Photo: Nike, Inc.
Nike just reported earnings of $1.23 per share, better than consensus estimates of $1.13.The apparel manufacturer also beat on the top line, reporting revenues of $6.67 billion versus the $6.44 billion expected.
However, Nike also said global futures orders ex-currency were up 8 per cent in the quarter versus the 10 per cent expected.
Shares are trading down nearly 5 per cent in the after-hours session.
North America orders were up 13 per cent versus the 14 per cent expected.
Western Europe orders were up 6 per cent versus the 4.2 per cent expected.
China orders were down six per cent versus the 1.2 per cent rise that was expected.
Emerging markets orders also missed estimates, up 14 per cent versus the 18 per cent expected.
NBG retail analyst Brian Sozzi weighed in on Nike’s report in a flash to clients after the announcement:
This time around, the market appears to be upset with reported sales weakness (includes currency) in Western Europe (missed consensus), Central Europe (missed consensus), and emerging markets (missed consensus). Further, Japan on a reported and currency neutral basis came nowhere near consensus. To add insult to injury, or further support to the bear camp, currency neutral future orders fell short of consensus by 200 bps.
Where the tricky aspect arises is that Nike’s inventory position appears to be in better shape (gives hope on China concerns being alleviated), China ex. currency sales actually trumped consensus (likely as prices were cut to move excess inventory), and there was a stronger tone around gross margins (which marginally beat consensus, giving hope to the bulls that want to finally see price increases filter through into gross margins).
A bunch more information needed on the earnings call to determine whether to buy the weakness in the morning. For now, the stay on the sidelines call still in play.
More on the sales picture:
North America sales came in up 13 per cent at $2.71 billion versus estimates of a 14 per cent rise.
Western Europe sales came in at $1.17 billion.
Japan sales were $183 million.
Greater China sales were $572 million.
Footwear accounted for $3.69 billion of revenue, while apparel accounted for $1.76 billion and equipment accounted for $386 million.
*BEAVERTON, Ore.–(BUSINESS WIRE)– NIKE, Inc. (NYSE:NKE) today reported financial results for its fiscal 2013 first quarter ended August 31, 2012. Strong demand for NIKE, Inc. brands propelled first quarter revenue to new record highs. As expected, diluted earnings per share were lower due to lower gross margin, higher SG&A and an increase in the tax rate.
“We had a strong first quarter and a great start to the fiscal year. NIKE, Inc. delivered an amazing array of innovation across some of the biggest moments in sport,” said Mark Parker, President and CEO, NIKE, Inc. “Innovation is how great companies sustain growth and build competitive separation,” Parker added. “We’ll continue to make strategic investments across our portfolio of businesses to capture our full potential over the long term and drive shareholder value.”
First Quarter Income Statement Review
- Revenues for NIKE, Inc. increased 10 per cent to $ 6.7 billion, up 15 per cent on a currency-neutral basis. Excluding the impacts of changes in foreign currency, NIKE Brand revenues rose 16 per cent, with growth in all key categories and every geography except Japan. Revenues on a currency-neutral basis for Other Businesses increased 9 per cent, while Businesses to be Divested grew by 6 per cent.
- Gross margin declined 80 basis points to 43.5 per cent. Gross margin continued to benefit from pricing actions and product cost reduction initiatives, however, this was more than offset by higher input costs, primarily materials and labour. In addition, gross margin was negatively impacted by a shift in the Company’s mix to lower margin businesses within the NIKE Brand and the conversion of the China market to direct distribution for Converse.
- Selling and administrative expenses grew at a faster rate than revenue, up 18 per cent to $2.2 billion. Demand creation expenses increased 29 per cent to $891 million due to marketing support for key product initiatives, as well as support for the Olympics and European Football Championships. Operating overhead expenses increased 12 per cent to $1.3 billion due to additional investments made in the wholesale business to support growth initiatives and higher Direct to Consumer costs from the addition of new stores over the last year.
- Other income, net was $29 million, comprised primarily of foreign exchange related gains. For the quarter, the Company estimates the year-over-year change in foreign currency related gains and losses included in other income, 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 $28 million.
- The effective tax rate was 27.5 per cent compared to 24.3 per cent for the same period last year. The effective tax rate was higher due to a larger percentage of earnings coming from higher tax countries, primarily the United States, as well as a higher effective tax rate on operations abroad.
- Net income decreased 12 per cent to $567 million while diluted earnings per share decreased 10 per cent to $1.23, reflecting a 3 per cent decline in the weighted average diluted common shares outstanding. In a press release issued on May 31, 2012, the Company announced its intention to divest of the Cole Haan and Umbro businesses. Pro Forma diluted earnings per share, excluding the results of the Businesses to be Divested, would have been approximately $1.27, down 9 per cent compared to the first quarter of fiscal 2012 on a comparable basis.**
August 31, 2012 Balance Sheet Review
- Inventories for NIKE, Inc. were $3.4 billion, up 10 per cent from August 31, 2011, in line with revenue growth, and reflecting strong demand for NIKE, Inc. products.
- Cash and short-term investments were $3.3 billion, $433 million lower than last year as share repurchases and dividend payments increased year-on-year and the Company made debt repayments.
During the first quarter, NIKE, Inc. repurchased a total of 8.2 million shares for approximately $779 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 first quarter, the Company has purchased a total of 58.5 million shares for approximately$4.9 billion under this program. On September 19, 2012, the Company announced that its Board of Directors approved a new four-year, $8 billion program to repurchase shares of NIKE’s Class B Common Stock. During the second quarter of fiscal 2013 the Company’s current $5 billion share repurchase program was completed, and the new program commenced.
As of the end of the quarter worldwide futures orders for NIKE Brand athletic footwear and apparel, scheduled for delivery from September 2012 through January 2013, totaled $8.9 billion, 6 per cent higher than orders reported for the same period last year. Excluding currency changes, reported orders would have increased 8 per cent.*
NIKE management will host a conference call beginning at approximately 2:00 p.m. PT on September 27, 2012, to review first quarter results. The conference call will be broadcast live over the Internet and can be accessed at http://investors.nikeinc.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, October 4, 2012.
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