10-QPeriod: Q3 FY2008

NIKE, Inc. Quarterly Report for Q3 Ended Jan 9, 2008

Filed January 9, 2008For Securities:NKE

Summary

NIKE, Inc. reported robust financial results for the second quarter and first six months of fiscal year 2008, ending November 30, 2007. Revenues increased by 14% in the quarter and 12% year-to-date, driven by broad-based growth across geographic regions and product categories, particularly in footwear. Gross margins improved by 90 basis points to 44.3% in the quarter and 44.6% year-to-date, benefiting from better pricing and favorable hedging results. Net income rose 10% for the quarter and a significant 32% year-to-date, reflecting strong operational performance and a favorable tax rate adjustment in the first half of the year. The company also announced strategic initiatives, including the agreement to acquire Umbro Plc and the completion of the sale of the Starter brand, underscoring its focus on portfolio optimization for future growth.

Key Highlights

  • 1Revenue growth of 14% in Q2 FY08 and 12% year-to-date, demonstrating strong demand across global markets.
  • 2Gross margin expansion of 90 basis points to 44.3% (Q2) and 44.6% (YTD), driven by improved pricing and currency hedging.
  • 3Net income growth of 10% in Q2 and 32% year-to-date, with significant improvement attributed to a lower effective tax rate in the first half.
  • 4Strategic acquisition of Umbro Plc announced, aiming to bolster NIKE's global presence in the key soccer market.
  • 5Divestiture of the Starter brand business completed, aligning with a strategy to focus on core growth opportunities.
  • 6Worldwide futures and advance orders increased by 13%, indicating positive demand for upcoming seasons, with footwear and apparel leading the growth.
  • 7Significant share repurchase activity, with approximately $614 million spent on repurchasing 10.6 million shares in the first six months of FY08.

Frequently Asked Questions

Revenue growth was primarily driven by strong demand for NIKE brand products across all geographic regions and product categories, with footwear showing particularly robust performance. Changes in foreign currency exchange rates also positively impacted reported revenue growth.

Gross margins improved, increasing by 90 basis points to 44.3% in the second quarter and 44.6% year-to-date. This improvement was attributed to better in-line pricing margins for footwear, improved margins on closeout products, and favorable foreign currency hedge results, partially offset by increased sales discounts and lower apparel margins in some regions.

NIKE announced two significant strategic moves: the agreement to acquire Umbro Plc, a leading global soccer brand, to strengthen its position in that market, and the completion of the sale of its Starter brand business. The company also indicated it is exploring the sale of NIKE Bauer Hockey.

The effective tax rate for the six months ended November 30, 2007, was 21.7%, a significant decrease from the prior year, contributing to the strong year-over-year growth in net income. This reduction was partly due to a one-time tax benefit related to previously unrecognized international tax benefits and a generally lower tax rate on international operations.