Nike, Inc. said revenue for the third quarter ended Feb. 28 decreased 2% to $4.4 billion, compared to $4.5 billion for the same period last year. Excluding changes in currency exchange rates, revenue would have increased 2%.
ï¿½Todayï¿½s results say a lot about the strength and diversity of Nike, Inc. In a challenging environment, we delivered excellent operating results by executing with both focus and flexibility,ï¿½ said Mark Parker, President and CEO of Nike, Inc. ï¿½I feel very good about our performance and our potential. Going forward weï¿½ll continue to stay close to the consumer, drive innovation into the marketplace, and operate with financial discipline by making the right decisions to restructure our organization for the future. The Nike, Inc. portfolio of brands is a diverse and competitive asset. Weï¿½ll continue to leverage all aspects of it to deliver consistent, long-term shareholder value.ï¿½*
The company reported worldwide futures orders for Nike brand athletic footwear and apparel, scheduled for delivery from March 2009 through July 2009, totaling $6.5 billion, 10% lower than such orders reported for the same period last year. Excluding the effect of changes in currency exchange rates, reported orders would have declined 2%.*
By region, futures orders for the U.S. were down 1%; EMEA (which includes Europe, the Middle East and Africa) decreased 25%; Asia Pacific declined 1% and the Americas were down 4%. Excluding changes in currency exchange rates futures orders in EMEA would have declined 9%, increased 2% in Asia Pacific; and increased 22% in the Americas region.
Non-Cash Impairment Charge
In the third quarter the company recorded a $401.3 million pre-tax non-cash impairment charge to reduce the carrying value of Umbroï¿½s goodwill, intangible and other assets. On an after-tax basis, the charge totaled $240.7 million, which decreased diluted earnings per share by 49 cents.
The company said the impairment charge is a result of both the deteriorating global consumer markets, particularly in the United Kingdom, Umbroï¿½s primary market, and reflects managementï¿½s decision to adjust planned investment in the brand. In addition, the companye said the deterioration of the financial markets has reduced both the present value of future cash flows and the market value of comparable businesses. While management continues to view Umbro as a compelling, complementary brand within the Nike, Inc. portfolio, it was concluded the fair value of its Umbro investment has declined as forecasted profits and cash flows have fallen below amounts originally projected at the date of acquisition.
During the third quarter, U.S. revenues increased 3% to $1.6 billion compared to the same period last year. U.S. footwear revenues increased 8% to $1.2 billion. Apparel revenues decreased 9% to $370.4 million. Equipment revenues decreased 2% to $74.4 million. Pre-tax income increased 2% to $357.0 million.
Third quarter revenues for the EMEA region decreased 14% to $1.2 billion compared to $1.4 billion for the same period last year. Excluding changes in currency exchange rates revenue would have decreased 4%. Footwear revenues decreased 12% to $693.8 million. Apparel revenues decreased 17% to $415.0 million and equipment revenues decreased 24% to $77.1 million. Pre-tax income decreased 18% to $276.9 million.
In the third quarter, revenues in the Asia Pacific region grew 8% to $806.9 million compared to $749.3 million a year ago. Changes in currency exchange rates increased revenue growth by 1 percentage point. Footwear revenues were up 10% to $451.1 million, apparel revenues increased 6% to $290 million and equipment revenues grew 1% to $65.8 million. Pre-tax income increased 11% to $213.7 million.
Revenues in the Americas region decreased 5% to $245.4 million from $257.2 million for the same quarter last year. Excluding changes in currency exchange rates, revenue would have increased 15%. Footwear revenues decreased 4% to $171.3 million, apparel revenues decreased 1% to $54.3 million and equipment revenues decreased 19% to $19.8 million. Pre-tax income was down 22% to $41.1 million mainly due to lower gross margins and higher demand creation spending.
For the third quarter, revenue for the other businesses, which include Cole Haan, Converse Inc., Hurley International LLC, Nike Golf, and Umbro Ltd, increased 1% to $592.2 million compared to $587.4 million last year with the group posting a third quarter pre-tax loss of $344.1 million versus pretax income of $106.1 million for the same period last year.
Due to changes in the companyï¿½s affiliate brands portfolio and the inclusion of the impairment charge, current year amounts are not directly comparable to the prior year. In the third quarter of fiscal 2008 the companyï¿½s Other business segment included Converse Inc., Nike Golf, Cole Haan, Hurley International LLC, Nike Bauer Hockey, and the Starter Brand.
Income Statement Review
Third quarter gross margins were 43.9% compared to 45.1% for the same period last year. Gross margins were lower than the prior year due to higher product input costs and product markdowns taken to reduce excess inventories.
Selling and administrative expenses were 30.4% of third quarter revenue compared to 30.9% for the same period last year. Selling and administrative expenses for the period were lower than last year reflecting management actions to reduce expenses.
The effective tax rate for the third quarter was -3.6% compared to 30.6% for the same period last year. The tax rate was lower than the prior year due to the impact of the impairment of Umbroï¿½s goodwill, intangible and other assets, a lower on-going tax rate on operations outside of the United States, and resolution of audit items. Excluding the impact of the impairment charge, the third quarter tax rate would have been 23.9%.
Balance Sheet Review
At quarter end, global inventories stood at $2.5 billion, an increase of 3% from February 29, 2008. Cash and short-term investments were $2.6 billion at the end of the quarter, compared to $2.9 billion at the end of the third quarter last year.
Expected Corporate Restructuring Charge
On Feb. 10, 2009, the company announced the next stage of its category business model execution which includes a restructuring of the organization around key growth opportunities. The company said the realignment is intended to drive greater efficiencies throughout the organization and may result in an overall reduction of up to 4% of the company's workforce. Nike, Inc. employs nearly 35,000 people worldwide.*
As part of this effort, the company said it intends to streamline its management structure and eliminate operational redundancies to enhance consumer focus, drive innovation more quickly to market, and establish a more scalable cost structure.
Share Repurchase Program
During the third quarter, the company did not repurchase shares in conjunction with its four-year, $3 billion share repurchase program approved by the Board of Directors in June 2006. As of the end of the third quarter the Company had repurchased a total of 49.2 million shares for approximately $2.7 billion under this program.