NIKE, Inc. (NYSE:NKE) today reported financial results for its
fiscal 2018 second quarter ended November 30, 2017. For the
quarter, revenue growth was driven by international geographies and
continued strength in NIKE Direct, which was partly offset by an
expected decline in North America wholesale revenue.
Diluted earnings per share were $0.46, down 8 percent compared
to the same period last year due primarily to a decline in gross
margin and higher selling and administrative expense, which offset
solid revenue growth, a lower tax rate and a lower average share
count.
“This quarter, led by our Consumer Direct Offense, we
accelerated international growth and built underlying momentum in
our domestic business,” said Mark Parker, Chairman, President and
CEO, NIKE, Inc. “For the back half of the fiscal year, NIKE’s
innovation line-up is as strong as it’s ever been and we’ll
continue to actively shape retail through new differentiated
experiences.”*
Second Quarter Income Statement Review
- Revenues for NIKE, Inc.
increased 5 percent to $8.6 billion, up 3 percent on a
currency-neutral basis.**
- Revenues for the NIKE Brand were $8.1
billion, up 4 percent on a constant-currency basis, driven by EMEA,
Greater China and APLA, including growth in the Sportswear and NIKE
Basketball categories.
- Revenues for Converse were $408
million, down 4 percent on a currency-neutral basis, as
international growth was more than offset by declines in North
America.
- Gross margin declined 120 basis
points to 43.0 percent, as higher average selling prices were more
than offset by unfavorable changes in foreign currency exchange
rates and, to a lesser extent, higher product costs per unit.
- Selling and administrative
expense increased 10 percent to $2.8 billion. Demand creation
expense was $877 million, up 15 percent, primarily driven by higher
sports marketing and advertising costs. Operating overhead expense
increased 8 percent to $1.9 billion, due largely to higher
administrative costs and continued investments in NIKE Direct.
- Other expense, net was $18
million as net foreign currency exchange losses were partially
offset by non-operating items.
- The effective tax rate was 12.7
percent, compared to 24.4 percent for the same period last year,
reflecting the tax benefit from stock-based compensation in the
current period, as well as an increase in the mix of earnings from
operations outside of the U.S., which are generally subject to a
lower tax rate.
- Net income decreased 9 percent
to $767 million as a decline in gross margin and higher selling and
administrative expense more than offset revenue growth and a lower
tax rate, while diluted earnings per share decreased 8
percent from the prior year to $0.46, including a 2 percent decline
in the weighted average diluted common shares outstanding.
November 30, 2017 Balance Sheet Review
- Inventories for NIKE, Inc. were
$5.3 billion, up 6 percent from November 30, 2016, driven primarily
by changes in foreign currency exchange rates and, to a lesser
extent, an increase in NIKE Brand units.
- Cash and equivalents and short-term
investments were $6.4 billion, $446 million higher than last
year due to net income, and proceeds from debt issuance and
employee exercises of stock options, which more than offset share
repurchases, dividends and investments in infrastructure.
Share Repurchases
During the second quarter, NIKE, Inc. repurchased a total of
16.7 million shares for approximately $902 million as part of the
four-year, $12 billion program approved by the Board of Directors
in November 2015. As of November 30, 2017, a total of 111.8 million
shares had been repurchased under this program for approximately
$6.2 billion.
Conference Call
NIKE, Inc. management will host a conference call beginning at
approximately 2:00 p.m. PT on December 21, 2017, to review fiscal
second quarter results. The conference call will be broadcast live
over the Internet and can be accessed at http://investors.nike.com.
For those unable to listen to the live broadcast, an archived
version will be available at the same location through 9:00 p.m.
PT, January 4, 2018.
About NIKE, Inc.
NIKE, Inc., based near Beaverton, Oregon, is the world’s leading
designer, marketer and distributor of authentic athletic footwear,
apparel, equipment and accessories for a wide variety of sports and
fitness activities. Wholly-owned NIKE, Inc. subsidiary brands
include Converse, which designs, markets and distributes athletic
lifestyle footwear, apparel and accessories; and Hurley, which
designs, markets and distributes surf and youth lifestyle footwear,
apparel and accessories. For more information, NIKE, Inc.’s
earnings releases and other financial information are available on
the Internet at http://investors.nike.com. Individuals can also
visit http://news.nike.com and follow @NIKE.
*
The marked paragraph contains
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 Securities and Exchange Commission (SEC),
including Forms 8-K, 10-Q and 10-K.
**
See additional information in the
accompanying Divisional Revenues table regarding this non-GAAP
financial measure.
(Tables Follow)
NIKE, Inc. CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED %
SIX MONTHS ENDED % (Dollars in millions, except per
share data)
11/30/2017
11/30/2016 Change
11/30/2017 11/30/2016
Change Revenues $ 8,554 $ 8,180 5 % $ 17,624 $ 17,241 2 %
Cost of sales 4,876
4,564 7 %
9,984 9,502 5 %
Gross profit 3,678 3,616 2 % 7,640 7,739 -1 % Gross margin 43.0 %
44.2 % 43.3 % 44.9 % Demand creation expense 877 762 15 %
1,732 1,803 -4 % Operating overhead expense
1,891 1,743
8 % 3,892 3,599
8 % Total selling and administrative expense
2,768 2,505 10 % 5,624 5,402 4 % % of revenues 32.4 % 30.6 % 31.9 %
31.3 % Interest expense (income), net 13 15 — 29 22 — Other
expense (income), net 18
(18 ) — 36
(80 ) — Income
before income taxes 879 1,114 -21 % 1,951 2,395 -19 % Income tax
expense 112
272 -59 % 234
304 -23 % Effective tax
rate 12.7 % 24.4 % 12.0 % 12.7 %
NET INCOME
$ 767 $
842 -9 %
$ 1,717 $ 2,091
-18 % Earnings per common
share: Basic $ 0.47 $ 0.51 -8 % $ 1.05 $ 1.26 -17 % Diluted $ 0.46
$ 0.50 -8 % $ 1.03 $ 1.23 -16 % Weighted average common
shares outstanding: Basic 1,627.0 1,659.1 1,633.1 1,665.6 Diluted
1,660.9 1,693.2 1,669.1 1,701.3 Dividends declared per
common share $ 0.20 $
0.18 $ 0.38
$ 0.34
NIKE,
Inc. CONSOLIDATED BALANCE SHEETS
November 30, November 30,
(Dollars in millions)
2017
2016
% Change
ASSETS Current assets: Cash and equivalents $ 4,304 $ 4,339 -1 %
Short-term investments 2,085 1,604 30 % Accounts receivable, net
3,613 3,478 4 % Inventories 5,326 5,033 6 % Prepaid expenses and
other current assets 1,254
1,557 -19 % Total current assets 16,582
16,011 4 % Property, plant and equipment, net 4,117 3,566 15 %
Identifiable intangible assets, net 282 283 0 % Goodwill 139 139 0
% Deferred income taxes and other assets
2,935 2,653 11 %
TOTAL
ASSETS $ 24,055
$ 22,652 6 %
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current
portion of long-term debt $ 10 $ 44 -77 % Notes payable 1,229 20 —
Accounts payable 2,141 2,033 5 % Accrued liabilities 3,278 3,076 7
% Income taxes payable 92
52 77 % Total current liabilities 6,750 5,225
29 % Long-term debt 3,472 3,473 0 % Deferred income taxes and other
liabilities 2,075 1,631 27 % Redeemable preferred stock — — —
Shareholders' equity 11,758
12,323 -5 %
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $
24,055 $ 22,652
6 % NIKE, Inc. DIVISIONAL
REVENUES1
% Change
% Change
Excluding
Excluding
THREE MONTHS ENDED %
Currency
SIX MONTHS ENDED %
Currency
(Dollars in millions)
11/30/2017
11/30/2016 Change
Changes2
11/30/2017 11/30/2016
Change
Changes2
North America Footwear $ 2,070 $ 2,219 -7 % -7 % $ 4,504 $
4,737 -5 % -5 % Apparel 1,279 1,273 0 % 0 % 2,578 2,590 0 % -1 %
Equipment 136 158
-14 % -14 % 327
354 -8 % -8 %
Total 3,485 3,650 -5 % -5 % 7,409 7,681 -4 % -4 %
Europe, Middle
East & Africa Footwear 1,290 1,116 16 % 11 % 2,761 2,573 7
% 6 % Apparel 743 588 26 % 21 % 1,486 1,272 17 % 15 % Equipment
100 88
14 % 10 % 230
209 10 % 9 % Total 2,133
1,792 19 % 14 % 4,477 4,054 10 % 9 %
Greater China Footwear
793 669 19 % 17 % 1,554 1,379 13 % 14 % Apparel 397 355 12 % 11 %
706 624 13 % 14 % Equipment 32
31 3 % 0 %
70 72 -3 %
-2 % Total 1,222 1,055 16 % 15 % 2,330 2,075 12 % 13 %
Asia
Pacific & Latin America Footwear 873 818 7 % 9 % 1,700
1,605 6 % 8 % Apparel 342 319 7 % 10 % 643 598 8 % 10 % Equipment
58 69
-16 % -15 % 119
134 -11 % -10 % Total
1,273 1,206 6 % 8 % 2,462 2,337 5 % 7 %
Global Brand
Divisions3 23
21 10 % 19 %
43 36 19 %
17 %
TOTAL NIKE BRAND
8,136 7,724
5 % 4 %
16,721 16,183
3 % 3 % Converse
408 416 -2 % -4 % 891 990 -10 % -11 % Corporate4
10 40 —
— 12
68 — —
TOTAL NIKE,
INC. REVENUES $ 8,554
$ 8,180 5 %
3 % $ 17,624
$ 17,241 2
% 2 % TOTAL NIKE
BRAND Footwear $ 5,026 $ 4,822 4 % 3 % $ 10,519 $ 10,294 2 % 2
% Apparel 2,761 2,535 9 % 8 % 5,413 5,084 6 % 6 % Equipment 326 346
-6 % -7 % 746 769 -3 % -3 % Global Brand Divisions3
23 21 10 %
19 % 43 36
19 % 17 %
TOTAL NIKE BRAND REVENUES
$ 8,136 $
7,724 5 % 4
% $ 16,721
$ 16,183 3 %
3 %
1 Certain prior year amounts have been
reclassified to conform to fiscal 2018 presentation. This includes
reclassified operating segment data to reflect the changes in the
Company's operating structure, which became effective June 1, 2017.
These changes had no impact on previously reported consolidated
results of operations or shareholders' equity.
2 The percentage change has been
calculated using actual exchange rates in use during the
comparative prior year period to enhance the visibility of the
underlying business trends by excluding the impact of translation
arising from foreign currency exchange rate fluctuations, which is
considered a non-GAAP financial measure.
3 Global Brand Divisions revenues are
primarily attributable to NIKE Brand licensing businesses that are
not part of a geographic operating segment.
4 Corporate revenues primarily consist of
foreign currency hedge gains and losses related to revenues
generated by entities within the NIKE Brand geographic operating
segments and Converse but managed through our central foreign
exchange risk management program.
NIKE, Inc. EARNINGS BEFORE INTEREST AND
TAXES1,2
THREE MONTHS
ENDED % SIX MONTHS ENDED % (Dollars in
millions)
11/30/2017
11/30/2016 Change
11/30/2017 11/30/2016
Change North America $ 783 $ 912 -14 % $ 1,785 $ 1,916 -7 %
Europe, Middle East & Africa 337 313 8 % 788 798 -1 % Greater
China 378 375 1 % 772 746 3 % Asia Pacific & Latin America 291
266 9 % 551 475 16 % Global Brand Divisions3
(602 ) (619 ) 3 %
(1,277 ) (1,390 )
8 %
TOTAL NIKE BRAND
1,187 1,247
-5 % 2,619
2,545 3
% Converse 48 78 -38 % 137 231 -41 % Corporate4
(343 ) (196 )
-75 % (776 ) (359
) -116 %
TOTAL NIKE, INC. EARNINGS BEFORE INTEREST
AND TAXES 892
1,129 -21 %
1,980
2,417 -18 % Interest
expense (income), net 13
15 —
29 22 —
TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES
$ 879 $
1,114 -21 %
$ 1,951 $ 2,395
-19 % 1 The Company evaluates
performance of individual operating segments based on earnings
before interest and taxes (commonly referred to as “EBIT”), which
represents net income before interest expense (income), net and
income tax expense. 2 Certain prior year amounts have been
reclassified to conform to fiscal 2018 presentation. This includes
reclassified operating segment data to reflect the changes in the
Company's operating structure, which became effective June 1, 2017.
These changes had no impact on previously reported consolidated
results of operations or shareholders' equity. 3 Global Brand
Divisions primarily represent demand creation, operating overhead
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
largely of unallocated general and administrative expenses,
including expenses associated with centrally managed departments;
depreciation and amortization related to the Company’s corporate
headquarters; unallocated insurance, benefit and compensation
programs, including stock-based compensation; and certain foreign
currency gains and losses, including certain hedge gains and
losses.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171221005979/en/
NIKE, Inc.Investor Contact:Nitesh
Sharan, 503-532-2828orMedia
Contact:Kellie Leonard, 503-671-6171
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