Date of Report (Date of earliest event reported): | September 25, 2014 |
NIKE, Inc. | ||
(Exact name of registrant as specified in charter) | ||
OREGON | 1-10635 | 93-0584541 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
ONE BOWERMAN DRIVE BEAVERTON, OR | 97005-6453 | |
(Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: | (503) 671-6453 | |
NO CHANGE | ||
(Former name or former address, if changed since last report.) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
NIKE, INC. (Registrant) By: /s/ Donald W. Blair |
Donald W. Blair Chief Financial Officer |
Investor Contact: | Media Contact: | |
Kelley Hall | Kellie Leonard | |
(503) 532-3793 | (503) 671-6171 |
• | Revenues up 15 percent to $8.0 billion |
• | Diluted earnings per share up 27 percent to $1.09 |
• | Worldwide futures orders up 11 percent, 14 percent growth excluding currency changes |
• | Inventories as of August 31, 2014 up 14 percent |
• | Revenues for NIKE, Inc. increased 15 percent on both a reported and currency neutral basis, to $8.0 billion. |
◦ | 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. |
• | 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. |
* | The marked paragraphs contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed from time to time in reports filed by NIKE with the S.E.C., including Forms 8-K, 10-Q, and 10-K. Some forward-looking statements in this release concern changes in futures orders that are not necessarily indicative of changes in total revenues for subsequent periods due to the mix of futures and “at once” orders, exchange rate fluctuations, order cancellations, discounts and returns, which may vary significantly from quarter to quarter, and because a portion of the business does not report futures orders. |
NIKE, Inc. | |||||||
CONSOLIDATED STATEMENTS OF INCOME | |||||||
THREE MONTHS ENDED | % | ||||||
(Dollars in millions, except per share data) | 8/31/2014 | 8/31/20131 | Change | ||||
Revenues | $ | 7,982 | $ | 6,971 | 15% | ||
Cost of sales | 4,261 | 3,839 | 11% | ||||
Gross profit | 3,721 | 3,132 | 19% | ||||
Gross margin | 46.6 | % | 44.9 | % | |||
Demand creation expense | 897 | 731 | 23% | ||||
Operating overhead expense | 1,583 | 1,327 | 19% | ||||
Total selling and administrative expense | 2,480 | 2,058 | 21% | ||||
% of revenue | 31.1 | % | 29.5 | % | |||
Interest expense (income), net | 9 | 8 | — | ||||
Other expense (income), net | 3 | 28 | — | ||||
Income before income taxes | 1,229 | 1,038 | 18% | ||||
Income taxes | 267 | 259 | 3% | ||||
Effective tax rate | 21.7 | % | 25.0 | % | |||
NET INCOME | $ | 962 | $ | 779 | 23% | ||
Earnings per common share: | |||||||
Basic | $ | 1.11 | $ | 0.88 | 26% | ||
Diluted | $ | 1.09 | $ | 0.86 | 27% | ||
Weighted average common shares outstanding: | |||||||
Basic | 864.9 | 889.4 | |||||
Diluted | 886.2 | 910.7 | |||||
Dividends declared per common share | $ | 0.24 | $ | 0.21 | |||
1 Prior year amounts have been revised to correctly expense internally developed patent and trademark costs as incurred. |
NIKE, Inc. | |||||||
CONSOLIDATED BALANCE SHEETS | |||||||
August 31, | August 31, | % Change | |||||
(Dollars in millions) | 2014 | 2013 1 | |||||
ASSETS | |||||||
Current assets: | |||||||
Cash and equivalents | $ | 2,303 | $ | 2,661 | -13% | ||
Short-term investments | 2,276 | 2,917 | -22% | ||||
Accounts receivable, net | 3,587 | 3,207 | 12% | ||||
Inventories | 4,030 | 3,521 | 14% | ||||
Deferred income taxes | 348 | 308 | 13% | ||||
Prepaid expenses and other current assets | 996 | 947 | 5% | ||||
Total current assets | 13,540 | 13,561 | 0% | ||||
Property, plant and equipment | 6,371 | 5,684 | 12% | ||||
Less accumulated depreciation | 3,476 | 3,127 | 11% | ||||
Property, plant and equipment, net | 2,895 | 2,557 | 13% | ||||
Identifiable intangible assets, net | 282 | 288 | -2% | ||||
Goodwill | 131 | 131 | 0% | ||||
Deferred income taxes and other assets | 1,673 | 1,094 | 53% | ||||
TOTAL ASSETS | $ | 18,521 | $ | 17,631 | 5% | ||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Current portion of long-term debt | $ | 6 | $ | 57 | -89% | ||
Notes payable | 146 | 94 | 55% | ||||
Accounts payable | 1,970 | 1,576 | 25% | ||||
Accrued liabilities | 2,441 | 1,962 | 24% | ||||
Income taxes payable | 250 | 195 | 28% | ||||
Liabilities of discontinued operations | — | 12 | — | ||||
Total current liabilities | 4,813 | 3,896 | 24% | ||||
Long-term debt | 1,195 | 1,207 | -1% | ||||
Deferred income taxes and other liabilities | 1,408 | 1,322 | 7% | ||||
Redeemable preferred stock | — | — | — | ||||
Shareholders' equity | 11,105 | 11,206 | -1% | ||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 18,521 | $ | 17,631 | 5% | ||
1 Prior year amounts have been revised to correct immaterial misstatements. |
NIKE, Inc. | ||||||||
DIVISIONAL REVENUES | ||||||||
% Change Excluding Currency Changes1 | ||||||||
THREE MONTHS ENDED | % | |||||||
(Dollars in millions) | 8/31/2014 | 8/31/2013 | Change | |||||
North America | ||||||||
Footwear | $ | 2,183 | $ | 1,904 | 15% | 15% | ||
Apparel | 1,105 | 1,009 | 10% | 10% | ||||
Equipment | 225 | 222 | 1% | 1% | ||||
Total | 3,513 | 3,135 | 12% | 12% | ||||
Western Europe | ||||||||
Footwear | 1,127 | 829 | 36% | 29% | ||||
Apparel | 498 | 399 | 25% | 18% | ||||
Equipment | 89 | 73 | 22% | 17% | ||||
Total | 1,714 | 1,301 | 32% | 25% | ||||
Central & Eastern Europe | ||||||||
Footwear | 223 | 193 | 16% | 17% | ||||
Apparel | 134 | 139 | -4% | -1% | ||||
Equipment | 35 | 34 | 3% | 7% | ||||
Total | 392 | 366 | 7% | 9% | ||||
Greater China | ||||||||
Footwear | 440 | 341 | 29% | 31% | ||||
Apparel | 202 | 197 | 3% | 4% | ||||
Equipment | 37 | 36 | 3% | 4% | ||||
Total | 679 | 574 | 18% | 20% | ||||
Japan | ||||||||
Footwear | 100 | 88 | 14% | 17% | ||||
Apparel | 46 | 53 | -13% | -10% | ||||
Equipment | 14 | 17 | -18% | -19% | ||||
Total | 160 | 158 | 1% | 4% | ||||
Emerging Markets | ||||||||
Footwear | 628 | 624 | 1% | 7% | ||||
Apparel | 252 | 226 | 12% | 18% | ||||
Equipment | 54 | 52 | 4% | 14% | ||||
Total | 934 | 902 | 4% | 10% | ||||
Global Brand Divisions2 | 29 | 32 | -9% | -17% | ||||
Total NIKE Brand | 7,421 | 6,468 | 15% | 15% | ||||
Converse | 575 | 494 | 16% | 16% | ||||
Corporate3 | (14 | ) | 9 | — | — | |||
Total NIKE, Inc. Revenues | $ | 7,982 | $ | 6,971 | 15% | 15% | ||
Total NIKE Brand | ||||||||
Footwear | $ | 4,701 | $ | 3,979 | 18% | 18% | ||
Apparel | 2,237 | 2,023 | 11% | 11% | ||||
Equipment | 454 | 434 | 5% | 5% | ||||
Global Brand Divisions2 | 29 | 32 | -9% | -17% | ||||
1 Fiscal 2015 results have been restated using fiscal 2014 exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations. | ||||||||
2 Global Brand Divisions primarily represent NIKE Brand licensing businesses that are not part of a geographic operating segment. | ||||||||
3 Corporate revenues primarily consist of foreign currency revenue-related hedge gains and losses generated by entities within the NIKE Brand geographic operating segments and Converse through our centrally managed foreign exchange risk management program. |
NIKE, Inc. | |||||||
EARNINGS BEFORE INTEREST AND TAXES1 | |||||||
THREE MONTHS ENDED | % | ||||||
(Dollars in millions) | 8/31/2014 | 8/31/20132 | Change | ||||
North America | $ | 970 | $ | 813 | 19% | ||
Western Europe | 404 | 265 | 52% | ||||
Central & Eastern Europe | 68 | 81 | -16% | ||||
Greater China | 218 | 170 | 28% | ||||
Japan | 11 | 24 | -54% | ||||
Emerging Markets | 156 | 210 | -26% | ||||
Global Brand Divisions3 | (533 | ) | (466 | ) | -14% | ||
TOTAL NIKE BRAND | 1,294 | 1,097 | 18% | ||||
Converse | 186 | 169 | 10% | ||||
Corporate4 | (242 | ) | (220 | ) | -10% | ||
TOTAL EARNINGS BEFORE INTEREST AND TAXES | $ | 1,238 | $ | 1,046 | 18% | ||
1 The Company evaluates performance of individual operating segments based on earnings before interest and taxes (also commonly referred to as “EBIT”), which represents net income before interest expense (income), net, and income taxes. | |||||||
2 Prior year amounts have been revised to correctly expense internally developed patent and trademark costs as incurred. | |||||||
3 Global Brand Divisions primarily represent demand creation, operating overhead, information technology, and product creation and design expenses that are centrally managed for the NIKE Brand. Revenues for Global Brand Divisions are primarily attributable to NIKE Brand licensing businesses that are not part of a geographic operating segment. | |||||||
4 Corporate consists of unallocated general and administrative expenses, which includes expenses associated with centrally managed departments, depreciation and amortization related to the Company’s corporate headquarters, unallocated insurance and benefit programs, certain foreign currency gains and losses, including certain hedge gains and losses, corporate eliminations and other items. |
NIKE, Inc. | ||
NIKE BRAND REPORTED FUTURES GROWTH BY GEOGRAPHY1 | ||
As of August 31, 2014 | ||
Reported Futures Orders | Excluding Currency Changes 2 | |
North America | 15% | 15% |
Western Europe | 17% | 20% |
Central & Eastern Europe | 11% | 17% |
Greater China | 5% | 6% |
Japan | -5% | 0% |
Emerging Markets | 3% | 9% |
Total NIKE Brand Reported Futures | 11% | 14% |
1 Futures orders by geography and in total for NIKE Brand athletic footwear and apparel scheduled for delivery from September 2014 through January 2015, excluding NIKE Golf and Hurley. | ||
The reported futures orders growth is not necessarily indicative of our expectation of revenue growth during this period. This is due to year-over-year changes in shipment timing, changes in the mix of orders between futures and at-once orders and the fulfillment of certain orders may fall outside of the schedule noted above. In addition, exchange rate fluctuations as well as differing levels of order cancellations, discounts and returns can cause differences in the comparisons between futures orders and actual revenues. Moreover, a portion of our revenue is not derived from futures orders, including sales of at-once and closeout NIKE Brand footwear and apparel, NIKE Brand equipment, DTC operation sales and sales from Converse, NIKE Golf and Hurley. | ||
2 Reported futures have been restated using prior year exchange rates to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations. |
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