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Solid Q3 results demonstrate the power of NIKE brand
18
Mar '11
NIKE Inc reported financial results for its fiscal 2011 third quarter ended February 28, 2011. Earnings per share for the quarter were up 7 percent on a 7 percent increase in net revenue as higher NIKE, Inc. sales and SG&A expense leverage offset lower gross margin results.

"Our solid third-quarter results demonstrate the power of the NIKE, Inc. portfolio," said Mark Parker, President and CEO of NIKE, Inc. "Our unique ability to create deep connections with consumers, led by an impressive pipeline of innovative product and exciting retail experiences, continues to strengthen our brands and accelerate growth. Moving forward, we'll continue to leverage our scale, financial resources, and operational discipline to drive near and long-term value to shareholders."

Futures Orders

As of the end of the quarter futures orders for NIKE Brand athletic footwear and apparel, scheduled for delivery from March through July 2011, totaled $7.9 billion, 11 percent higher than orders reported for the same period last year. Excluding currency changes, reported orders would have increased 9 percent.

Third Quarter Income Statement Review

Revenues for NIKE, Inc. increased 7 percent to $5.1 billion or up 8 percent on a currency neutral basis. Revenues for the NIKE Brand were up 8 percent. Excluding the impacts of changes in foreign currency NIKE Brand revenues rose 9 percent driven by growth in all seven NIKE Brand key categories and every geography except Japan. Revenues for our Other Businesses increased 1 percent, with minimal impact from changes in foreign currency exchange rates, as growth in Converse, Cole Haan, and Hurley was largely offset by lower revenues in Umbro and NIKE Golf.

Gross margin declined 110 basis points to 45.8 percent mainly as a result of higher product costs, elevated freight costs, including additional airfreight incurred to meet strong demand for NIKE Brand products, and a smaller proportion of license revenue due in part to the conversion of Converse's U.K. business to direct distribution. These factors more than offset the positive impacts of favorable year-over-year changes in foreign exchange rates, a higher mix of full-price sales, the benefits of ongoing product cost reduction initiatives, and growing sales from our Direct to Consumer operations.

Selling and administrative expenses grew at a slower rate than revenue, up 5 percent to $1.6 billion. Operating overhead expenses increased 6 percent to $1.1 billion as a result of additional investments made in both our wholesale and direct to consumer businesses. Demand creation expenses rose 3 percent to $578 million due to marketing support for key product initiatives and investments in retail product presentation for wholesale accounts.

Other income was $17 million, comprised largely of non-recurring items and foreign exchange gains, primarily from 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.

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