Nike, Inc. reported second quarter revenues decreased 4% for the fiscal 2010 second quarter ended Nov. 30, down from $4.6 billion last year to $4.4 billion in the current year; changes in currency exchange rates had a minimal impact on reported revenue results. Second quarter net income declined 4 percent, from $391 million last year to $375 million in the current year; diluted earnings per share decreased 5% to 76 cents.
Futures Orders
The company reported worldwide futures orders for Nike brand athletic footwear and apparel, scheduled for delivery from December 2009 through April 2010, totaling $7.0 billion, 4% higher than orders reported for the same period last year. Excluding currency changes, reported orders would have decreased 1%.*
Geography | Reported Futures Orders | Excluding Currency Changes | |||
| North America | -4% | -4% | |||
| Western Europe | +12% | 0% | |||
| Central and Eastern Europe | -15% | -20% | |||
| Greater China | +4% | +4% | |||
| Japan | -10% | -9% | |||
| Emerging Markets | +38% | +27% |
North America
During the second quarter, revenues in North America decreased 4% to $1.5 billion. Footwear revenues declined 4% to $981 million, apparel revenues decreased 6% to $441 million and equipment revenues were up 1 percent to $74 million. Earnings before interest and taxes (commonly referred to as “EBIT”) for North America increased 9% to $291 million due to lower selling and administrative expenses and improved gross margins.
Western Europe
Second quarter revenue for Western Europe was down 6% to $902 million. Footwear revenue was flat compared to last year at $515 million, apparel revenue was down 15% to $323 million and equipment revenue declined 11% to $63 million. Second quarter EBIT decreased 5% to $175 million as the impact of lower revenue was partially offset by a reduction in selling and administrative expenses.
Central and Eastern Europe
In the second quarter, revenue for Central and Eastern Europe declined 24% to $260 million. Footwear revenue decreased 18% to $144 million, apparel revenue was down 30% to $99 million and equipment revenue declined 32% to $17 million. EBIT decreased 36%in the second quarter to $64 million due to lower revenue and gross margins, partially offset by reductions in sales and administrative expenses.
Greater China
Revenue for Greater China during the second quarter was down 3% to $404 million. Footwear revenue was down 1% to $210 million, apparel revenue declined 7% to $170 million, and equipment revenue decreased 2% to $25 million. Second quarter EBIT decreased 7% to $126 million as lower revenues and higher selling and administrative expenses offset improved gross margins.
Japan
Japan second quarter revenues declined 2% to $222 million. Footwear revenue was up 6% to $104 million, apparel revenue dropped 10% to $98 million and equipment revenue was flat compared to the prior year at $21 million. EBIT decreased 19% in the second quarter to $45 million mainly due to lower revenues and higher selling and administrative expenses that offset better gross margins.
Emerging Markets
In the Emerging Markets revenue was up 8% to $555 million for the second quarter compared to $512 million last year. Footwear revenue increased 12% to $370 million, apparel revenue rose 7% to $143 million and equipment revenue decreased 13 percent to $41 million. Second quarter EBIT for the Emerging Markets rose 29% to $156 million as a result of revenue growth, gross margin improvement and better leverage of selling and administrative expenses.
Other Businesses
For the second quarter, revenue for Other Businesses, which includes Cole Haan, Converse Inc., Hurley International LLC, NIKE Golf, and Umbro Ltd. increased 1% to $556 million. EBIT for the second quarter was up 65% at $35 million due to lower selling and administrative expenses which more than offset lower gross margin results.
In the second quarter of fiscal 2010 gross margins were 44.5% compared to 44.7% for the same period last year. Gross margins for the quarter were lower than the prior year primarily due to unfavorable year over year foreign exchange impacts and higher discounts related to inventory management efforts.
Second quarter selling and administrative expenses were down 4 percent to $1.5 billion and dropped as a percent of revenue to 33.6 % compared to 33.7% for the same period last year. Selling and administrative expenses for the quarter were lower than the same period last year due to lower demand creation spending and lower personnel costs following restructuring efforts completed last fiscal year.
The effective tax rate for the second quarter was 23.5% compared to 24.9% for the same period last year. The decrease was primarily due to the impact from settlements of uncertain tax positions as well as the reduction in our on-going effective tax rate on operations outside the United States.
Balance Sheet Review
At the end of the second quarter, global inventories stood at $2.2 billion, down 10% from November 30, 2008. Cash and short-term investments at period-end were $4.0 billion, 47% higher than $2.7 billion last year.
Share Repurchase
During the second quarter, the company repurchased a total of 3,025,000 shares for approximately $194 million in conjunction with the company’s 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 purchased a total of 52.5 million shares for approximately $2.9 billion under this program. Once the company completes its current $3 billion program it will commence a four-year, $5 billion share repurchase program approved by the Board of Directors in September 2008.
