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NIKE, Inc. Reports Fiscal 2019 Third Quarter Results

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NIKE, Inc. (NYSE:NKE) today reported financial results for its fiscal
2019 third quarter ended February 28, 2019. Revenue growth was driven by
broad-based strength across all geographies as well as NIKE Direct, led
by digital.

"In Q3, our team once again drove strong, healthy growth across NIKE's
complete portfolio," said Mark Parker, Chairman, President and CEO,
NIKE, Inc. "Our business momentum is being accelerated by our ability to
scale innovation at a faster pace and expand new digital consumer
experiences around the world."*

Diluted earnings per share for the quarter was $0.68 driven by strong
revenue growth and gross margin expansion, partially offset by higher
selling and administrative expenses. In the prior year period, diluted
loss per share reflected the enactment of the U.S. Tax Cuts and Jobs Act
which has impacted comparability with the current period.

"The Consumer Direct Offense is delivering broad-based growth across all
four of our geographies, led by continued momentum in China," said Andy
Campion, Executive Vice President and Chief Financial Officer, NIKE,
Inc. "We will continue investing in key capabilities to drive NIKE's
digital transformation and fuel strong profitable growth into next
fiscal year and beyond."*

Third Quarter Income Statement Review

  • Revenues for NIKE, Inc. increased 7 percent to
    $9.6 billion, up 11 percent on a currency-neutral basis.**
    • Revenues for the NIKE Brand were $9.1 billion, up 12 percent on a
      currency-neutral basis driven by growth across wholesale and NIKE
      Direct, categories including Sportswear and Jordan, and continued
      double-digit growth across footwear and apparel.
    • Revenues for Converse were $463 million, down 2 percent on a
      currency-neutral basis, mainly driven by double-digit growth in
      Asia and digital which was more than offset by declines in the
      U.S. and Europe.
  • Gross margin increased 130 basis points to 45.1 percent
    primarily driven by higher average selling prices, favorable changes
    in foreign currency exchange rates and growth in NIKE Direct,
    partially offset by higher product costs.
  • Selling and administrative expense increased 12 percent
    to $3.1 billion. Demand creation expense was $865 million, flat to
    prior year. Operating overhead expense increased 17 percent to $2.2
    billion driven primarily by wage-related expenses, which reflect
    critical investments to drive key transformational initiatives for the
    Consumer Direct Offense.
  • The effective tax rate was 14.7 percent, compared to
    179.5 percent for the same period last year which included one-time
    charges related to the enactment of the U.S. Tax Cuts and Jobs Act.
  • Net income was $1.1 billion in the third quarter and diluted
    earnings per share
    was $0.68 driven by strong revenue growth,
    gross margin expansion, the lower effective tax rate and a lower
    average share count, which were slightly offset by higher selling and
    administrative expenses.

February 28, 2019 Balance Sheet Review

  • Inventories for NIKE, Inc. were $5.4 billion, up 1
    percent compared to the prior year period, primarily driven by strong
    demand for key franchises resulting in healthy inventories across all
    geographies.
  • Cash and equivalents and short-term investments were
    $4.0 billion, $705 million lower than last year as share repurchases,
    dividends, and investments in infrastructure more than offset proceeds
    from net income.

Share Repurchases

During the third quarter, NIKE, Inc. repurchased 9.8 million shares for
a total of $754 million. During the quarter, the company completed the
four-year, $12 billion program authorized by the Board of Directors in
November 2015 and commenced a new four-year, $15 billion share
repurchase program which was authorized in June 2018.

Conference Call

NIKE, Inc. management will host a conference call beginning at
approximately 2:00 p.m. PT on March 21, 2019, to review fiscal third
quarter results. The conference call will be broadcast live via webcast
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, March 28,
2019.

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 U.S. 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.

 

(Tables Follow)

 
NIKE, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
                       
THREE MONTHS ENDED % NINE MONTHS ENDED %
(Dollars in millions, except per share data)     2/28/2019     2/28/2018     Change     2/28/2019     2/28/2018     Change
Revenues $ 9,611 $ 8,984 7 % $ 28,933 $ 26,608 9 %
Cost of sales       5,272         5,046       4 %       16,092         15,030       7 %
Gross profit 4,339 3,938 10 % 12,841 11,578 11 %
Gross margin 45.1 % 43.8 % 44.4 % 43.5 %
 
Demand creation expense 865 862 0 % 2,739 2,594 6 %
Operating overhead expense       2,226         1,905       17 %       6,557         5,797       13 %
Total selling and administrative expense 3,091 2,767 12 % 9,296 8,391 11 %
% of revenues 32.2 % 30.8 % 32.1 % 31.5 %
 
Interest expense (income), net 12 13 37 42
Other (income) expense, net       (55 )       (1 )             (50 )       35        
Income before income taxes 1,291 1,159 11 % 3,558 3,110 14 %
Income taxes       190         2,080       -91 %       518         2,314       -78 %
Effective tax rate 14.7 % 179.5 % 14.6 % 74.4 %
                                     
NET INCOME (LOSS)     $ 1,101       $ (921 )     n/m       $ 3,040       $ 796       282 %
 
Earnings (loss) per common share:
Basic $ 0.70 $ (0.57 ) n/m $ 1.92 $ 0.49 292 %
Diluted $ 0.68 $ (0.57 ) n/m $ 1.87 $ 0.48 290 %
 
Weighted average common shares outstanding:
Basic 1,572.8 1,623.5 1,582.8 1,629.9
Diluted 1,609.6 1,623.5 1,621.5 1,665.7
 
Dividends declared per common share     $ 0.22       $ 0.20             $ 0.64       $ 0.58        
n/m - Not meaningful as a result of the net loss incurred for the
three months ended February 28, 2018, due to the enactment of the
U.S. Tax Cuts and Jobs Act.
 
 
NIKE, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
    February 28,     February 28,    

 

(Dollars in millions)     2019     2018    

% Change

ASSETS
Current assets:
Cash and equivalents $ 3,695 $ 3,662 1 %
Short-term investments 351 1,089 -68 %
Accounts receivable, net 4,549 3,792 20 %
Inventories 5,415 5,366 1 %
Prepaid expenses and other current assets       1,786       1,446     24 %
Total current assets 15,796 15,355 3 %
Property, plant and equipment, net 4,688 4,298 9 %
Identifiable intangible assets, net 283 282 0 %
Goodwill 154 139 11 %
Deferred income taxes and other assets       2,000       2,478     -19 %
TOTAL ASSETS     $ 22,921     $ 22,552     2 %
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 6 $ 6 0 %
Notes payable 16 11 45 %
Accounts payable 2,307 1,961 18 %
Accrued liabilities 4,738 3,727 27 %
Income taxes payable       214       78     174 %
Total current liabilities 7,281 5,783 26 %
Long-term debt 3,465 3,469 0 %
Deferred income taxes and other liabilities 3,214 3,518 -9 %
Redeemable preferred stock
Shareholders' equity       8,961       9,782     -8 %
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY     $ 22,921     $ 22,552     2 %
 
 
NIKE, Inc.
DIVISIONAL REVENUES
(Unaudited)
 
               

% Change

               

% Change

Excluding

Excluding

THREE MONTHS ENDED %

Currency

NINE MONTHS ENDED %

Currency

(Dollars in millions)     2/28/2019     2/28/2018     Change    

Changes1

    2/28/2019     2/28/2018     Change    

Changes1

North America
Footwear $ 2,509 $ 2,293 9 % 10 % $ 7,309 $ 6,797 8 % 8 %
Apparel 1,173 1,153 2 % 2 % 3,985 3,731 7 % 7 %
Equipment       128       125     2 %     2 %       443       452     -2 %     -2 %
Total 3,810 3,571 7 % 7 % 11,737 10,980 7 % 7 %
Europe, Middle East & Africa
Footwear 1,589 1,489 7 % 13 % 4,650 4,250 9 % 13 %
Apparel 750 713 5 % 11 % 2,374 2,199 8 % 11 %
Equipment       96       97     -1 %     5 %       331       327     1 %     4 %
Total 2,435 2,299 6 % 12 % 7,355 6,776 9 % 12 %
Greater China
Footwear 1,115 939 19 % 23 % 3,095 2,493 24 % 26 %
Apparel 444 368 21 % 26 % 1,314 1,074 22 % 24 %
Equipment       29       29     0 %     8 %       102       99     3 %     5 %
Total 1,588 1,336 19 % 24 % 4,511 3,666 23 % 25 %
Asia Pacific & Latin America
Footwear 909 884 3 % 13 % 2,669 2,584 3 % 14 %
Apparel 340 321 6 % 17 % 1,032 964 7 % 17 %
Equipment       58       63     -8 %     3 %       174       182     -4 %     6 %
Total 1,307 1,268 3 % 14 % 3,875 3,730 4 % 14 %
Global Brand Divisions2       8       21     -62 %     -57 %       33       64     -48 %     -49 %
TOTAL NIKE BRAND       9,148       8,495     8 %     12 %       27,511       25,216     9 %     12 %
Converse 463 483 -4 % -2 % 1,415 1,374 3 % 4 %
Corporate3             6                   7       18            
TOTAL NIKE, INC. REVENUES     $ 9,611     $ 8,984     7 %     11 %     $ 28,933     $ 26,608     9 %     11 %
 
TOTAL NIKE BRAND
Footwear $ 6,122 $ 5,605 9 % 13 % $ 17,723 $ 16,124 10 % 13 %
Apparel 2,707 2,555 6 % 10 % 8,705 7,968 9 % 12 %
Equipment 311 314 -1 % 4 % 1,050 1,060 -1 % 2 %
Global Brand Divisions2       8       21     -62 %     -57 %       33       64     -48 %     -49 %
TOTAL NIKE BRAND REVENUES     $ 9,148     $ 8,495     8 %     12 %     $ 27,511     $ 25,216     9 %     12 %
1The percent change has been calculated using actual
exchange rates in use during the comparative prior year period to
enhance the visibility of the underlying business trends by
excluding the impact of translation arising from foreign currency
exchange rate fluctuations, which is considered a non-GAAP financial
measure.
2Global Brand Divisions revenues are primarily
attributable to NIKE Brand licensing businesses that are not part of
a geographic operating segment.
3Corporate revenues consist primarily of foreign currency
hedge gains and losses related to revenues generated by entities
within the NIKE Brand geographic operating segments and Converse but
managed through the Company's central foreign exchange risk
management program.
 
 
NIKE, Inc.
EARNINGS BEFORE INTEREST AND TAXES1
(Unaudited)
                       
 
THREE MONTHS ENDED % NINE MONTHS ENDED %
(Dollars in millions)     2/28/2019     2/28/2018     Change     2/28/2019     2/28/2018     Change
North America $ 916 $ 840 9 % $ 2,877 $ 2,625 10 %
Europe, Middle East & Africa 538 417 29 % 1,489 1,205 24 %
Greater China 639 496 29 % 1,702 1,268 34 %
Asia Pacific & Latin America 339 298 14 % 983 849 16 %
Global Brand Divisions2       (788 )       (649 )     -21 %       (2,432 )       (1,926 )     -26 %
TOTAL NIKE BRAND       1,644         1,402       17 %       4,619         4,021       15 %
Converse 79 69 14 % 221 206 7 %
Corporate3       (420 )       (299 )     -40 %       (1,245 )       (1,075 )     -16 %
TOTAL NIKE, INC. EARNINGS BEFORE INTEREST AND TAXES       1,303         1,172       11 %       3,595         3,152       14 %
Interest expense (income), net       12         13               37         42        
TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES     $ 1,291       $ 1,159       11 %     $ 3,558       $ 3,110       14 %
1The Company evaluates performance of individual
operating segments based on earnings before interest and taxes
(commonly referred to as "EBIT"), which represents net income before
interest expense (income), net and income tax expense.
2Global Brand Divisions primarily represent demand
creation, operating overhead and product creation and design
expenses that are centrally managed for the NIKE Brand. Revenues for
Global Brand Divisions are primarily attributable to NIKE Brand
licensing businesses that are not part of a geographic operating
segment.
3Corporate consists primarily of unallocated general and
administrative expenses, including expenses associated with
centrally managed departments; depreciation and amortization related
to the Company's corporate headquarters; unallocated insurance,
benefit and compensation programs, including stock-based
compensation; and certain foreign currency gains and losses,
including certain hedge gains and losses.

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