10-QPeriod: Q1 FY2013

NIKE, Inc. Quarterly Report for Q1 Ended Aug 31, 2012

Filed October 9, 2012For Securities:NKE

Summary

NIKE, Inc.'s quarterly report for the period ending August 31, 2012, shows a 10% increase in revenue to $6.7 billion, driven by a 15% increase on a currency-neutral basis. Despite revenue growth, net income and diluted earnings per share saw a decrease of 12% and 10% respectively, compared to the prior year's quarter. This decline was attributed to planned increases in selling and administrative expenses, including higher demand creation spending for events like the Olympics and European Football Championships, as well as increased marketing for new product initiatives. Additionally, a lower gross margin, resulting from higher product input costs and a shift in business mix, impacted profitability. The company is also in the process of divesting its Cole Haan and Umbro businesses to focus on its core brands.

Financial Highlights

50 data points
Beta

Revenue

$6.47B

43.7% Gross Margin

Net Income

$567.00M

8.8% Net Margin

EPS (Diluted)

$0.30

Total Assets

$15.11B

Cash & Equivalents

$2.17B

Free Cash Flow

$428.00M

Financial Statements
Beta
Revenue$6.47B
Cost of Revenue$3.65B
Gross Profit$2.83B
SG&A Expenses$2.06B
Operating Income$585.00M
Net Income$567.00M
EPS (Basic)$0.31
EPS (Diluted)$0.30
Shares Outstanding (Basic)1.81B
Shares Outstanding (Diluted)1.85B

Key Highlights

  • 1Total revenues increased by 10% to $6.7 billion, with a 15% increase on a currency-neutral basis, indicating strong underlying demand.
  • 2Net income decreased by 12% to $567 million, and diluted EPS decreased by 10% to $1.23, largely due to increased operating expenses and lower gross margins.
  • 3Gross margin declined by 80 basis points to 43.5%, primarily due to higher product input costs (materials and labor) and a less favorable sales mix.
  • 4Selling and administrative expenses increased by 18% to $2.15 billion, driven by higher demand creation spending and operating overhead.
  • 5The company announced its intention to divest the Cole Haan and Umbro businesses to streamline its portfolio and focus on core brands.
  • 6Direct to Consumer (DTC) channels showed robust growth, with revenues up 21% (24% on a currency-neutral basis), representing 19% of NIKE Brand revenues, up from 17% in the prior year.
  • 7Futures orders for NIKE Brand footwear and apparel, for delivery from September 2012 to January 2013, increased by 6% (8% excluding currency impacts), suggesting continued demand.

Frequently Asked Questions

Revenue grew by 10% to $6.7 billion. On a currency-neutral basis, revenue increased by 15%, indicating strong global demand. Growth was seen across most NIKE Brand geographies except Japan, with North America being a significant contributor. The Direct to Consumer channel also saw substantial growth.

Net income and diluted EPS declined year-over-year due to planned increases in selling and administrative expenses, particularly in demand creation and operating overhead, and a lower gross margin. Higher product input costs and a shift in product mix negatively impacted gross margin.

NIKE announced its intention to divest these businesses to focus its resources on the growth of its core brands, including NIKE, Jordan, Converse, and Hurley. This strategic move aims to streamline the company's portfolio and enhance profitability by concentrating on higher-growth, higher-return businesses.

NIKE employs a global foreign exchange risk management program that uses natural offsets and currency correlations. They also utilize derivative instruments like forward contracts and options to hedge certain exposures. The company reported that on a currency-neutral basis, revenue growth was stronger (15%) than reported growth (10%), indicating the impact of currency translation.