Nike, Inc. reported that third quarter revenues increased 9% to $3.6 billion from $3.3 billion for the same period last year. Currency exchange rate fluctuations reduced revenue growth by three percentage points. Net income grew 19% to $325.8 million from $273.4 million during last year's fiscal third quarter. Diluted earnings per share grew 23% to $1.24, versus $1.01 last year.
“We're very pleased with the performance of the Nike brand and our Nike Inc. portfolio, both for the quarter and year to date,” said Mark Parker, President and Chief Executive Officer, Nike, Inc. “The strength of our product pipeline, brand portfolio and global reach is enabling us to balance continued challenges in markets such as Western Europe and Japan with strong momentum in other key markets and regions. This, combined with our ability to manage expenses, enabled us to deliver on our long-term goal of sustainable, profitable growth.”*
Futures Orders
The company reported worldwide futures orders for athletic footwear and apparel, scheduled for delivery from March 2006 through July 2006, totaling $5.4 billion, 2.9% higher than such orders reported for the same period last year. Changes in currency exchange rates reduced this growth, as global futures orders grew by 5.4% excluding the impact of currency changes.
By region, futures orders for the U.S. increased 6%; Europe (which includes the Middle East and Africa) declined 2%; Asia Pacific grew 5%; and the Americas increased 10%. Changes in currency exchange rates reduced the reported futures orders by five percentage points in Europe and by four percentage points in the Asia Pacific region. In the Americas region, two percentage points of the increase were due to changes in currency exchange rates.
Regional Highlights
U.S.
During the third quarter, U.S. revenues increased 14% to $1.4 billion versus $1.3 billion for the third quarter of fiscal 2005. U.S. athletic footwear revenues increased 18% to $1.0 billion. Apparel revenues increased 6% to $366.6 million. Equipment revenues declined 3% to $70.3 million. U.S. pre-tax income improved 10% to $286.2 million.
Europe
Revenues for the European region declined 5% to $980.1 million from $1.0 billion for the same period last year. Changes in currency exchange rates reduced revenue growth by nine percentage points. Footwear revenues were $563.8 million, down 8% from $615.3 million a year ago. Apparel revenues decreased by 1% to $347.1 million and equipment revenues increased 3% to $69.2 million. Pre-tax income declined 5% to $208.7 million.
Asia Pacific
Third quarter revenues for the Asia Pacific region grew 13% to $532.3 million compared to $472.8 million a year ago. Changes in currency exchange rates reduced revenue growth by four percentage points. Footwear revenues were up 19% to $284.1 million, apparel revenues increased 6% to $199.0 million and equipment revenues grew 6% to $49.2 million. Pre-tax income increased 19% to $119.6 million.
Americas
Revenues in the Americas region increased 41% to $203.1 million, an improvement from $143.7 million in the third quarter of fiscal 2005. Changes in currency exchange rates contributed 11 percentage points to this growth rate. Footwear revenues were up 44% to $143.7 million, apparel revenues increased 33% to $44.4 million and equipment jumped 42% to $15.0 million. Pre-tax income was up 69% to $38.5 million.
Other Businesses
Third quarter Other business revenues, which include Converse Inc., NIKE Golf, NIKE Bauer Hockey Inc., Cole Haan, Hurley International LLC and Exeter Brands Group LLC, grew 17% to $454.5 million from $389.6 million last year. Pre-tax income was up 90% to $43.6 million.
Income Statement Review
Gross margins were 43.6% in the third quarter compared to 44.1% last year. Selling and administrative expenses were 30.15 of third quarter revenues, compared to 31.3% last year. The effective tax rate for the third quarter was 35.7%.
Balance Sheet Review
At quarter end, global inventories stood at $2.0 billion, an increase of 16% from February 28, 2005. Cash and short-term investments were $2.0 billion at the end of the quarter, compared to $1.6 billion last year.
Share Repurchase
During the quarter, the company purchased a total of 1,494,000 shares for approximately $128 million in conjunction with the company's four-year, $1.5 billion share repurchase program that was approved by the Board of Directors in June 2004.
NIKE, Inc.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED FEBRUARY 28, 2006
(In millions, except per share data)
QUARTER ENDING YEAR TO DATE ENDING
INCOME % %
STATEMENT 02/28/2006 02/28/2005 Chg 02/28/2006 02/28/2005 Chg
Revenues $3,612.8 $3,308.2 9% $10,949.5 $10,018.3 9%
Cost of sales 2,038.7 1,849.4 10% 6,115.9 5,585.6 9%
Gross margin 1,574.1 1,458.8 8% 4,833.6 4,432.7 9%
43.6% 44.1% 44.1% 44.2%
Selling and
administrative
expense 1,086.6 1,035.7 5% 3,245.7 3,082.5 5%
30.1% 31.3% 29.6% 30.8%
Interest
(income)
expense, net (8.4) (0.1) -- (20.5) 8.4 --
Other (income)
expense, net (10.7) 9.8 -- (22.0) 19.9 --
Income before
income taxes 506.6 413.4 23% 1,630.4 1,321.9 23%
Income taxes 180.8 140.0 29% 571.2 459.8 24%
35.7% 33.9% 35.0% 34.8%
Net income $325.8 $273.4 19% $1,059.2 $862.1 23%
Diluted EPS $1.24 $1.01 23% $4.00 $3.18 26%
Basic EPS $1.26 $1.04 21% $4.08 $3.28 24%
Weighted
Average
Common
Shares
Outstanding:
Diluted 263.4 271.7 264.6 270.9
Basic 258.9 263.3 259.6 263.1
Dividends
declared $0.31 $0.25 $0.87 $0.70
