Second Quarter Earnings
December 20, 2006
Beaverton, OR (20 December, 2006) – NIKE, Inc. (NYSE:NKE) today reported financial results for the second quarter ended November 30, 2006. For the quarter, revenue grew 10 percent to $3.8 billion, compared to $3.5 billion for the same period last year. Changes in currency exchange rates increased revenue growth by 1 percentage point for the quarter. Second quarter net income grew 8 percent to $325.6 million, compared to $301.1 million in the prior year and diluted earnings per share increased 12 percent to $1.28, versus $1.14 last year.
During the quarter, the Company also finalized a new long-term tax agreement with the Dutch government, which included a retroactive tax benefit for fiscal 2006 and the first half of fiscal 2007, contributing $0.13 per diluted share to results for the quarter.
Mark Parker, Nike, Inc. President and Chief Executive Officer, said, “The Nike brand and our Nike Inc. portfolio continued to be strong worldwide, driving double-digit top line growth for the quarter. Nike+, Lebron IV, Nike Pro Revolution, Converse’s Wade 1.3 and Cole Haan’s Dress Air for women were some of the product introductions creating consumer excitement and marketplace energy. At the same time, we delivered strong earnings growth and a significant 19 percent increase in our dividend for shareholders. Our brands are strong, the Company is growing revenues and profits, and we are delivering on our commitment to lead the industry with sharper focus, greater competitiveness and deeper influence through ongoing product innovation and consumer connections.”*
Futures Orders The Company reported worldwide futures orders for athletic footwear and apparel, scheduled for delivery from December 2006 through April 2007, totaling $5.6 billion, 7 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 7 percent; Europe (which includes the Middle East and Africa) increased 7 percent; Asia Pacific grew 9 percent; and the Americas increased 5 percent. Changes in currency exchange rates increased the reported futures orders growth in Europe by 5 percentage points; in Asia Pacific by 2 percentage points; and in the Americas region decreased reported futures growth by 2 percentage points.*
Regional Highlights U.S. During the second quarter, U.S. revenues increased 8 percent to $1.4 billion versus $1.3 billion for the second quarter of fiscal 2006. U.S. athletic footwear revenues increased 8 percent to $879.4 million; apparel revenues increased 10 percent to $475.4 million; and equipment revenues increased 2 percent to $63.2 million. U.S. pre-tax income increased slightly to $266.0 million from $265.7 million a year ago.
Europe Second quarter revenues for the European region grew 6 percent to $1.0 billion from $977.4 million for the same period last year. Changes in currency exchange rates increased revenue growth by 3 percentage points. Footwear revenues were up 2 percent to $541.4 million from $533.2 million last year. Apparel revenues increased 11 percent to $421.0 million and equipment revenues increased 14 percent to $73.8 million. Pre-tax income declined 18 percent to $158.8 million, reflecting lower gross margins and increased demand creation spending versus relatively low levels in the prior year.
Asia Pacific In the second quarter revenues in the Asia Pacific region grew 15 percent to $578.2 million compared to $503.3 million a year ago. Changes in currency exchange rates did not have a significant impact on revenue growth. Footwear revenues were up 13 percent to $277.4 million, apparel revenues increased 17 percent to $250.6 million and equipment revenues grew 16 percent to $50.2 million. Pre-tax income increased 21 percent to $139.9 million.
Americas Revenues in the Americas region increased 4 percent to $262.5 million, an improvement from $252.1 million in the second quarter of fiscal 2006. Currency exchange rates contributed 1 percentage point to this growth rate. Footwear revenues were up 4 percent to $185.1 million, apparel revenues increased 1 percent to $55.7 million and equipment revenues grew 17 percent to $21.7 million. Pre-tax income was up 4 percent to $59.8 million.
Other Businesses For the second quarter, Other business revenues, which are comprised of results from Cole Haan Holdings Incorporated, Converse Inc., Exeter Brands Group LLC, Hurley International LLC, NIKE Bauer Hockey Inc., and NIKE Golf grew 21 percent to $526.8 million from $434.8 million last year. Pre-tax income increased 136 percent to $54.3 million for the quarter.
Income Statement Review Gross margins were 43.4 percent during the second quarter compared to 43.5 percent for the same period in the prior year.
Selling and administrative expenses were 32.0 percent of second quarter revenues, compared to 30.4 percent last year. Results for the second quarter included an $18.8 million expense, net of taxes, related to the expensing of stock options, which reduced diluted earnings per share by $0.08. Excluding stock option expense second quarter net income increased 14 percent and diluted earnings per share increased 19 percent to $1.36.
The effective tax rate for the second quarter declined significantly to 27.2 percent. During the second quarter, the Company finalized a tax agreement with the Dutch government that is effective for fiscal years 2006 through 2015. As a result of this new agreement the Company realized a tax benefit, which increased the Company’s diluted earnings per share for the second quarter by $0.13.
Balance Sheet Review At quarter end, global inventories stood at $2.2 billion, an increase of 15 percent from November 30, 2005. Cash and short-term investments were $1.9 billion at the end of the quarter, compared to $2.1 billion last year.
Share Repurchase During the second quarter, the Company purchased a total of 1,478,800 shares for approximately $126 million in conjunction with the Company’s four-year $3 billion share repurchase program approved by the Board of Directors in June 2006.
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 Holdings Incorporated, a leading designer and marketer of luxury shoes, handbags, accessories and coats; Converse Inc., which designs, markets and distributes athletic footwear, apparel and accessories; Exeter Brands Group LLC, which designs and markets athletic footwear and apparel for the value retail channel; Hurley International LLC, which designs, markets and distributes action sports and youth lifestyle footwear, apparel and accessories and NIKE Bauer Hockey Inc., a leading designer and distributor of hockey equipment. NIKE’s earnings releases and other financial information are available on the Internet at www.nikebiz.com/invest. * 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.