10-QPeriod: Q1 FY2016

NIKE, Inc. Quarterly Report for Q1 Ended Aug 31, 2015

Filed October 6, 2015For Securities:NKE

Summary

NIKE, Inc. reported robust financial results for the first quarter of fiscal year 2016, ending August 31, 2015. Revenue increased by 5% to $8.4 billion, and notably, showed a strong 14% growth on a constant currency basis, indicating healthy underlying business momentum across its global operations. Net income saw a significant increase of 23% to $1.179 billion, with diluted earnings per share also growing by 23% to $1.34. This strong performance was driven by a combination of revenue growth, an expansion in gross margin to 47.5%, and improved operating leverage, as selling and administrative expenses grew at a slower pace than revenue. The company's strategic focus on innovation, brand connections, and compelling retail experiences, particularly its Direct to Consumer (DTC) segment which grew 21% on a constant currency basis, continues to pay off, contributing to strong demand across all major geographies.

Financial Highlights

49 data points
Beta

Revenue

$8.41B

47.5% Gross Margin

Net Income

$1.18B

14.0% Net Margin

EPS (Diluted)

$0.67

Total Assets

$20.77B

Cash & Equivalents

$3.25B

Free Cash Flow

$164.00M

Financial Statements
Beta
Revenue$8.41B
Cost of Revenue$4.42B
Gross Profit$4.00B
SG&A Expenses$2.58B
Net Income$1.18B
EPS (Basic)$0.69
EPS (Diluted)$0.67
Shares Outstanding (Basic)1.71B
Shares Outstanding (Diluted)1.75B

Key Highlights

  • 1Total revenues grew 5% to $8.4 billion, with a stronger 14% growth on a constant currency basis, signaling robust underlying demand.
  • 2Net income increased by 23% to $1.179 billion, and diluted EPS grew by 23% to $1.34, showcasing improved profitability.
  • 3Gross margin expanded by 90 basis points to 47.5%, driven by higher average net selling prices and growth in the higher-margin DTC business.
  • 4The Direct to Consumer (DTC) channel demonstrated strong performance, with revenues up 21% on a constant currency basis, now representing 24% of total NIKE Brand revenues.
  • 5Futures orders for NIKE Brand footwear and apparel (September 2015-January 2016) were up 9% reported and 17% excluding currency, indicating positive future revenue outlook.
  • 6The effective tax rate decreased to 18.4% from 21.7% year-over-year, primarily due to a higher proportion of earnings from lower-taxed international operations.
  • 7NIKE repurchased approximately $588 million of its common stock in the quarter as part of its ongoing $8 billion share repurchase program.

Frequently Asked Questions

The primary driver of revenue growth was a combination of strong underlying demand across all geographies, particularly on a constant currency basis (14% growth), supported by product innovation and compelling retail experiences. The Direct to Consumer (DTC) channel was a significant contributor, showing 21% constant currency growth.

NIKE's gross margin expanded by 90 basis points to 47.5%. This improvement was mainly due to higher average net selling prices driven by a favorable product mix and increased prices, as well as growth in the higher-margin DTC business. These factors were partially offset by increased product costs, including labor inflation.

NIKE continues to actively return capital to shareholders. In this quarter, the company repurchased approximately $588 million of its common stock as part of its $8 billion share repurchase program. Dividends also increased, reflecting a commitment to shareholder value.

NIKE manages foreign currency risk through a centralized program using derivative instruments like forwards and options for hedging. While reported revenues only increased 5%, constant currency revenues grew 14%, indicating a significant impact from currency translation. The company noted an unfavorable impact of approximately $151 million on income before income taxes due to currency translation and related gains/losses.