How strong was NIKE's fiscal 1996 financial performance?

Very strong. Revenues grew 35.9% to $6.47 billion and net income grew 38.4% to $553.2 million, a record. Diluted EPS was $3.77 versus $2.72 in fiscal 1995, and return on equity was 25.2%. Growth was broad-based across footwear, apparel, and international markets.

What drove the growth, and which segments were strongest?

U.S. apparel was the fastest-growing segment, nearly doubling to $842.5 million. U.S. footwear added $463 million (up 20%), driven by basketball, women's fitness, and men's training. International revenues grew 36% to $2.33 billion, and other brands rose 68%, helped by the Bauer acquisition, which contributed $173.7 million.

Are there concerns about margins or cash generation?

Gross margin slipped slightly to 39.6% from 39.8%, mainly because of higher air freight costs and footwear cost increases not fully passed on to customers. Operating cash flow of $330 million was well below net income because working capital grew sharply, with inventories up $301 million and receivables up $293 million. Investors should watch whether inventory and receivables growth stays in line with sales.

What are the main risks identified in the filing?

Key risks include possible EU anti-dumping duties on footwear from China and Indonesia, which management could not quantify; the annual renewal of China's MFN trade status, since China is a material footwear source; intense competition from Reebok and Adidas; and the expiration of early Air technology patents in 1997, which will let competitors use some of that technology. Management also notes general international risks such as currency and political instability.

What is the outlook and capital allocation plan?

Management expects strong near-term demand, with $3.9 billion in advance orders for June–November 1996, though these may not translate directly into revenue. Capital expenditures are planned at about $400 million for fiscal 1997, mainly for headquarters expansion, NIKE Town stores, and warehousing. The company continues its share repurchase program, extended to July 1999, and pays a dividend of $0.58 per share, targeting 15–25% of trailing earnings.

NKE 10-K FY1996 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed August 30, 1996. Cited figures are marked; the original filing is the authoritative source.

NIKE, Inc.'s fiscal 1996 10-K (year ended May 31, 1996) reports a record year.

Revenues rose 35.9% to $6.47 billion^a and net income rose 38.4% to $553.2 million, or $3.77 per share. Gross margin was essentially flat at 39.6% (vs. 39.8%), while selling and administrative expenses fell to 24.6% of revenues from 25.4%, showing operating leverage. Growth was broad: U.S. footwear rose 20% to $2.77 billion, U.S. apparel nearly doubled (up 99%) to $842.5 million, and international revenues rose 36% to $2.33 billion.

Other brands (Cole Haan, Bauer, Sports Specialties, Tetra Plastics) grew 68%, with Bauer contributing $173.7 million^b of that increase. Balance sheet strength is evident. Total assets grew to $3.95 billion, shareholders' equity rose to $2.43 billion, and working capital increased to $1.26 billion.

Cash rose to $262 million^c. Inventories grew 48% to $931 million and receivables grew 28% to $1.35 billion, both driven by strong demand. Operating cash flow of $330 million lagged net income, largely because working capital absorbed cash.

Long-term debt is negligible at $9.6 million, but short-term notes payable rose to $445 million^d, and the company has no commercial paper outstanding. Management plans $400 million in fiscal 1997 capital expenditures and continues share repurchases under a program extended to 1999. Investors should weigh several forward-looking points.

Advance and futures orders for June through November 1996 reached $3.9 billion, up 55%, though management cautions this is not a reliable predictor of revenue growth. Key risks include potential EU anti-dumping duties on footwear from China and Indonesia, and the annual renewal of China's MFN trade status, under which China is a material footwear source. Competition from Reebok and Adidas is intense, and the Air technology patents begin expiring in 1997.

02—Key points

Key Highlights

Record fiscal 1996 revenues of $6.47 billion, up 35.9%, and net income of $553.2 million, up 38.4%, with EPS of $3.77 (up from $2.72).
U.S. apparel revenues nearly doubled (up 99%) to $842.5 million, while U.S. footwear grew 20% to $2.77 billion on 19% more pairs shipped.
International revenues rose 36% to $2.33 billion, with all non-U.S. regions growing more than 30%; Asia/Pacific grew 41%.
Gross margin held near record levels at 39.6% (vs. 39.8%), and selling and administrative expenses improved to 24.6% of revenues from 25.4%.
Futures and advance orders for June–November 1996 delivery reached $3.9 billion, up 55%, though management says this does not necessarily indicate future revenue growth.
Balance sheet remains strong: total assets of $3.95 billion, equity of $2.43 billion, and long-term debt of only $9.6 million, offset by rising short-term notes payable of $445 million.
Operating cash flow fell to $330 million from $555 million... more precisely, it rose to $330 million from $255 million, but it trailed net income as inventories (+$301 million) and receivables (+$293 million) absorbed cash.

03—Questions

Frequently Asked Questions

How strong was NIKE's fiscal 1996 financial performance?
Very strong. Revenues grew 35.9% to $6.47 billion and net income grew 38.4% to $553.2 million, a record. Diluted EPS was $3.77 versus $2.72 in fiscal 1995, and return on equity was 25.2%. Growth was broad-based across footwear, apparel, and international markets.
What drove the growth, and which segments were strongest?
U.S. apparel was the fastest-growing segment, nearly doubling to $842.5 million. U.S. footwear added $463 million (up 20%), driven by basketball, women's fitness, and men's training. International revenues grew 36% to $2.33 billion, and other brands rose 68%, helped by the Bauer acquisition, which contributed $173.7 million.
Are there concerns about margins or cash generation?
Gross margin slipped slightly to 39.6% from 39.8%, mainly because of higher air freight costs and footwear cost increases not fully passed on to customers. Operating cash flow of $330 million was well below net income because working capital grew sharply, with inventories up $301 million and receivables up $293 million. Investors should watch whether inventory and receivables growth stays in line with sales.
What are the main risks identified in the filing?
Key risks include possible EU anti-dumping duties on footwear from China and Indonesia, which management could not quantify; the annual renewal of China's MFN trade status, since China is a material footwear source; intense competition from Reebok and Adidas; and the expiration of early Air technology patents in 1997, which will let competitors use some of that technology. Management also notes general international risks such as currency and political instability.
What is the outlook and capital allocation plan?
Management expects strong near-term demand, with $3.9 billion in advance orders for June–November 1996, though these may not translate directly into revenue. Capital expenditures are planned at about $400 million for fiscal 1997, mainly for headquarters expansion, NIKE Town stores, and warehousing. The company continues its share repurchase program, extended to July 1999, and pays a dividend of $0.58 per share, targeting 15–25% of trailing earnings.

04—Continue

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