10-QPeriod: Q2 FY2009

NIKE, Inc. Quarterly Report for Q2 Ended Sep 30, 2008

Filed October 6, 2008For Securities:NKE

Summary

NIKE, Inc. reported solid revenue growth of 17% to $5.4 billion for the first quarter of fiscal year 2009, compared to the same period last year. This growth was driven by strong performance across all product groups and geographic regions, with international markets showing significant contributions, particularly in EMEA and Asia Pacific. Despite revenue increases, net income saw a 10% decrease to $510.5 million, primarily due to a higher effective tax rate in the current quarter, which lacked the one-time tax benefit of $105.4 million recorded in the prior year period. Diluted earnings per share decreased by 8% to $1.03. The company experienced a notable improvement in gross margins, increasing by 2.4 percentage points to 47.2%, attributed to a better sales mix of higher-margin footwear, improved hedge rates, and sourcing cost initiatives. However, selling and administrative expenses increased by 29%, driven by significant investments in marketing for major sporting events like the Beijing Olympics and European Football Championship, endorsements, company-owned retail expansion, and emerging markets. The company also announced a new $5 billion share repurchase program, demonstrating confidence in its financial position and commitment to returning capital to shareholders.

Financial Highlights

24 data points
Beta

Revenue

$4.59B

44.7% Gross Margin

Net Income

$391.00M

8.5% Net Margin

EPS (Diluted)

$0.20

Cash & Equivalents

$1.72B

Free Cash Flow

$162.50M

Financial Statements
Beta
Revenue$4.59B
Cost of Revenue$2.54B
Gross Profit$2.05B
SG&A Expenses$1.55B
Net Income$391.00M
EPS (Basic)$0.20
EPS (Diluted)$0.20

Key Highlights

  • 1Revenue increased by 17% to $5.4 billion, indicating strong demand for NIKE's products globally.
  • 2Gross margin improved significantly to 47.2% from 44.8%, driven by favorable product mix and hedging effectiveness.
  • 3Net income decreased by 10% to $510.5 million, largely due to the absence of a significant one-time tax benefit from the prior year.
  • 4Diluted earnings per share declined by 8% to $1.03, reflecting the lower net income.
  • 5Selling and administrative expenses rose by 29%, reflecting increased investments in marketing, endorsements, and retail expansion.
  • 6The company announced a new $5 billion share repurchase program, signaling a strong commitment to shareholder returns.
  • 7Futures and advance orders for footwear and apparel were up 10% year-over-year, suggesting continued revenue momentum.

Frequently Asked Questions

Revenue growth of 17% to $5.4 billion was driven by strong performance across all product groups (footwear, apparel, and equipment) and all geographic regions. International markets, particularly EMEA and Asia Pacific, showed significant growth, with the U.S. market also contributing positively. Currency exchange rates contributed 7 percentage points to this growth.

Net income decreased by 10% to $510.5 million primarily because the first quarter of fiscal year 2008 included a one-time tax benefit of $105.4 million related to past foreign losses. The current quarter's effective tax rate of 28.5% is significantly higher than the prior year's 15%, which was favorably impacted by this benefit. Excluding this benefit, income before taxes grew 7%.

The company expects selling and administrative expenses to grow at a faster rate than revenue for the full fiscal year. This is due to continued strategic investments in demand creation (marketing, endorsements) to drive growth in core product lines, as well as investments in company-owned retail, emerging markets, and support for major sporting events.

The approval of a new $5 billion share repurchase program, which will commence upon completion of the current $3 billion program, indicates management's confidence in the company's financial health and its commitment to returning value to shareholders. The company plans to fund these repurchases through operating cash flow, excess cash, and potentially debt.