10-QPeriod: Q3 FY2013

NIKE, Inc. Quarterly Report for Q3 Ended Feb 28, 2013

Filed April 4, 2013For Securities:NKE

Summary

NIKE, Inc. (NKE) reported strong results for the third quarter and the first nine months of fiscal year 2013, driven by continued revenue growth and improved profitability. For the third quarter, revenues from continuing operations increased by 9% to $6.2 billion, with a reported net income of $866 million, a significant 55% increase year-over-year, largely due to a substantial gain from the sale of Cole Haan. Diluted earnings per share from continuing operations saw a 20% increase to $0.73. The company demonstrated robust growth across its NIKE Brand, with North America being a key driver. The Direct to Consumer channel continued its strong expansion, indicating successful execution of the company's strategy. Management highlighted a focus on core brands (NIKE, Jordan, Converse, Hurley) and the divestiture of non-core assets like Cole Haan and Umbro, which positively impacted the financial results through a significant gain. Looking ahead, while the company faces some headwinds in specific markets like Greater China, overall performance indicates strong brand momentum and effective operational execution. Investors should note the positive impact of the R&D tax credit on the effective tax rate and the ongoing share repurchase program.

Financial Highlights

50 data points
Beta

Revenue

$6.19B

44.2% Gross Margin

Net Income

$866.00M

14.0% Net Margin

EPS (Diluted)

$0.47

Total Assets

$15.62B

Cash & Equivalents

$2.56B

Free Cash Flow

$272.00M

Financial Statements
Beta
Revenue$6.19B
Cost of Revenue$3.45B
Gross Profit$2.74B
SG&A Expenses$1.86B
Operating Income$1.77B
Net Income$866.00M
EPS (Basic)$0.48
EPS (Diluted)$0.47
Shares Outstanding (Basic)1.79B
Shares Outstanding (Diluted)1.82B

Key Highlights

  • 1Total revenues from continuing operations increased by 9% to $6.2 billion for the third quarter of fiscal 2013, demonstrating sustained top-line growth.
  • 2Net income for the third quarter surged by 55% year-over-year to $866 million, significantly boosted by a $231 million after-tax gain from the sale of Cole Haan.
  • 3Diluted earnings per share (EPS) from continuing operations rose by 20% to $0.73, showcasing improved profitability on a per-share basis.
  • 4The NIKE Brand saw revenue growth of 10% (excluding currency changes), with North America being a major contributor, up 18%.
  • 5Direct to Consumer (DTC) sales continued to be a strong growth engine, increasing by 23% (excluding currency changes) for the quarter, representing a growing portion of total NIKE Brand revenues.
  • 6The company completed the divestiture of Cole Haan, resulting in a significant gain, and also divested Umbro, signaling a strategic focus on core brands.
  • 7The effective tax rate for the quarter decreased significantly by 490 basis points due to the retroactive reinstatement of the U.S. research and development tax credit.

Frequently Asked Questions

The primary driver of the substantial net income increase in the third quarter was the $231 million after-tax gain recognized from the sale of Cole Haan, which was completed on February 1, 2013. This one-time gain significantly boosted the quarter's profitability.

The divestitures positively impacted the financial results. The sale of Cole Haan generated a significant gain, as noted above. The sale of Umbro, while resulting in a loss, was part of a strategy to focus resources on core brands (NIKE, Jordan, Converse, Hurley) with higher growth potential and returns.

Overall, the company expects continued revenue growth driven by the NIKE Brand and Direct to Consumer channels. However, the company noted challenges in Greater China, expecting revenues and EBIT to remain below prior year levels for the next few quarters due to efforts to reset the marketplace and manage inventory. Futures orders for the upcoming period showed modest growth, but the company cautioned that these are not always indicative of actual revenue due to various factors.

Currency exchange rate fluctuations had a mixed impact. While reported revenues increased by 9%, excluding currency changes, revenue growth was 10% for the quarter. The company actively uses hedging strategies to manage transactional and translational foreign currency exposures.