Nike’s Earnings Jump 20 Percent

Nike’s Earnings Jump 20 Percent

Nike Inc. reported earnings jumped 20.1 percent in the third quarter ended Feb. 29, to $950 million, or 55 cents a share. Revenues grew 7.7 percent to $8.03 billion and advanced 14 percent on a currency-neutral basis. On a currency-neutral basis, futures were ahead 17 percent.

Reports Fiscal 2016 Third Quarter Results

  •     Revenues up 8 percent to $8 billion; 14 percent growth excluding currency changes
  •     Diluted earnings per share up 22 percent to $0.55
  •     Worldwide futures orders up 12 percent; 17 percent growth excluding currency changes
  •     Inventories as of February 29, 2016 up 8 percent

Nike Inc. said strong consumer demand drove revenue growth across the Nike Brand portfolio. Diluted earnings per share grew 22 percent, primarily due to revenue growth, a lower effective tax rate and a lower average share count.

“In the third quarter, Nike delivered robust and balanced growth across our expansive, powerful portfolio,” said Mark Parker, president and CEO, Nike, Inc. “We grow by serving the athlete personally every day and, as we unveiled last week, through breakthrough innovation that gives us a foundation for growth for years to come. Combined with our strategic investments, world-class execution and financial discipline, Nike consistently delivers value to our shareholders.”*

Third Quarter Income Statement Review

  •     Revenues for Nike, Inc. rose 8 percent to $8 billion, up 14 percent on a currency neutral basis.
  •     Revenues for the Nike Brand were $7.6 billion, up 15 percent on a currency neutral basis driven by growth in every geography and nearly all key categories.
  •     Revenues for Converse were $489 million, down 5 percent on a currency neutral basis, mainly driven by a major system go-live that accelerated orders from the fourth quarter to the third quarter in the prior year.
  •     Gross margin was 45.9 percent, flat compared to prior year. Gross margin benefitted from higher average selling prices and continued growth in the higher margin Direct to Consumer (DTC) business, which were offset by unfavorable changes in foreign currency exchange rates, higher warehousing costs, and the impact of clearing excess inventory in North America.
  •     Selling and administrative expense increased 8 percent to $2.6 billion. Demand creation expense was $804 million, up 10 percent compared to the prior year due to increased investments in advertising, brand events, and digital brand marketing. Operating overhead expense increased 7 percent to $1.8 billion, reflecting growth in the DTC business and targeted investments in operational infrastructure and consumer-focused digital capabilities.
  •     Other income, net was $17 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 currency exchange rates on the translation of foreign currency-denominated profits, decreased pretax income by approximately $97 million.
  •     The effective tax rate was 16.3 percent, compared to 24.4 percent for the same period last year, primarily due to an increase in the proportion of earnings from operations outside of the U.S., which are generally subject to a lower tax rate, increased recognition of foreign tax credits, adjustments in the prior year to tax expense on intercompany transactions, and the retroactive and permanent reinstatement of the U.S. research and development tax credit.
  •     Net income increased 20 percent to $950 million, driven by strong revenue growth and a lower effective tax rate, while diluted earnings per share increased 22 percent to $0.55, reflecting a 2 percent decline in the weighted average diluted common shares outstanding.

Nike’s consensus estimate was 49 cents a share while the average sales target was $8.20 billion.

February 29, 2016 Balance Sheet Review

  •     Inventories for Nike, Inc. were $4.6 billion, up 8 percent from February 28, 2015 driven by a 4 percent increase in Nike Brand wholesale unit inventories, growth in our DTC business and increases in average product cost per unit, partially offset by changes in the value of inventories due to foreign currency exchange rates.
  •     Cash and short-term investments were $5.1 billion, $255 million lower than last year as proceeds from the issuance of debt in the second quarter and growth in net income were more than offset by share repurchases, a reduction in collateral received from counterparties to foreign currency hedging instruments, higher dividends and investments in infrastructure and working capital.

Share Repurchases

During the third quarter, Nike, Inc. repurchased a total of 24.3 million shares for approximately $1.5 billion and concluded the company’s previous four-year, $8 billion share repurchase program approved by the Board of Directors in September 2012. Under this program, the company purchased a total of 197.1 million shares at an average price of approximately $40.58.

Following the completion of the previous program, the company began repurchases under the four-year, $12 billion program approved in November 2015. Of the total shares repurchased during the third quarter, 11.1 million shares were purchased under this program for approximately $649 million at an average price of $58.66.

Futures Orders

As of the end of the quarter, worldwide futures orders for Nike Brand athletic footwear and apparel scheduled for delivery from March 2016 through July 2016 were 12 percent higher than orders reported for the same period last year. Excluding currency changes, futures orders would have increased 17 percent.*