Nike, Inc. reported 14% revenue growth for the second quarter ended November 30, to $4.3 billion, compared to $3.8 billion for the same period last year. The company attributed 4 percentage points of the revenue increase to changes in currency exchange rates for the quarter. Second quarter net income grew 10% to $359.4 million, compared to $325.6 million in the prior year and diluted earnings per share increased 11% to 71 cents, versus 64 cents last year.
Mark Parker, Nike, Inc. president and CEO, said, “Our second quarter was another great one, and it illustrates the ability of our portfolio to deliver consistent, profitable growth. Our strategy for continued growth is very clear commit totally to the consumer, deliver innovative and relevant product, and focus our execution and discipline on those parts of the business that offer the greatest growth opportunity.”(a)
The company reported worldwide futures orders for athletic footwear and apparel, scheduled for delivery from December 2007 through April 2008, totaling $6.5 billion, 13% higher than such orders reported for the same period last year. Changes in currency exchange rates increased reported orders growth by 3 percentage points.(a)
By region, futures orders for the U.S. increased 1%; Europe (which includes the Middle East and Africa) increased 19%; Asia Pacific grew 24%; and the Americas increased 21%. Changes in currency exchange rates increased reported futures orders growth in Europe by 6 percentage points and by 4 percentage points in Asia Pacific and in the Americas.(a)
During the second quarter, U.S. revenues increased 7% to $1.5 billion versus $1.4 billion for the second quarter of fiscal 2007. U.S. athletic footwear revenues increased 12% to $983.3 million; apparel revenues decreased 3% to $461.4 million; and equipment revenues increased 9% to $68.7 million. U.S. pre-tax income increased 9% to $306.6 million from $282.1 million a year ago.
Second quarter revenues for the European region grew 18% to $1.2 billion from $1.0 billion for the same period last year. Changes in currency exchange rates increased revenue growth by 10 percentage points. Footwear revenues were up 19% to $646.7 million. Apparel revenues increased 15% to $485.9 million and equipment revenues increased 24% to $91.6 million. Pre-tax income increased 37% to $230.2 million.
In the second quarter, revenues in the Asia Pacific region grew 17% to $674.6 million compared to $578.2 million a year ago. Changes in currency exchange rates increased revenue growth by 5 percentage points. Footwear revenues were up 20% to $334.1 million, apparel revenues increased 15% to $289.2 million and equipment revenues grew 2% to $51.3 million. Pre-tax income increased 19% to $174.1 million.
Revenues in the Americas region increased 19% to $313.6 million from $262.5 million in the second quarter of fiscal 2007. Currency exchange rates contributed 5 percentage points to this growth rate. Footwear revenues were up 16% to $214.3 million, apparel revenues increased 31% to $73.2 million and equipment revenues grew 20% to $26.1 million. Pre-tax income was up 12% to $68.7 million.
For the first 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 16% to $613.7 million from $526.8 million last year. Pre-tax income increased 31% to $70.8 million for the quarter.
Following a strategic review of the companys affiliate brands portfolio, Nike management determined that Nike Bauer Hockey and the Starter brand did not align with the companys long-term growth priorities. On November 15, 2007, the company announced it had reached a definitive agreement to sell the Starter brand to Iconix Brand Group for $60 million in cash. This transaction was completed on December 17, 2007. The company is still exploring the sale of the Bauer Hockey business.
On October 23, 2007, the company announced it had reached an agreement on an all-cash offer to acquire all of the outstanding share capital of Umbro plc at 193.06 pence, which values the company at £285 million or approximately $570 million. The acquisition will significantly expand Nikes global leadership in football, a key growth category for the company.
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 this quarter are the right ones for Bauer Hockey, for Starter, and for Nike. As for Umbro, it is a brand that has tremendous heritage and respect in global football. Were very excited about leveraging those connections and bringing them to life in new ways that will reward consumers and strengthen our competitive stance in football around the world.”
Income Statement Review
Gross margins were 44.3% compared to 43.4% for the same period last year.
Selling and administrative expenses were 32.9% of second quarter revenues, compared to 32.0% last year.
The effective tax rate for the second quarter was 30.3 percent. This was a higher rate than last years second quarter tax rate of 27.2 percent, which included a retroactive benefit from an international tax agreement.
Balance Sheet Review
At quarter end, global inventories stood at $2.2 billion, an increase of 3% from November 30, 2006. Cash and short-term investments were $3.1 billion at the end of the quarter, compared to $1.9 billion last year.
During the second quarter, the company purchased a total of 4,807,300 shares for approximately $292.8 million in conjunction with the companys 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 28.6 million shares for approximately $1.4 billion under this program.
|CONSOLIDATED FINANCIAL STATEMENTS|
|FOR THE PERIOD ENDED NOVEMBER 30, 2007|
|(In millions, except per share data)|
|YEAR TO DATE ENDED||
|Cost of sales||2,418.4||2,164.6||12%||4,986.5||4,509.5||11%|
|Selling and administrative expense||1,429.5||1,223.7||17%||2,864.2||2,513.4||14%|
|Interest income, net||23.1||14.1||64%||47.7||27.2||75%|
|Other income (expense), net||0.9||(0.2)||550%||(5.7)||3.0||-290%|
|Income before income taxes||515.6||447.3||15%||1,185.9||1,023.1||16%|