BEAVERTON, Ore., December 21, 2017 - 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.
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.
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.