10-QPeriod: Q1 FY2012

NIKE, Inc. Quarterly Report for Q1 Ended Aug 31, 2011

Filed October 6, 2011For Securities:NKE

Summary

NIKE, Inc. reported strong performance for the first quarter of fiscal year 2012, with revenues increasing by 18% to $6.1 billion and net income rising by 15% to $645 million. Diluted earnings per share saw a significant increase of 19% to $1.36, outpacing net income growth due to a reduction in the weighted average number of shares outstanding driven by share repurchases and a favorable tax rate. The company experienced broad-based demand across product types and geographies, particularly in North America, Emerging Markets, Greater China, and Central & Eastern Europe. Despite revenue growth, gross margin percentage declined by 270 basis points to 44.3%, primarily due to higher product input costs and an increased mix of off-price sales. However, this was partially offset by growth in the Direct to Consumer business and cost efficiency initiatives. Selling and administrative expenses increased by 9%, largely due to investments in Direct to Consumer operations and personnel costs. The company's effective tax rate decreased to 24.3% from 26.0% in the prior year, positively impacting net income.

Financial Highlights

49 data points
Beta

Revenue

$6.08B

44.3% Gross Margin

Net Income

$645.00M

10.6% Net Margin

EPS (Diluted)

$0.34

Total Assets

$14.80B

Cash & Equivalents

$1.61B

Free Cash Flow

-$27.00M

Financial Statements
Beta
Revenue$6.08B
Cost of Revenue$3.39B
Gross Profit$2.69B
SG&A Expenses$1.82B
Net Income$645.00M
EPS (Basic)$0.35
EPS (Diluted)$0.34
Shares Outstanding (Basic)1.86B
Shares Outstanding (Diluted)1.90B

Key Highlights

  • 1Revenue increased by 18% to $6.1 billion compared to the prior year's first quarter.
  • 2Net income grew by 15% to $645 million.
  • 3Diluted earnings per share (EPS) increased by 19% to $1.36, outperforming net income growth.
  • 4Gross margin decreased by 270 basis points to 44.3% due to higher input costs and off-price sales, partially offset by DTC growth and cost efficiencies.
  • 5Selling and administrative expenses rose by 9%, reflecting increased investments in Direct to Consumer operations.
  • 6The effective tax rate improved to 24.3% from 26.0%, benefiting net income.
  • 7Futures orders for the upcoming season increased by 16% (13% excluding currency), indicating continued demand.

Frequently Asked Questions

Revenue growth was driven by increased demand across all product types and most businesses, with strong performance particularly in North America, Emerging Markets, Greater China, and Central & Eastern Europe. Growth in the Direct to Consumer (DTC) channel also contributed positively.

The gross margin percentage decreased primarily due to continuing pressure from higher product input costs (materials and labor) and a higher mix of off-price sales. These factors more than offset the positive impacts from the growth of the Direct to Consumer business and ongoing product cost reduction initiatives.

Currency fluctuations had a mixed impact. Excluding currency changes, revenue grew 11% (compared to 18% reported). While the reported increase in income before taxes was 13%, foreign currency translation effects provided a net benefit of approximately $32 million, indicating that underlying operational performance was strong but currency headwinds softened reported figures in some areas.

The increase in inventory levels, contributing to a net cash outflow from working capital, was attributed to increased future orders, more timely factory deliveries, pre-builds for longer lead-time products, and higher product costs. This suggests the company is proactively managing inventory in anticipation of continued demand, though it tied up operating cash flow.