categories. Revenues for Other Businesses increased 12 percent with minimal impact from changes in currency exchange rates; Converse, Hurley, Nike Golf and Umbro all grew compared to the prior year while Cole Haan was essentially flat to last year.

Gross margin declined 200 basis points to 43.8 percent due primarily to higher product costs, which more than offset the positive effects of price increases, growing sales in our Direct to Consumer operations, and ongoing product cost reduction initiatives.

Selling and administrative expenses grew at a lower rate than revenue, up 10 percent to $1.8 billion. Demand creation expenses increased 6 percent to $615 million driven by marketing support for key product launches, sports marketing expense and investments in retail product presentation for wholesale accounts. Operating overhead expenses increased 12 percent to $1.2 billion due to additional investments made in our wholesale and Direct to Consumer businesses.

Other income, net was $11 million, primarily comprised of net foreign exchange gains and other non-operating items. For the quarter, we estimate the year-over-year change in foreign currency related gains and losses included in Other (income) expense, net combined with the impact of changes in foreign currency exchange rates on the translation of foreign currency-denominated profits did not have a significant impact on Income before income taxes.

The Effective tax rate was 27.3 percent compared to 26.0 percent for the same period last year. The increase was due to the adjustment of a deferred tax asset related to foreign operations and changes in reserves this year, as well as comparisons to the prior year quarter which benefitted from the retroactive reinstatement of the U.S. R&D tax credit.

Net income increased 7 percent to $560 million and diluted earnings per share increased 11 percent to $1.20, reflecting a 4 percent decline in the weighted average diluted common shares outstanding.

February 29, 2012 Balance Sheet Review

Inventories for Nike, Inc. were $3.4 billion. Nike, Inc. and Nike Brand inventories both increased 32 percent from February 28, 2011. Approximately 20 percentage points of the increase in Nike Brand inventories was due to significantly higher product input costs and changes in product mix. The remaining 12 percentage points of the increase were primarily due to higher wholesale unit inventories in support of strong demand and as a result of more timely deliveries from our product suppliers. Relative to revenues and futures orders, current unit inventories remain broadly consistent with levels reported prior to the 2009 – 2010 economic downturn.

Cash and short-term investments were $3.2 billion; $1.3 billion lower than last year as higher working capital investments reduced free cash flow from operations, while dividends and long-term debt repayments increased year-on-year.

Share Repurchases

During the third quarter, a total of 2.5 million shares were repurchased for approximately $239 million as part of our four-year, $5 billion share repurchase program, approved by the Board of Directors in September 2008. As of the end of the third quarter, a total of 48.1 million shares were repurchased for approximately $3.9 billion under this program.

Futures Orders

As of the end of the quarter worldwide futures orders for Nike Brand athletic footwear and apparel, scheduled for delivery from March through July 2012, totaled $9.4 billion, 15 percent higher than orders reported for the same period last year. Changes in foreign currency exchange rates reduced reported futures orders by 3 percentage points.