Nike’s Q4 Earnings Fly Past Street Estimates

Nike’s Q4 Earnings Fly Past Street Estimates

Nike Inc. reported fourth-quarter earnings rose 23.9 percent to $865 million, or 98 cents a share, handily exceeding Wall Street’s consensus estimate of 83 cents a share. Nike said broad-based revenue growth, gross margin expansion and a lower tax rate more than offset increased SG&A investments. Revenues rose 4.7 percent to $7.78 billion, or 13 percent on a currency-neutral basis. Futures were also ahead 13 percent on a currency-neutral basis.

Highlights of the quarter:
Fourth quarter revenues up five percent to $7.8 billion; 13 percent growth excluding currency changes
Fourth quarter diluted earnings per share up 26 percent to $0.98
Fiscal 2015 revenues up 10 percent to $30.6 billion; 14 percent growth excluding currency changes
Fiscal 2015 diluted earnings per share up 25 percent to $3.70
Worldwide futures orders up two percent; 13 percent growth excluding currency changes
Inventories as of May 31, 2015 up 10 percent
Fiscal 2015 diluted earnings per share rose 25 percent to $3.70, reflecting 10 percent revenue growth, gross margin expansion, a lower tax rate and a lower average share count, which more than offset the impacts of higher SG&A investments.

“Fiscal 2015 was an outstanding year for Nike,” said Mark Parker, president and CEO, Nike, Inc. “Our consistent growth is fueled by our connection to the consumer and our ability to deliver innovation at an unprecedented pace and scale. At no time in our history has the growth potential been greater for Nike.”

Fourth Quarter Income Statement Review

Revenues for Nike, Inc. rose five percent to $7.8 billion, up 13 percent on a currency-neutral basis.

Revenues for the Nike Brand were $7.4 billion, up 13 percent on a currency-neutral basis driven by growth in nearly every geography and key category except Emerging Markets and Global Football.

Revenues for Converse were $435 million, up 14 percent on a currency-neutral basis, mainly driven by market transitions to direct distribution in AGS (Austria, Germany and Switzerland) and strong performance in the United States.

Gross margin expanded 60 basis points to 46.2 percent. The increase was primarily attributable to higher average selling prices and continued growth in the higher margin Direct to Consumer (DTC) business, partially offset by higher product input and logistics costs.

Selling and administrative expense increased 6 percent to $2.6 billion. Demand creation expense was $819 million, down seven percent, reflecting higher investment in support of the World Cup in the fourth quarter of fiscal 2014.

Operating overhead expense increased 13 percent to $1.8 billion, reflecting continued growth in the DTC business and targeted investments in infrastructure and consumer-focused digital capabilities.

Other income, net was $58 million, comprised primarily of net foreign currency exchange gains. For the quarter, the Company estimates the year-over-year change in foreign currency-related gains and losses included in other income, net, combined with the impact of changes in exchange rates on the translation of foreign currency-denominated profits, decreased pretax income by approximately $37 million.

The effective tax rate was 17.8 percent, compared to 23.5 percent for the same period last year, primarily due to adjustments to reduce tax expense recognized in interim quarters of fiscal 2015 on intercompany transactions.

Net income increased 24 percent to $865 million while diluted earnings per share increased 26 percent to $0.98, reflecting strong revenue growth and gross margin expansion, a lower tax rate and a decrease in the weighted average diluted common shares outstanding.

Fiscal 2015 Income Statement Review

Revenues for Nike, Inc. rose 10 percent to $30.6 billion, up 14 percent on a currency-neutral basis.

Revenues for the Nike Brand were $28.7 billion, up 14 percent excluding the impact of changes in foreign currency.

Nike Brand sales to wholesale customers increased 10 percent on a currency-neutral basis while DTC revenues grew to $6.6 billion, up 29 percent excluding the impact of changes in foreign currency, driven by 16 percent growth in comparable store sales, a 59 percent increase in online sales and the addition of new stores. As of May 31, 2015 the Nike Brand had 832 DTC stores in operation as compared to 768 a year ago.

On a currency neutral basis, Nike Brand revenue growth was driven by growth in every geography, every key category except Global Football and across the Women’s, Men’s and Young Athletes’ businesses.

Revenues for Converse were $2.0 billion, up 21 percent on a currency neutral basis, mainly driven by market transitions to direct distribution in AGS and strong performance in the United States.

Gross margin expanded 120 basis points to 46.0 percent. The increase was primarily due to higher average selling prices and continued growth in the higher margin DTC business, partially offset by higher product input and logistics costs.

Selling and administrative expense grew 13 percent to $9.9 billion. Demand creation expense was $3.2 billion, up six percent, due to an increase in investments in support of key events and product launches, as well as investments in DTC and sports marketing. Operating overhead expense increased 16 percent to $6.7 billion due to the expanding DTC business, higher costs for operational infrastructure and investments in consumer-facing digital capabilities.

Other income, net was $58 million for the fiscal year, mainly comprised of net foreign currency exchange gains. For the year, the Company estimates the year-over-year change in foreign currency-related gains and losses included in other income, net, combined with the impact of changes in currency exchange rates on the translation of foreign currency-denominated profits, decreased pretax income by approximately $73 million.

The effective tax rate was 22.2 percent, compared to 24.0 percent for the same period last year, primarily due to the favorable resolution of tax audits across multiple jurisdictions.

Net income increased 22 percent to $3.3 billion reflecting strong revenue growth, gross margin expansion and a lower tax rate. Diluted earnings per share increased 25 percent to $3.70, reflecting the growth in net income and the additional benefit of a decline in the weighted average diluted common shares outstanding.

May 31, 2015 Balance Sheet Review

Inventories for Nike, Inc. were $4.3 billion, up 10 percent from May 31, 2014, driven primarily by a 13 percent increase in Nike Brand wholesale unit inventories. Changes in the average product cost per unit were more than offset by changes in foreign currency exchange rates, which together decreased Nike, Inc. inventory growth by approximately three percentage points.

Cash and short-term investments were $5.9 billion, $782 million higher than last year as growth in net income and collateral received from counterparties as a result of hedging activities more than offset share repurchases, higher dividends and investments in working capital.

Share Repurchases

During Q4, Nike, Inc. repurchased a total of 6.8 million shares for approximately $678 million as part of the four-year, $8.0 billion program approved by the Board of Directors in September 2012. As of the end of fiscal 2015, a total of 80.9 million shares had been repurchased under this program for approximately $6.0 billion, at an average cost of $73.55 per share.

Futures Orders

As of the end of the quarter, worldwide futures orders for Nike Brand athletic footwear and apparel scheduled for delivery from June through November 2015 totaled $13.5 billion, two percent higher than orders reported for the same period last year, and 13 percent higher on a currency neutral basis.*