NIKE, Inc. Reports Third Quarter Earnings
March 19, 2008
BEAVERTON, Ore. (19 March, 2008) – NIKE, Inc. (NYSE:NKE) today reported financial results for the third quarter ended February 29, 2008. For the quarter, revenue grew 16 percent to $4.5 billion, compared to $3.9 billion for the same period last year. Changes in currency exchange rates increased revenue growth by 6 percentage points for the quarter. Third quarter net income grew 32 percent to $463.8 million, compared to $350.8 million in the prior year and diluted earnings per share increased 35 percent to $0.92, versus $0.68 last year.
“A year ago we established the goal of reaching $23 billion in revenues by our fiscal year 2011 and outlined our strategy for achieving that goal while continuing to deliver profitable, sustainable growth and outstanding returns to our shareholders,” said Mark Parker, Nike, Inc. President and Chief Executive Officer. “Our strong third quarter results, driven by sales gains across our diversified portfolio of categories, geographies, and brands, are a clear indication that our strategy is working and that we’re on track to achieve our financial goals for this fiscal year and beyond.”*
Parker continued, “Over the past twelve months we’ve taken a number of important strategic steps to strengthen the performance and potential of our portfolio of products and brands, steps we believe create stronger platforms for growth and allow us to connect even deeper with consumers. More than ever, the consumer is at the epicenter of everything we do and delivering the most innovative products and the most exciting consumer experiences is the key to our future growth.”*
The Company reported worldwide futures orders for athletic footwear and apparel, scheduled for delivery from March 2008 through July 2008, totaling $6.9 billion, 11 percent higher than such orders reported for the same period last year. Changes in currency exchange rates increased reported orders growth by 2 percentage points.*
By region, futures orders for the U.S. increased 1 percent; Europe (which includes the Middle East and Africa) increased 12 percent; Asia Pacific grew 32 percent; and the Americas increased 20 percent. Changes in currency exchange rates increased reported futures orders growth in Europe by 3 percentage points and by 7 percentage points in Asia Pacific. In the Americas region changes in currency exchange rates did not have a significant impact on futures growth.*
During the third quarter, U.S. revenues increased 5 percent to $1.6 billion versus $1.5 billion for the third quarter of fiscal 2007. U.S. athletic footwear revenues increased 5 percent to $1.1 billion; apparel revenues increased 10 percent to $407.8 million; and equipment revenues decreased 12 percent to $68.7 million. U.S. pre-tax income increased 17 percent to $347.3 million from $296.4 million a year ago.
Third quarter revenues for the Company’s European region grew 23 percent to $1.4 billion from $1.1 billion for the same period last year. Changes in currency exchange rates increased revenue growth by 13 percentage points. Footwear revenues were up 25 percent to $784.8 million. Apparel revenues increased 21 percent to $499.5 million and equipment revenues increased 23 percent to $100.0 million. Pre-tax income increased 31 percent to $334.3 million.
In the third quarter, revenues in the Asia Pacific region grew 27 percent to $748.3 million compared to $589.9 million a year ago. Changes in currency exchange rates increased revenue growth by 7 percentage points. Footwear revenues were up 29 percent to $411.3 million, apparel revenues increased 25 percent to $272.6 million and equipment revenues grew 21 percent to $64.4 million. Pre-tax income increased 46 percent to $193.0 million.
Revenues in the Americas region increased 20 percent to $254.4 million from $212.5 million in the third quarter of fiscal 2007. Currency exchange rates contributed 10 percentage points to this growth rate. Footwear revenues were up 16 percent to $177.9 million, apparel revenues increased 30 percent to $55.0 million and equipment revenues grew 24 percent to $21.5 million. Pre-tax income increased 23 percent to $51.9 million.
For the third quarter, Other business revenues, which include Converse Inc., NIKE Golf, Cole Haan Holdings Incorporated, NIKE Bauer Hockey Corp., Hurley International LLC, and Exeter Brands Group LLC, grew 15 percent to $600.9 million from $522.7 million last year in the same period. Pre-tax income increased 16 percent to $77.5 million for the quarter.
On December 17, 2007, the Company completed its sale of the Starter brand to Iconix Brand Group, Inc. resulting in a gain of $29 million which is included in third quarter other income.
On February 21, 2008, the Company announced it had reached a definitive agreement to sell Bauer Hockey to an investor group led by Kohlberg & Company and Canadian businessman W. Graeme Roustan for $200 million in cash. This transaction is expected to be completed before the end of the fiscal year.
On January 31, 2008, Nike’s £285 million, all-cash offer for the acquisition of 100 percent of the shares of Umbro plc was approved by Umbro shareholders. The United Kingdom’s Office of Fair Trade gave regulatory approval on February 6, 2008 and on March 3, 2008 the acquisition was completed by Nike's wholly-owned subsidiary, NIKE Vapor Ltd.
Commenting on these developments, Parker said, “Our focus on prime growth opportunities extends throughout our portfolio of brands. We are confident that our divestiture decisions are the right ones for Bauer Hockey, Starter, and Nike. Our most recent acquisition, Umbro, is a brand that has tremendous heritage and respect in global football. This acquisition represents an opportunity to create value for shareholders and consumers by applying our product, brand-building and operational capabilities to a business with enormous growth potential around the world.”*
Income Statement Review
Third quarter gross margins were 45.1 percent compared to 44.2 percent for the same period last year. Selling and administrative expenses were 30.9 percent of third quarter revenues, compared to 31.7 percent last year. The effective tax rate for the quarter was 30.6 percent compared to 32.3 percent for the same period last year.
Balance Sheet Review
At quarter end, global inventories stood at $2.4 billion, an increase of 10 percent from February 28, 2007. Cash and short-term investments were $2.9 billion at the end of the quarter, compared to $2.3 billion last year.
During the third quarter, the Company purchased a total of 5,570,300 shares for approximately $343.9 million in conjunction with the Company’s four-year $3 billion share repurchase program approved by the Board of Directors in June 2006. As of the end of the third quarter the Company has repurchased a total of 34.2 million shares for approximately $1.8 billion under this program.
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 Converse Inc., which designs, markets and distributes athletic footwear, apparel and accessories; Cole Haan Holdings Incorporated, which designs, markets and distributes luxury shoes, handbags, accessories and coats; Umbro Ltd., a leading United Kingdom-based global football (soccer) brand; and Hurley International LLC, which designs, markets and distributes action sports and youth lifestyle footwear, apparel and accessories.
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 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.
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