01—Abstract
Summary
Summary of the 10-K filed August 29, 1997. Cited figures are marked; the original filing is the authoritative source.
NIKE's fiscal 1997 (year ended May 31, 1997) was a record year: revenues rose 42% to $9.19 billiona from $6.47 billion, and net income grew 44% to $795.8 million, or $2.68 per share.
Gross margin crossed 40% for the first time in company history, reaching 40.1%, driven mainly by price increases in certain U.S. footwear categories in the second half of the year. Selling and administrative expenses rose to 25.1% of revenues from 24.6%, reflecting heavier marketing and international infrastructure investment. Return on equity was 28.5%, and the company ended the year with $5.36 billionb in total assets and $3.16 billion in shareholders' equity.
Growth was broad-based. U.S. footwear rose 36% to $3.77 billionc, and U.S. apparel exceeded $1 billion for the first time, up 70%. Non-U.S. revenues grew 49% to $3.48 billion, though a stronger U.S. dollar muted reported results; on a constant-dollar basis non-U.S. growth would have been 59%.
Asia/Pacific grew 70%d and Europe 38%. Management expects slower U.S. growth in fiscal 1998 given the company's already dominant share, and warns that rising product costs, infrastructure spending, and more close-out sales could pressure margins. The balance sheet took on more leverage to fund expansion.
Inventories rose 44% to $1.34 billion, receivables rose 30%, and operating cash flow fell slightly to $323 million. Capital expenditures reached $466 million, with about $680 million planned for fiscal 1998. Long-term debt rose to $296 million from about $10 million, following a $200 million seven-year note issue and a Japanese yen borrowing.
Notes payable increased to $553 million. The company paid $0.38 per share in dividends and did not repurchase shares during fiscal 1997. Current liquidity remains strong, with a current ratio of 2.1 and no commercial paper outstanding.
02—Key points
Key Highlights
- Record revenues of $9.19 billion, up 42%, and record net income of $795.8 million, up 44%, with EPS of $2.68 versus $1.88.
- Gross margin reached 40.1%, the first time above 40% in company history, supported by U.S. footwear price increases.
- U.S. apparel surpassed $1 billion in revenue for the first time, growing 70%, while U.S. footwear grew 36% on 28% more pairs sold.
- International revenues rose 49% to $3.48 billion (38% of total), though a stronger dollar reduced reported growth; constant-dollar growth would have been 59%.
- Futures orders for delivery June through November 1997 reached $4.9 billion, up 18% year over year, with about 95% expected to be filled.
- Working capital capital intensity increased: inventories rose 44% to $1.34 billion and receivables rose 30%, while operating cash flow fell slightly to $323 million.
- Long-term debt rose to $296 million from about $10 million, and fiscal 1998 capital spending is planned at about $680 million, up from $466 million.
03—Questions
Frequently Asked Questions
How profitable was NIKE in fiscal 1997?
Net income was $795.8 million, up 44% from $553.2 million, and EPS was $2.68 versus $1.88. Return on equity was 28.5% and return on assets was 17.1%. Pre-tax income rose to $1.30 billion, and the effective tax rate was 38.6%.
What drove the revenue growth?
Growth came from both U.S. and international markets. U.S. footwear rose 36% to $3.77 billion, U.S. apparel rose 70% to $1.43 billion, and non-U.S. revenues rose 49% to $3.48 billion. Asia/Pacific grew 70% and Europe 38%. Other brands, including Bauer, Cole Haan, and Sports Specialties, declined 3%.
Are there risks to margins or growth going forward?
Management expects slower U.S. growth in fiscal 1998 because of the company's significant existing market share. Margins could face pressure from rising product costs, added infrastructure spending, and a greater mix of lower-priced product and close-outs. Trade risks include China's MFN tariff status, which renews annually, and EU anti-dumping investigations into footwear from China and Indonesia. A Bauer restructuring charge of $18 million was also recorded.
How strong is NIKE's balance sheet and liquidity?
The balance sheet remains solid. The current ratio improved to 2.1 from 1.9, working capital rose to $1.96 billion, and shareholders' equity reached $3.16 billion. Debt increased, with long-term debt at $296 million and notes payable at $553 million, but commercial paper outstanding was zero. The company also has a $500 million bank facility and a $500 million shelf registration. Operating cash flow fell slightly to $323 million because of inventory and receivables growth.
What is the outlook for dividends and share buybacks?
The dividend rose to $0.38 per share from $0.29, and the company targets 15% to 25% of trailing earnings as an annual dividend. NIKE did not repurchase any shares in fiscal 1997. Its 1994 buyback program, extended to July 1999, has $301.7 million in cumulative repurchases from 20.6 million shares, leaving room under the $450 million authorization.
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