New $15 Billion Share Repurchase Program Announced
BEAVERTON, Ore., June 28, 2018 - NIKE, Inc. (NYSE:NKE) today reported financial results for its fiscal 2018 fourth quarter and full year ended May 31, 2018.
Fourth quarter revenue increased 13 percent to $9.8 billion driven by strong double-digit revenue growth in international markets and NIKE Direct globally, and a return to growth in North America. Diluted earnings per share for the fourth quarter rose 15 percent to $0.69, primarily due to strong revenue growth, gross margin expansion, a lower tax rate and a lower average share count, which were partially offset by higher selling and administrative expense.
“Our new innovation is winning with consumers, driving significant momentum in our international geographies and a return to growth in North America,” said Mark Parker, Chairman, President and CEO, NIKE, Inc. “Fueled by a complete digital transformation of our company end-to-end, this year set the foundation for Nike’s next wave of long-term, sustainable growth and profitability.”*
The Company also announced that its Board of Directors has authorized a new four-year, $15 billion program to repurchase shares of NIKE’s Class B Common Stock. The Company anticipates that the current $12 billion share repurchase program will be completed within fiscal 2019, and the new program will commence upon the completion of the current program.*
Fourth Quarter Income Statement Review
Revenues for NIKE, Inc. increased 13 percent to $9.8 billion, up 8 percent on a currency-neutral basis.**
Revenues for the NIKE Brand were $9.3 billion, up 9 percent on a currency-neutral basis, driven by double-digit increases in NIKE Direct, international geographies, Sportswear, Global Football and growth in North America.
Revenues for Converse were $512 million, down 14 percent on a currency-neutral basis, as growth in Asia was more than offset by declines in other territories.
Gross margin increased 60 basis points to 44.7 percent due primarily to higher average selling prices, margin expansion in NIKE Direct and favorable full-price sales mix.
Selling and administrative expense increased 17 percent to $3.1 billion. Demand creation expense was $983 million, up 25 percent, primarily driven by sports marketing investments, new product launch and brand campaigns, and unfavorable changes in foreign currency exchange rates. Operating overhead expense increased 14 percent to $2.1 billion, largely due to investments in global operations and capabilities to drive the Consumer Direct Offense, and, to a lesser extent, unfavorable changes in foreign currency exchange rates.
The effective tax rate was 6.4 percent, compared to 13.7 percent for the same period last year, due to several discrete impacts within the quarter, including adjustments to the provisional charges related to the enactment of the Tax Cuts and Jobs Act (the “Tax Act”).
Net income increased 13 percent to $1.1 billion primarily due to strong global revenue growth, gross margin expansion and a lower tax rate, which were partially offset by higher selling and administrative expense, while diluted earnings per share increased 15 percent to $0.69 reflecting a 2 percent decline in the weighted average diluted common shares outstanding.
Fiscal 2018 Income Statement Review
Revenues for NIKE, Inc. rose 6 percent to $36.4 billion, up 4 percent on a currency-neutral basis.
Also, on a currency-neutral basis:
• Revenues for the NIKE Brand were $34.5 billion, up 5 percent.
• NIKE Brand sales to wholesale customers increased 2 percent while NIKE Direct revenues grew 12 percent to $10.4 billion, driven by a 25 percent increase in digital commerce sales, the addition of new stores and 4 percent growth in comparable store sales.
• NIKE Brand revenue growth was driven by continued strength in international markets and NIKE Direct with growth across footwear and apparel and key categories including Sportswear and NIKE Basketball.
• Revenues for Converse were $1.9 billion, down 11 percent, as growth in Asia was more than offset by declines primarily in North America.
Gross margin decreased 80 basis points to 43.8 percent driven by 90 basis points of unfavorable changes in foreign currency exchange rates.
Selling and administrative expense increased 9 percent to $11.5 billion. Demand creation expense was $3.6 billion, up 7 percent, primarily due to sports marketing investments. Operating overhead expense rose 10 percent to $7.9 billion, largely due to investments to activate the Consumer Direct Offense including product innovation and digital and speed capabilities.
The effective tax rate was 55.3 percent, compared to 13.2 percent in fiscal 2017 due to significant charges related to the enactment of the Tax Act.
Net income decreased 54 percent to $1.9 billion primarily related to the impact of the Tax Act, which offset strong revenue growth. Diluted earnings per share decreased 53 percent to $1.17, which includes a decline in the weighted average diluted common shares outstanding.
May 31, 2018 Balance Sheet Review
Inventories for NIKE, Inc. were $5.3 billion, up 4 percent from May 31, 2017, primarily driven by strong demand globally.
Cash and equivalents and short-term investments were $5.2 billion, $934 million lower than last year as share repurchases, dividends and investments in infrastructure more than offset net income and proceeds from employee exercises of stock options.
During the fourth quarter, NIKE, Inc. repurchased a total of 23.1 million shares for approximately $1.6 billion as part of the four-year, $12 billion program approved by the Board of Directors in November 2015. As of May 31, 2018, a total of 149.4 million shares had been repurchased under this program for approximately $8.7 billion. The Company’s new $15 billion program will commence upon the completion of the existing program which is expected to be completed within fiscal 2019. Repurchases under the Company’s new program will be made in open market or privately negotiated transactions in compliance with Securities and Exchange Commission Rule 10b-18, subject to market conditions, applicable legal requirements and other relevant factors. The new share repurchase program does not obligate the Company to acquire any particular amount of common stock, and it may be suspended at any time at the Company’s discretion.
NIKE, Inc. management will host a conference call beginning at approximately 2:00 p.m. PT on June 28, 2018, to review fiscal fourth quarter and full year results. The conference call will be broadcast live via webcast 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, July 12, 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.