Nike Inc. reported earnings slid 12.1 percent in its first quarter ended Aug. 31 due to lower gross margin, higher SG&A and an increase in the tax rate but results still came in ahead of Wall Street's estimates. Revenues for Nike, Inc. increased 10 percent, and grew 15 percent on a currency-neutral basis. Excluding the impacts of changes in foreign currency, Nike Brand revenues rose 16 percent, with growth in all key categories and every geography except Japan.

“We had a strong first quarter and a great start to the fiscal year,” said Mark Parker, president and CEO, Nike, Inc. “Nike, Inc. delivered an amazing array of innovation across some of the biggest moments in sport.”



First Quarter Income Statement Review
  • Revenues for Nike, Inc. increased 10 percent to $6.7 billion, up 15 percent on a currency-neutral basis. Excluding the impacts of changes in foreign currency, Nike Brand revenues rose 16 percent, with growth in all key categories and every geography except Japan.  Revenues on a currency-neutral (c-n) basis for Other Businesses increased 9 percent, while Businesses to be Divested grew by 6 percent.
  • Gross margin declined 80 basis points to 43.5 percent. Gross margin continued to benefit from pricing actions and product cost reduction initiatives, however, this was more than offset by higher input costs, primarily materials and labor. In addition, gross margin was negatively impacted by a shift in the company’s mix to lower margin businesses within the Nike Brand and the conversion of the China market to direct distribution for Converse.
  • Selling and administrative expenses grew at a faster rate than revenue, up 18 percent to $2.2 billion. Demand creation expenses increased 29 percent to $891 million due to marketing support for key product initiatives, as well as support for the Olympics and European Football Championships. Operating overhead expenses increased 12 percent to $1.3 billion due to additional investments made in the wholesale business to support growth initiatives and higher Direct to Consumer costs from the addition of new stores over the last year.
  • Other income, net was $29 million, comprised primarily of foreign exchange related gains. For the quarter, the company estimates the year-over-year change in foreign currency related gains and losses included in other income, net, combined with the impact of changes in foreign currency exchange rates on the translation of foreign currency-denominated profits, decreased pretax income by approximately $28 million.
  • The effective tax rate was 27.5 percent compared to 24.3 percent for the same period last year.  The effective tax rate was higher due to a larger percentage of earnings coming from higher tax countries, primarily the United States, as well as a higher effective tax rate on operations abroad.
  • Net income decreased 12 percent to $567 million while diluted earnings per share decreased 10 percent to $1.23, reflecting a 3 percent decline in the weighted average diluted common shares outstanding. Wall Street's consensus estimate had been $1.13 a share.
  • In a press release issued on May 31, 2012, the company announced its intention to divest of the Cole Haan and Umbro businesses. Pro Forma diluted earnings per share, excluding the results of the Businesses to be Divested, would have been approximately $1.27, down 9 percent compared to the first quarter of fiscal 2012 on a comparable basis.

August 31, 2012 Balance Sheet Review

Inventories for Nike, Inc. were $3.4 billion, up 10 percent from August 31, 2011, in line with revenue growth, and reflecting strong demand for Nike, Inc. products.

Cash and short-term investments were $3.3 billion, $433 million lower than last year as share repurchases and dividend payments increased year-on-year and the company made debt repayments.

Share Repurchases

During the first quarter, Nike, Inc. repurchased a total of 8.2 million shares for approximately $779 million as part of its four-year, $5 billion share repurchase program, approved by the Board of Directors in September 2008. As of the end of the first quarter, the Company has purchased a total of 58.5 million shares for approximately $4.9 billion under this program.  On September 19, 2012, the company announced that its board of directors approved a new four-year, $8 billion program to repurchase shares of Nike's Class B Common Stock. During the second quarter of fiscal 2013 the company's current $5 billion share repurchase program was completed, and the new program commenced.

Futures Orders

As of the end of the quarter worldwide futures orders for Nike Brand athletic footwear and apparel, scheduled for delivery from September 2012 through January 2013, totaled $8.9 billion, 6 percent higher than orders reported for the same period last year. Excluding currency changes, reported orders would have increased 8 percent.

NIKE, Inc.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED AUGUST 31, 2012
(Dollars in millions, except per share data)

 
 
 






 


QUARTER ENDED

INCOME STATEMENT   8/31/2012   8/31/2011   % Chg
Revenues
$ 6,669

$ 6,081

10 %
Cost of sales
  3,766       3,388  
11 %
Gross profit

2,903


2,693

8 %
Gross margin

43.5 %

44.3 %







 
Demand creation expense

891


692

29 %
Operating overhead expense
  1,262       1,131  
12 %
Total selling and administrative expense

2,153


1,823

18 %
% of revenue

32.3 %

30.0 %







 
Other (income) expense, net

(29 )

18

–
Interest (income) expense, net
  (3 )     –  
–






 
Income before income taxes

782


852

-8 %






 
Income taxes
  215       207  
4 %
Effective tax rate

27.5 %

24.3 %







 






 
Net income
$ 567     $ 645  
-12 %






 
Diluted EPS
$ 1.23

$ 1.36

-10 %






 
Basic EPS
$ 1.25

$ 1.39

-10 %






 
Weighted Average Common Shares Outstanding:





Diluted

461.4


474.3


Basic
  452.8       465.0  

Dividends declared
$ 0.36     $ 0.31  

NIKE, Inc.  
 
 
 


QUARTER ENDED
% Change
% Change Excluding Currency Changes 2
DIVISIONAL REVENUES1   8/31/2012   8/31/2011    


(Dollars in millions)
North America







Footwear
$ 1,732

$ 1,444

20 %
20 %
Apparel

795


632

26 %
26 %
Equipment
  179       124  
44 %
44 %
Total

2,706


2,200

23 %
23 %








 
Western Europe


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