10-QPeriod: Q2 FY2013

NIKE, Inc. Quarterly Report for Q2 Ended Nov 30, 2012

Filed January 9, 2013For Securities:NKE

Summary

NIKE, Inc.'s Q2 Fiscal Year 2013 10-Q filing, reported on January 9, 2013, shows solid revenue growth driven primarily by the NIKE Brand, with strong performance in North America and Emerging Markets. While gross margins experienced a slight decrease due to increased product costs and unfavorable currency exchange rates, the company demonstrated effective cost management in selling and administrative expenses, leading to a modest increase in net income from continuing operations. Key strategic initiatives include the divestiture of Umbro and the agreement to sell Cole Haan, allowing NIKE to sharpen its focus on its core brands. The company also continued its aggressive share repurchase program, returning capital to shareholders. Investors should note the impact of foreign currency fluctuations on reported results and the ongoing strategic shift towards direct-to-consumer sales channels.

Financial Highlights

50 data points
Beta

Revenue

$5.96B

42.5% Gross Margin

Net Income

$384.00M

6.4% Net Margin

EPS (Diluted)

$0.21

Total Assets

$15.17B

Cash & Equivalents

$2.29B

Free Cash Flow

$567.00M

Financial Statements
Beta
Revenue$5.96B
Cost of Revenue$3.42B
Gross Profit$2.53B
SG&A Expenses$1.84B
Operating Income$1.11B
Net Income$384.00M
EPS (Basic)$0.21
EPS (Diluted)$0.21
Shares Outstanding (Basic)1.79B
Shares Outstanding (Diluted)1.83B

Key Highlights

  • 1Revenues from continuing operations increased 7% to $6.0 billion in Q2 FY13, with a 10% increase on a constant currency basis.
  • 2Net income from continuing operations grew 9% to $521 million, with diluted EPS from continuing operations up 12% to $0.57.
  • 3Gross margin decreased by 30 basis points to 42.5% due to higher product costs and unfavorable currency, but was partially offset by higher average selling prices.
  • 4The company completed the sale of Umbro for $225 million and announced an agreement to sell Cole Haan for $570 million, focusing resources on core brands.
  • 5Share repurchases continued, with $1.162 billion spent on buying back shares in the first six months of FY13, concluding a $5 billion program and initiating an $8 billion program.
  • 6Direct to Consumer (DTC) revenues grew 27% in constant currency for Q2 FY13, representing 18% of total NIKE Brand revenues, up from 15% in the prior year.
  • 7Greater China revenues declined 11% (12% in constant currency) due to inventory management and proactive order cancellations, impacting overall NIKE Brand growth.

Frequently Asked Questions

NIKE reported revenues from continuing operations of $5.955 billion for the three months ended November 30, 2012, a 7% increase compared to $5.546 billion in the prior year period. Excluding currency exchange rate impacts, revenues increased by 10%.

The sale of Umbro was completed for $225 million, resulting in an after-tax loss of $107 million, which is reported under 'Net loss from discontinued operations.' The agreement to sell Cole Haan for $570 million was announced and classified as held-for-sale, with its results also reported under discontinued operations. These actions are part of a strategy to focus on core brands.

The consolidated gross margin for the quarter was 42.5%, down 30 basis points from the prior year. This decrease was primarily driven by higher product costs (approximately 110 bps), unfavorable foreign currency exchange rates (approximately 70 bps), and increased third-party royalties (approximately 50 bps). These were partially offset by higher average selling prices (approximately 260 bps). Management expects the full-year gross margin to be roughly flat.

NIKE manages foreign currency risk centrally through a portfolio approach, utilizing natural offsets and hedging with derivative instruments like forward contracts and options. The company also has a foreign currency adjustment program with factories to manage risk on product costs. While these strategies aim to mitigate volatility, reported results can still be impacted by currency fluctuations, as seen in the revenue and gross margin discussions.