Nike Inc. reported earnings from continuing operations
improved 3.1 percent in its second quarter ended Nov. 30, to $537
million, or 59 cents a share, besting Wall Street's consensus estimate
by a penny. Revenues grew 8.0 percent to $6.43 billion, and gained 9
percent on a currency-neutral basis. Nike Brand futures were ahead 13
percent on a C-N basis.

Nike said earnings per share for the
quarter were up 4 percent due to higher revenues as a result of strong
demand for Nike, Inc. brands, gross margin expansion, and a lower tax
rate partially offset by the impact of higher SG&A investments in
Nike, Inc. brands and business capabilities.

“Our strong second
quarter results show why Nike leads the industry,” said Mark Parker,
President and CEO of Nike, Inc. “Our powerful portfolio fuels growth
across our categories and geographies. Because we never stop innovating,
we enhance our ability to serve the athlete, inspire consumers and
elevate the marketplace. We will continue to seize the best
opportunities to drive sustainable, profitable growth for our
shareholders.”*

Second Quarter Continuing Operations Income Statement Review

  •     Revenues for Nike, Inc. increased 8 percent to $6.4 billion, up 9 percent on a currency neutral basis.
  •        
    Revenues for the Nike Brand were $6.1 billion, up 9 percent on a
    currency neutral basis, with growth in every product type, geography and
    key category.
  •         Revenues for
    Converse were $360 million, up 11 percent on a currency neutral basis,
    driven by strong performance in our largest owned markets: North
    America, the United Kingdom, and China.
  •    
    Gross margin increased 140 basis points to 43.9 percent. Gross margin
    benefitted from a shift in the mix of the Company’s revenues to higher
    margin products and businesses, higher average prices, easing raw
    materials product input costs and continued strength in the higher
    margin Direct-to-Consumer business. These benefits were partially offset
    by unfavorable changes in foreign exchange rates and higher labor
    product input costs.
  •     Selling and
    administrative expense grew 14 percent to $2.1 billion. Demand creation
    expense was $691 million, up 13 percent versus relatively low levels in
    the prior year, driven by marketing support for key product launches,
    consumer running events and upcoming global sporting events, including
    the World Cup and Winter Olympics. Operating overhead expense increased
    14 percent to $1.4 billion due to investments in digital innovation and
    other growth businesses, as well as higher Direct to Consumer costs
    driven by growth and new store openings.
  •    
    Other expense, net was $13 million, comprised primarily of a charge
    relating to an adverse legal judgment in Western Europe and foreign
    currency exchange losses. For the quarter, the Company estimates the
    year-over-year change in foreign currency related gains and losses
    included in other expense (income), net, combined with the impact of
    changes in currency exchange rates on the translation of foreign
    currency-denominated profits, decreased pretax income by approximately
    $32 million.
  •     The effective tax rate
    was 25.1 percent, compared to 26.8 percent for the same period last
    year, an improvement primarily due to an increase in the amount of
    earnings from non-U.S. operations, which are generally subject to a
    lower tax rate.
  •     Net income increased 3
    percent to $537 million while diluted earnings per share increased 4
    percent to $0.59, reflecting a slight decline in the weighted average
    diluted common shares outstanding.


November 30, 2013 Balance Sheet Review for Continuing Operations

  •    
    Inventories for Nike, Inc. were $3.7 billion, up 11 percent from
    November 30, 2012. Nike Brand wholesale unit inventories increased 7
    percent to support future demand. Changes in foreign currency exchange
    rates and product cost drove an approximate 4 percentage point net
    increase in Nike, Inc. inventory growth.
  •    
    Cash and short-term investments were $5.2 billion, $1.7 billion higher
    than last year as a result of proceeds from the issuance of debt and
    sale of the Umbro and Cole Haan businesses in the prior fiscal year, as
    well as higher net income.

Share Repurchases

During
the second quarter, Nike, Inc. repurchased a total of 5.5 million
shares for approximately $402 million as part of the four-year, $8
billion program approved by the Board of Directors in September 2012. As
of the end of the second quarter, a total of 29.2 million shares had
been repurchased under this program at a cost of approximately $1.7
billion, an average of $58.82 per share.

Futures Orders

As
of the end of the quarter, worldwide futures orders for Nike Brand
athletic footwear and apparel scheduled for delivery from December 2013
through April 2014 totaled $10.4 billion, 12 percent higher than orders
reported for the same period last year, and 13 percent higher on a
currency neutral basis.*

NIKE, Inc.
CONSOLIDATED STATEMENTS OF INCOME

For the period ended November 30, 2013


 
 
 

 
 

 
 

 
 

 
 

 
 




THREE MONTHS ENDED

%

SIX MONTHS ENDED

%
(Dollars in millions, except per share data)
 
 
 
 11/30/2013
 
 
 11/30/2012
 
 
 Change
 
 
 11/30/2013
 
 
 11/30/2012
 
 
 Change

Income from continuing operations:



















Revenues



$
6,431



$
5,955


8 %


$
13,402



$
12,429


8 %

Cost of sales
 
 
 
 
3,605
 
 
 
 
3,425
 
 
 
 5 %
 
 
 
7,444
 
 
 
 
7,071
 
 
 
 5 %

Gross profit




2,826




2,530


12 %



5,958




5,358


11 %
Gross margin



43.9 %


42.5 %





44.5 %


43.1 %






















 

Demand creation expense




691




613


13 %



1,422




1,484


-4 %

Operating overhead expense
 
 
 
 
1,397
 
 
 
 
1,223
 
 
 
 14 %
 
 
 
2,722
 
 
 
 
2,411
 
 
 
 13 %

Total selling and administrative expense




2,088




1,836


14 %



4,144




3,895


6 %
% of revenue



32.5 %


30.8 %





30.9 %


31.3 %






















 

Interest expense (income), net




8




(1
)

–




16




(4
)

–

Other expense (income), net
 
 
 
 
13
 
 
 
 
(17
)
 
 
 –
 
 
 
 
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