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. (NYSE:NKE) today reported financial results for its fiscal 2016 third quarter ended February 29, 2016. 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.
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.
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.
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.*
NIKE, Inc. management will host a conference call beginning at approximately 2:00 p.m. PT on March 22, 2016, to review fiscal third 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, March 29, 2016.
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, distributes and licenses casual sneakers, apparel and accessories; and Hurley, which designs and distributes a line of action sports and youth lifestyle 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 and individuals can follow @NIKE.
* 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 Securities and Exchange Commission (SEC), 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, “at once” and closeout 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.