10-QPeriod: Q3 FY2014

NIKE, Inc. Quarterly Report for Q3 Ended Feb 28, 2014

Filed April 7, 2014For Securities:NKE

Summary

NIKE, Inc.'s Q3 fiscal year 2014 results show continued revenue growth, with a 13% increase year-over-year to $7.0 billion, driven by strong performance across its global geographies and the Converse brand. Net income from continuing operations rose by 3% to $685 million, translating to diluted EPS of $0.76. This growth was supported by gross margin expansion and effective cost management, despite increased demand creation and operating overhead expenses. The company continues to invest in its digital capabilities and direct-to-consumer (DTC) channels, which are showing significant growth and contributing to higher overall margins. Management highlighted the strength of the NIKE Brand, supported by product innovation and strong retail presentation, as a key driver for future performance.

Financial Highlights

49 data points
Beta

Revenue

$6.97B

44.5% Gross Margin

Net Income

$682.00M

9.8% Net Margin

EPS (Diluted)

$0.38

Total Assets

$17.80B

Cash & Equivalents

$1.86B

Free Cash Flow

$516.00M

Financial Statements
Beta
Revenue$6.97B
Cost of Revenue$3.87B
Gross Profit$3.10B
SG&A Expenses$2.17B
Operating Income$2.00B
Net Income$682.00M
EPS (Basic)$0.39
EPS (Diluted)$0.38
Shares Outstanding (Basic)1.76B
Shares Outstanding (Diluted)1.81B

Key Highlights

  • 1Revenues increased by 13% year-over-year to $7.0 billion, driven by a 14% constant currency increase in NIKE Brand revenues and a 16% increase in Converse revenues.
  • 2Net income from continuing operations grew by 3% to $685 million, resulting in diluted earnings per share from continuing operations of $0.76.
  • 3Gross margin improved by 30 basis points to 44.5% in the third quarter, primarily due to higher average selling prices and growth in the higher-margin DTC business.
  • 4Direct-to-Consumer (DTC) revenues grew 23% on a currency-neutral basis, now representing 21% of total NIKE Brand revenues, with online sales showing particularly strong growth.
  • 5Futures orders for the upcoming season (March-July 2014) increased 14% on a currency-neutral basis, indicating continued demand for NIKE products.
  • 6Selling and administrative expenses increased by 16% as a percentage of revenue, driven by investments in demand creation (including World Cup initiatives) and digital capabilities.

Frequently Asked Questions

Revenue growth was driven by a 14% increase in NIKE Brand revenues and a 16% increase in Converse revenues, both on a constant currency basis. Strong performance was observed across all NIKE Brand geographies, with North America and Western Europe contributing significantly. The expansion of the Direct-to-Consumer (DTC) channel, including online sales, also played a crucial role.

While total selling and administrative expenses increased by 16%, this was attributed to strategic investments in demand creation (e.g., for the upcoming World Cup) and operating overhead for digital capabilities and DTC growth. The company managed to expand its gross margin by 30 basis points, indicating effective cost control relative to revenue growth.

The company anticipates fourth quarter revenues to be flat to slightly down compared to the prior year. This outlook is attributed to planned changes in the seasonal product flow and an effort to optimize product flow into the marketplace.

NIKE employs a centrally managed foreign exchange risk management program using derivative instruments like forward contracts and options to hedge transactional and translational exposures. The company aims to mitigate the impact of currency fluctuations on its consolidated results, financial position, and cash flows.