10-QPeriod: Q1 FY2002

NIKE, Inc. Quarterly Report for Q1 Ended Aug 31, 2001

Filed October 15, 2001For Securities:NKE

Summary

NIKE, Inc. reported results for the quarter ended August 31, 2001, reflecting a slight decline in revenues and net income compared to the prior year's first quarter. Total revenues decreased by 0.9% to $2.61 billion, primarily due to lower sales in the United States, particularly in footwear, and the unfavorable impact of foreign currency exchange rates on reported international revenues. Net income saw a 2.9% decrease to $199.2 million. The company experienced a 1.1 percentage point decline in gross margin, influenced by the weakening Euro and lower margins in U.S. licensed team apparel. Despite these top-line pressures, NIKE highlighted an increase in worldwide futures orders, signaling potential future revenue growth. The company is actively managing its financial position, with cash from operations increasing and a strategic focus on debt reduction and inventory/cost management, especially in light of the post-September 11th economic uncertainty. The adoption of SFAS 133 regarding derivative accounting also impacted the financial statements.

Key Highlights

  • 1Total revenues for the quarter decreased slightly by 0.9% to $2.61 billion compared to the prior year.
  • 2Net income declined by 2.9% to $199.2 million, impacted by lower revenues and a decrease in gross margin percentage.
  • 3The U.S. market saw a 3.5% revenue decline, driven by a 7.0% drop in footwear sales, partly attributed to supply chain disruptions.
  • 4International revenues grew 1.4% as reported, but would have increased by 10.2% in constant dollars, showing underlying international strength.
  • 5Worldwide futures orders for the upcoming season increased by 6%, suggesting positive future demand.
  • 6The company adopted SFAS 133 for accounting for derivative instruments, resulting in a one-time $5.0 million charge to net income.
  • 7Cash flow from operations improved significantly, up to $235.4 million from $175.9 million in the prior year's quarter.

Frequently Asked Questions

The revenue decline in the U.S. market was primarily driven by a 7.0% decrease in footwear sales, influenced by lower demand, particularly in the mid-range price segment. Additionally, supply chain disruptions from the implementation of a new global demand and supply planning system led to late deliveries and order cancellations.

Weaker foreign currencies against the U.S. dollar negatively impacted reported international revenues. While international revenues grew 1.4% as reported, they would have increased by 10.2% on a constant dollar basis, indicating underlying growth was stronger than the reported figures suggest.

NIKE adopted SFAS 133 on June 1, 2001. This accounting standard for derivative instruments resulted in a one-time transition adjustment, including a $5.0 million charge (net of tax) to the consolidated statement of income related to an investment adjusted to fair value. It also impacted the balance sheet through the initial recognition of fair values of hedging derivatives.

The company acknowledged the uncertainty created by the September 11th terrorist attacks and subsequent world events on economic prospects and consumer demand. NIKE is developing contingency plans focused on inventory and cost management to mitigate potential impacts on earnings, while still expecting full-year earnings growth. Orders for Nike-owned retail stores declined initially but have since recovered somewhat, though order cancellations have increased.