10-QPeriod: Q3 FY2011

NIKE, Inc. Quarterly Report for Q3 Ended Feb 28, 2011

Filed April 6, 2011For Securities:NKE

Summary

NIKE, Inc. reported solid financial results for the third quarter and first nine months of fiscal year 2011, driven by strong revenue growth across key geographic segments, particularly North America, Greater China, and Emerging Markets. The company demonstrated revenue increases of 7% for the quarter and 8% year-to-date, supported by demand for both footwear and apparel. While gross margins faced pressure from higher product input and transportation costs, this was partially offset by the growth of the Direct-to-Consumer business and fewer close-out sales. Net income saw a 5% increase for the quarter and an 11% increase year-to-date. Earnings per share also showed positive growth, up 7% for the quarter and 12% year-to-date, outpacing net income growth due to a reduction in outstanding shares from ongoing share repurchase programs. The company's effective tax rate increased due to a greater proportion of income earned in the United States, but this was partially mitigated by the retroactive reinstatement of the R&D tax credit. Management anticipates continued margin pressure in the near term due to macroeconomic factors but remains confident in its liquidity and ability to meet future obligations.

Financial Highlights

49 data points
Beta

Revenue

$5.08B

45.8% Gross Margin

Net Income

$523.00M

10.3% Net Margin

EPS (Diluted)

$0.27

Total Assets

$14.48B

Cash & Equivalents

$2.13B

Free Cash Flow

$211.00M

Financial Statements
Beta
Revenue$5.08B
Cost of Revenue$2.75B
Gross Profit$2.33B
SG&A Expenses$1.64B
Net Income$523.00M
EPS (Basic)$0.28
EPS (Diluted)$0.27
Shares Outstanding (Basic)1.90B
Shares Outstanding (Diluted)1.94B

Key Highlights

  • 1Revenue increased by 7% to $5.1 billion for the third quarter and 8% to $15.1 billion for the nine months ended February 28, 2011.
  • 2Net income grew by 5% to $523 million for the third quarter and 11% to $1.54 billion for the nine months.
  • 3Diluted earnings per share (EPS) increased by 7% to $1.08 for the quarter and 12% to $3.16 for the nine months, outpacing net income growth.
  • 4Gross margin percentage declined by 110 basis points to 45.8% in the third quarter due to higher input and transportation costs, partially offset by Direct-to-Consumer growth.
  • 5Selling and administrative expenses as a percentage of revenue improved to 32.2% in the third quarter from 33.0% in the prior year.
  • 6The company repurchased approximately 5.5 million shares for $470 million during the third quarter as part of its ongoing $5 billion share repurchase program.
  • 7A new risk factor related to natural disasters was introduced, specifically highlighting the potential negative impact of the March 2011 Japanese earthquake and tsunami on future revenues and profits.

Frequently Asked Questions

Revenue growth was driven by increased demand for NIKE Brand footwear and apparel across most geographic segments, particularly North America, Greater China, and Emerging Markets. Growth was also supported by the Direct-to-Consumer business, which saw strong revenue increases and comparable store sales growth.

The gross margin percentage experienced pressure, decreasing by 110 basis points in the third quarter, primarily due to higher product input costs, increased transportation expenses, and a lower mix of licensee revenue in the 'Other Businesses' segment. These negative impacts were partially offset by the growth and expanding profitability of the NIKE Brand Direct-to-Consumer business and fewer close-out sales.

While revenues grew 7% in reported terms, excluding currency changes, revenues grew 8% for the third quarter, indicating a slight negative impact from currency. The company actively uses derivative instruments to manage foreign currency exposures related to transactional and translational risks.

Management anticipates that gross margins will continue to face pressure in the remainder of fiscal 2011 due to ongoing macroeconomic factors, including rising product input costs, unfavorable currency rates, and higher freight costs, as the company works to meet increasing demand for select products.