Fiscal 2010 Third Quarter Results
March 16, 2010
Select Third Quarter Results:
Revenue $4.7 billion; up 7 percent versus prior year
Diluted EPS of $1.01, up 102 percent from prior year; excluding prior year non-cash impairment charge diluted EPS up 2 percent
Worldwide futures orders up 9 percent; up 6 percent excluding currency changes
Inventories down 13 percent versus prior year
BEAVERTON, Ore. (March 17, 2010) – NIKE, Inc. (NYSE:NKE) today reported financial results for its fiscal 2010 third quarter ended February 28, 2010. Third quarter revenues increased 7 percent, from $4.4 billion last year to $4.7 billion in the current year. Excluding changes in currency exchange rates, net revenue was up 2 percent compared to the same quarter last year.
Third quarter net income was $496 million or $1.01 per diluted share, compared to $244 million or $0.50 per diluted share in the same period last year. Results from last year included a $241 million, after-tax non-cash charge related to the impairment of goodwill, intangible and other assets of the Company’s Umbro subsidiary. Excluding this charge, net income and diluted earnings per share both would have increased 2 percent.
“We had a great quarter,” said Mark Parker, NIKE, Inc. President and Chief Executive Officer. “Today’s results reinforce our belief that when we connect with consumers in deep and meaningful ways from product concepts to how they experience our brands, we win in the marketplace and drive sustainable, profitable growth.”
The Company reported worldwide futures orders for NIKE Brand athletic footwear and apparel, scheduled for delivery from March through July 2010, totaling $7.1 billion, 9 percent higher than orders reported for the same period last year. Excluding currency changes, orders would have increased 6 percent.*
By geography and in total for the NIKE Brand, futures orders were as follows:
North America During the third quarter, revenue for North America increased 1 percent to $1.7 billion. Footwear revenues of $1.2 billion were down 1 percent compared to last year, apparel revenues grew 6 percent to $409 million and equipment revenues increased 8 percent to $85 million. Earnings before interest and taxes (EBIT) for North America improved 4 percent to $402 million.
Western Europe Third quarter revenue for Western Europe increased 4 percent to $929 million. Compared to the same period last year, footwear revenue increased 8 percent to $577 million, apparel revenue declined 1 percent to $300 million and equipment revenue decreased 4 percent to $52 million. Third quarter EBIT was flat to last year at $199 million.
Central and Eastern Europe In the third quarter, revenue for Central and Eastern Europe declined 8 percent to $272 million. Footwear revenue decreased 2 percent to $159 million, apparel revenue was down 17 percent to $94 million and equipment revenue dropped 15 percent to $19 million. Compared to the same period last year, EBIT was down 47 percent to $50 million.
Greater China Revenue for Greater China during the third quarter was up 10 percent to $458 million. Footwear revenue grew 12 percent to $279 million, apparel revenue increased 8 percent to $154 million, and equipment revenue was up 13 percent to $26 million. Third quarter EBIT improved 21 percent to $176 million.
Japan Japan’s third quarter revenue was down 7 percent to $213 million. Compared to the prior year, footwear revenue declined 6 percent to $103 million, apparel revenue dropped 9 percent to $87 million and equipment revenue decreased 9 percent to $23 million. EBIT declined 16 percent in the third quarter to $40 million.
Emerging Markets In the Emerging Markets revenue was up 43 percent to $509 million for the third quarter. Footwear revenue increased 53 percent to $352 million, apparel revenue rose 32 percent to $119 million and equipment revenue increased 10 percent to $38 million. EBIT for the Emerging Markets in the third quarter improved 72 percent to $122 million.
Other Businesses Revenue in the third quarter for Other Businesses, which includes Cole Haan, Converse Inc., Hurley International LLC, NIKE Golf, and Umbro Ltd. increased 13 percent to $656 million. Third quarter EBIT was $105 million versus a loss of $343 million last year. Last year’s results included a $401 million pre-tax non-cash impairment charge to reduce the carrying value of Umbro’s goodwill, intangible and other assets. Excluding this charge, EBIT increased 80 percent compared to the same period last year.
Income Statement Review
In the third quarter of fiscal 2010 gross margins were 46.9 percent compared to 43.9 percent for the same period last year. Gross margins for the quarter were higher than the prior year primarily due to improved in-line product margins, less discounted close-out sales and favorable changes in product mix.
Third quarter selling and administrative expenses grew 16 percent to $1.6 billion. Selling and administrative expenses for the quarter were higher than the same period last year mainly due to the timing of demand creation spending, investments in Company owned retail and higher costs for performance-based compensation.
The effective tax rate for the third quarter was 25.0 percent compared to a negative 3.6 percent for the same period last year. Excluding the tax effect of the charge for the impairment of Umbro assets, the effective tax rate for the third quarter of fiscal 2009 would have been 23.9 percent.
Balance Sheet Review
At the end of the third quarter, global inventories stood at $2.2 billion, down 13 percent from February 28, 2009. Cash and short-term investments at February 28, 2010 were $4.0 billion, $1.4 billion or 55 percent higher than last year. Share Repurchase
During the third quarter, the Company repurchased a total of 5,134,092 shares for approximately $329 million. These purchases concluded the Company’s previous four-year, $3 billion share repurchase program, approved by the Board of Directors in June 2006. During this program, the Company purchased a total of 53.9 million shares.
Having completed the previous program, the Company began repurchases under the four-year, $5 billion program approved in September 2008. Of the total shares repurchased during the third quarter 3.7 million shares for approximately $239 million were purchased under this program.
Nike management will host a conference call beginning at approximately 2:00 p.m. PT on March 17, 2010, to review third quarter results. The conference call will be broadcast live over the Internet and can be accessed at www.nikebiz.com/investors. For those unable to listen to the live broadcast, an archived version will be available at the same location through midnight, March 24, 2010.
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 subsidiaries include Cole Haan, which designs, markets and distributes luxury shoes, handbags, accessories and coats; Converse Inc., which designs, markets and distributes athletic footwear, apparel and accessories; Hurley International LLC, which designs, markets and distributes action sports and youth lifestyle footwear, apparel and accessories; and Umbro Ltd., a leading United Kingdom-based global football (soccer) brand. For more information, Nike’s earnings releases and other financial information are available on the Internet at www.nikebiz.com/investors.
* 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, Inc. 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 and discounts, which may vary significantly from quarter to quarter, and because a significant portion of the business does not report futures orders.
View the press release and financial tables