Nike, Inc. reported a 12 percent revenue increase to $6.5 billion in their Q4 2012 earnings report (see below), but missed Wall Street analyst estimates on a profit fall to $1.17 earnings per share. In after-hours trading, investors and quick money hands pushed the stock off a financial cliff, falling 10 percent after trading between $96 to 98 all day. Nike’s share price is now down to support levels tracing back to 2011.
Follow CounterKicks on Twitter at 5 p.m. Eastern for our quarterly live tweet of Nike’s earnings conference call with the Swoosh’s C-Suite team.
Read ahead for Nike’s full Q4 2012 report…
NIKE, INC. REPORTS FISCAL 2012 FOURTH QUARTER AND FULL YEAR RESULTS
Fourth quarter revenues rose 12 percent, or 14 percent on a currency neutral basis, to $6.5 billion, the largest revenue quarter in NIKE, Inc.’s history.
BEAVERTON, Ore., June 28, 2012 – NIKE, Inc. (NYSE:NKE) today reported financial results for its fiscal 2012 fourth quarter and full year ended May 31, 2012. Fourth quarter revenues rose 12 percent, or 14 percent on a currency neutral basis, to $6.5 billion, the largest revenue quarter in NIKE, Inc.’s history. This was a result of higher revenues across every NIKE Brand geography, key category and product type as well as across all Other Businesses. However, diluted EPS for the quarter was down 6 percent as a result of a lower gross margin, higher SG&A spending, an increase in the effective tax rate and a charge related to restructuring NIKE Brand Western Europe’s operations to better realign resources against growth opportunities and drive efficiencies.
Revenues for fiscal 2012 were up 16 percent, or 14 percent excluding the impact of changes in foreign currency, to $24.1 billion. Diluted EPS for the year increased 8 percent to $4.73 as a result of strong revenue growth, leverage of SG&A, and a lower average share count, which more than offset the impact of a lower gross margin and higher effective tax rate.
“Fiscal year 2012 demonstrated NIKE, Inc.s greatest strength – innovation. We delivered an amazing number of game-changing products and services that drove record revenue growth,” said Mark Parker, President and CEO, NIKE, Inc. “We also delivered solid profit growth for the year despite some headwinds in a challenging global economy, which will continue into the next year. That said, NIKE is well positioned to remain aggressive, flexible and laser-focused on the high-growth opportunities. Thats how we continue to deliver long-term profitable growth for our shareholders.”*
As part of its long term growth strategy, the Company continually evaluates its existing portfolio of businesses to ensure it is investing in those businesses with the largest growth potential and highest returns. On May 31, 2012, the Company announced its intention to divest the Cole Haan and Umbro businesses, which will allow it to focus its resources on driving growth in the NIKE, Jordan, Converse and Hurley brands. For fiscal 2012, Cole Haan and Umbro together contributed $797 million in revenues and a combined loss before interest and taxes of $43 million. This compares to fiscal 2011 combined revenues of $745 million and a loss before interest and taxes of $18 million.
FOURTH QUARTER INCOME STATEMENT REVIEW
- Revenues for NIKE, Inc. increased 12 percent to $6.5 billion, or up 14 percent on a currency neutral basis. Excluding the impact of changes in foreign currency, NIKE Brand revenues rose 14 percent driven by growth in all geographies, key categories and product types. Revenues for Other Businesses grew 16 percent, with no significant impact from changes in currency exchange rates, as all businesses increased revenues during the quarter.
- Gross margin declined 150 basis points to 42.8 percent due primarily to higher product costs, increased investments in our digital business and an unanticipated customs assessment in an Emerging Markets territory related to imports that occurred during four previous fiscal years. These factors more than offset the positive effects of price increases, lower air freight due to improved factory deliveries, as well as ongoing product cost reduction initiatives.
- Selling and administrative expenses grew at the same rate as revenue, up 12 percent to $2 billion. Demand creation expenses increased 23 percent to $760 million driven by marketing support for key product launches, the European Football Championships and the Summer Olympics. Operating overhead expenses increased 6 percent to $1.2 billion due to additional investments in our Direct to Consumer and wholesale businesses.
- Other expense, net was $38 million, primarily comprised of a $24 million charge related to NIKE Brand’s Western Europe restructuring. The remaining $14 million was primarily comprised of foreign currency exchange losses. For the quarter, we estimate the year-over-year change in foreign currency related losses included in other expense, net combined with the impact of changes in foreign currency exchange rates on the translation of foreign currency-denominated profits decreased pretax income by approximately $16 million.
- The effective tax rate was 26.1 percent compared to 23.2 percent for the same period last year primarily due to year-on-year changes in tax reserves, partially offset by a reduction in the effective tax rate on operations outside the United States.
- Net Income decreased 8 percent to $549 million and Diluted earnings per share decreased 6 percent to $1.17, reflecting a 2 percent decline in the number of weighted average diluted common shares outstanding.
FISCAL 2012 INCOME STATEMENT REVIEW
- Revenues for NIKE, Inc. were up 16 percent to $24.1 billion, up 14 percent on a currency neutral basis.
- NIKE Brand revenues rose 15 percent excluding the impact of changes in foreign currency, driven by growth in all geographies, key categories and product types. NIKE Brand wholesale revenues increased to $17.4 billion, 14 percent higher than the same period last year on a currency neutral basis. NIKE Brand Direct to Consumer revenues grew 21 percent to $3.5 billion due to 13 percent growth in same store sales and new door expansion. As of May 31, 2012 the NIKE Brand had 557 stores in operation as compared to 487 a year ago.
- Revenues for Other Businesses grew 11 percent with no significant impact from changes in currency exchange rates, driven by growth across most businesses.
- Gross margin declined 220 basis points to 43.4 percent, primarily driven by higher product costs, as well as investments in our digital business, an unanticipated customs assessment in an Emerging Markets territory related to imports that occurred during four previous fiscal years, and higher discounts on close-out sales. These factors more than offset the positive effects of price increases, lower air freight costs, growing sales in our Direct to Consumer operations and ongoing product cost reduction initiatives.
- Selling and administrative expenses grew at a slower rate than revenue, up 11 percent to $7.4 billion. Demand creation expenses were up 11 percent to $2.7 billion due to an increase in sports marketing expense, marketing support for key product initiatives, investments in retail product presentation for wholesale accounts and marketing support for the European Football Championships and Summer Olympics. Operating overhead expenses increased 11 percent to $4.7 billion due to additional investments made in our wholesale and Direct to Consumer businesses.
- Other expense, net was $54 million for the fiscal year, primarily comprised of net foreign currency exchange losses and a $24 million charge related to NIKE Brand’s Western Europe restructuring, partially offset by certain non-operating items. For the year, we estimate the year-over-year change in currency related gains and losses included in other expense, net, combined with the impact of changes in currency exchange rates on the translation of foreign currency-denominated profits, did not have a significant impact on pretax income.
- The effective tax rate was 25.5 percent compared to 25 percent for the same period last year. The increase was due to changes in tax reserves, partially offset by a reduction in the effective tax rate on operations outside of the United States.
- Net Income increased 4 percent to $2.2 billion and Diluted earnings per share increased 8 percent to $4.73, reflecting higher net income and a 3 percent decline in the number of weighted average diluted common shares outstanding.
MAY 31, 2012 BALANCE SHEET REVIEW
Inventories for NIKE, Inc. were $3.4 billion, up 23 percent from May 31, 2011. NIKE Brand inventories increased 19 percent; 17 percentage points of growth were due to higher product cost per unit, as input cost inflation and a higher proportion of Footwear versus Apparel more than offset the favorable impact of changes in currency exchange rates. NIKE Brand unit inventories grew 10 percent.
Cash and short-term investments at period-end were $3.8 billion, $781 million lower than last year due to higher working capital investments, long-term debt repayments and dividend payments compared to the prior year.
During the fourth quarter, NIKE, Inc. repurchased a total of 2.3 million shares for approximately $245 million as part of its four-year, $5 billion share repurchase program, approved by the Board of Directors in September 2008. As of the end of the fourth quarter, the Company has purchased a total of 50.3 million shares for approximately $4.1 billion under this program.
About NIKE, Inc.
NIKE, Inc., based near Beaverton, Oregon, is the worlds 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. 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 International Limited., 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 investors.nikeinc.com and individuals can follow @Nike.
* 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, Inc. 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.