Nike Q1 Runs Past Estimates

Nike Q1 Runs Past Estimates

Nike, Inc. reported earnings rose 23.5 percent to $962 million, or $1.11 a share, easily beating Wall Street’s consensus estimate of 88 cents a share. Revenues grew 15 percent to $8.0 billion. Earnings grew faster than revenue due to gross margin expansion, a lower tax rate and lower average share count.

“Fiscal year 2015 is off to a strong start. Our connection to consumers and ability to innovate, combined with our powerful global portfolio, is a complete offense,” said Mark Parker, President and CEO of Nike, Inc. “Nike has never been better positioned to realize our tremendous growth potential.”*

First Quarter Income Statement Review

  • Revenues for the Nike Brand were $7.4 billion, up 15 percent on a currency neutral basis, with growth in every product type, geography and key category, except Action Sports and Golf.
  • Revenues for Converse were $575 million, up 16 percent on a currency neutral basis, driven by market conversions in Europe and Asia as well as continued growth in our direct distribution markets such as the United States and United Kingdom.
  • Gross margin increased 170 basis points to 46.6 percent. The increase was primarily attributable to a shift in the product mix to higher margin products, higher average prices and continued growth in the higher-margin DTC business, partially offset by higher product input costs.
  • Selling and administrative expense increased 21% to $2.5 billion. Demand creation expense was $897 million, up 23 percent versus the prior year, mainly driven by marketing investments in the World Cup. Operating overhead expense increased 19 percent to $1.6 billion due to higher costs for the expanding DTC business and investments in operational infrastructure.
  • Other expense (income), net was $3 million, comprised primarily of foreign exchange losses. For the quarter, the Company estimates the year-over-year change in foreign currency related gains and losses included in other expense (income), net combined with the impact of changes in currency exchange rates on the translation of foreign currency-denominated profits, increased pretax income by approximately $32 million.
  • The effective tax rate was 21.7 percent, compared to 25.0 percent for the same period last year, primarily due to the resolution of tax audits across several jurisdictions and an increase in earnings from operations outside of the U.S., which are generally subject to a lower tax rate.
  • Net income increased 23 percent to $962 million, while diluted earnings per share increased 27 percent to $1.09, reflecting a 3 percent decline in the weighted average diluted common shares outstanding.

August 31, 2014 Balance Sheet Review

  • Inventories for Nike, Inc. were $4.0 billion, up 14 percent from August 31, 2013, driven by a 13 percent increase in Nike Brand wholesale inventories as well as higher inventories associated with growth in DTC and Converse. Nike Brand wholesale inventories were higher due to a 12 percent increase in units, while changes in the average product cost per unit, combined with the impact of changes in foreign currency exchange rates, drove approximately 1 percentage point of growth.
  • Cash and short-term investments were $4.6 billion, $1.0 billion lower than last year as growth in net income was more than offset by share repurchases, investments in working capital and higher dividends.

Share Repurchases

During the first quarter, Nike, Inc. repurchased a total of 10.6 million shares for approximately $819 million as part of the four-year, $8 billion program approved by the Board of Directors in September 2012. As of the end of the first quarter, a total of 62.5 million shares had been repurchased under this program for $4.2 billion, an average cost of approximately $67.74 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 September 2014 through January 2015 were 11 percent higher than orders reported for the same period last year. Excluding currency changes, reported orders would have increased 14 percent.