MOSS ADAMS CAPITAL: Apparel and foowear market monitor highlights notable deals, stock prices and results.
Details on Industry Insight.
- Hurley grows during the quarter
BEAVERTON, Ore.--(BUSINESS WIRE)-- NIKE, Inc. (NYSE:NKE - News) today reported financial results for its fiscal 2011 second quarter ended November 30, 2010. Earnings per share for the quarter were up 24 percent on 10 percent higher net revenue as NIKE, Inc. brands continued to experience strong sales in the marketplace and benefit from clean inventory positions while better leveraging SG&A expenses.
“We had a great second quarter. Almost every brand, category and geography delivered growth,” said Mark Parker, President and CEO of NIKE, Inc. “We continue to outperform the market thanks to our innovative product, compelling brands and strong marketplace management. That’s good for athletes and consumers, good for our industry, and it’s good for our shareholders. Going forward, we’re in the enviable position of having far more opportunities than challenges. I’m confident our strategies can continue to deliver sustainable, profitable growth.”*
As of the end of the quarter futures orders for NIKE Brand athletic footwear and apparel, scheduled for delivery from December 2010 through April 2011, totaled $7.7 billion, 11 percent higher than orders reported for the same period last year with minimal impact from changes in foreign currency exchange rates compared to the prior year.*
By geography, futures orders were as follows:
Geography Reported Futures Orders Excluding Currency Changes
North America +16% +16%
Western Europe 0% +3%
Central and Eastern Europe +9% +11%
Greater China +18% +14%
Japan -2% -5%
Emerging Markets +15% +15%
Total NIKE Brand Futures Orders
Second Quarter Income Statement Review
Revenues increased 10 percent to $4.8 billion. Excluding the impacts of changes in foreign currency, NIKE, Inc. revenue increased 11 percent. Revenues for the NIKE Brand were up 9 percent, or up 10 percent on a currency neutral basis, driven by growth in all seven NIKE Brand key categories except Sportswear, which was down slightly compared to the prior year, and every geography except Japan.
Our Other Businesses revenues increased 13 percent, with a minimal impact from changes in foreign currency exchange rates, as Cole Haan, Converse, Hurley, NIKE Golf and Umbro all experienced growth during the quarter.
Gross margins improved 80 basis points to 45.3 percent. The improvement was due to a higher mix of full-price sales and fewer and more profitable close-out sales resulting from strong demand for our products and cleaner inventory positions, as well as improved profitability from our Direct to Consumer operations. These factors more than offset margin pressure from higher total freight costs, including additional airfreight costs incurred to meet strong demand for NIKE Brand products.
Selling and administrative expenses were up 9 percent to $1.6 billion mainly due to operating overhead, which increased 14 percent to $1.0 billion. This increase was a result of additional investments made in both our wholesale and Direct to Consumer businesses, higher performance based compensation expense and meeting and travel expense increases given comparisons to reduced levels last year. Demand Creation spending was inline with the same period last year at $574 million.
Other income was $28 million, comprised largely of non-recurring items and net conversion gains primarily on currency hedges. For the quarter, we estimate the year over year change in foreign currency related gains included in other income, net combined with the impact of changes in foreign currency exchange rates on the translation of foreign currency-denominated profits had an insignificant impact on pretax income.
The effective tax rate was 25.0 percent compared to 23.6 percent for the same period last year. The effective tax rate was higher due to a larger percentage of pretax income coming from operations in the United States, which has a higher effective tax rate than operations abroad.
Net income increased 22 percent to $457 million and diluted earnings per share increased 24 percent to $0.94, reflecting higher net income and an approximate 1 percent decline in the number of diluted weighted average common shares outstanding.
November 30, 2010 Balance Sheet Review
Inventories for NIKE, Inc. were $2.3 billion, up 8 percent from November 30, 2009.
Cash and short-term investments at period-end were $4.8 billion, 19 percent higher than last year mainly as a result of higher net income.
During the second quarter, the Company repurchased a total of 3.5 million shares for approximately $280 million as part of the Company’s four-year, $5 billion share repurchase program, approved by the Board of Directors in September 2008. As of the end of the second quarter the Company has purchased a total of 17.4 million shares for approximately $1.3 billion under this program.
Nike management will host a conference call beginning at approximately 2:00 p.m. PT on December 21, 2010, to review second quarter results. The conference call will be broadcast live over the Internet and can be accessed at www.nikebiz.com/investors. 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, December 28, 2010.
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, which designs, markets and distributes luxury shoes, handbags, accessories and coats; Converse Inc., which designs, markets and distributes athletic footwear, apparel and accessories; Hurley International LLC, which designs, markets and distributes action sports and youth lifestyle footwear, apparel and accessories; and Umbro Ltd., a leading United Kingdom-based global football (soccer) brand. For more information, 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.