Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
NKE > SEC Filings for NKE > Form 10-K on 23-Jul-2013All Recent SEC Filings

Show all filings for NIKE INC

Form 10-K for NIKE INC


23-Jul-2013

Annual Report


ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

NIKE designs, develops, markets and sells athletic footwear, apparel, equipment, accessories and services worldwide. We are the largest seller of athletic footwear and apparel in the world. We sell our products to retail accounts, through NIKE-owned retail stores and internet websites, which we refer to as our "Direct to Consumer" operations, and through a mix of independent distributors, licensees and sales representatives in virtually all countries around the world. Our goal is to deliver value to our shareholders by building a profitable global portfolio of branded footwear, apparel, equipment, accessories and service businesses. Our strategy is to achieve long-term revenue growth by creating innovative, "must have" products, building deep personal consumer connections with our brands, and delivering compelling consumer experiences at retail and online.
In addition to achieving long-term, sustainable revenue growth, we continue to strive to deliver shareholder value by driving operational excellence in several key areas:
Expanding gross margin by:

- Making our supply chain a competitive advantage;
- Reducing product costs through a continued focus on manufacturing efficiency, product design and innovation; and
- Delivering innovative, premium products that command higher prices while maintaining a strong consumer price-to-value proposition.
Improving selling and administrative expense productivity by focusing on investments that drive economic returns in the form of incremental revenue and gross profit, and leveraging existing infrastructure across our portfolio of businesses to eliminate duplicative costs;

Improving working capital efficiency; and

Deploying capital effectively.

Through execution of this strategy, our long-term financial goals continue to be:
High single-digit revenue growth,

Mid-teens earnings per share growth,

Increased return on invested capital and accelerated cash flows, and

Consistent results through effective management of our diversified portfolio of businesses.

Over the past ten years, we have achieved or exceeded all of these financial goals. During this time, revenues and earnings per share for NIKE, Inc., inclusive of both continuing and discontinued operations, have grown 9% and 15%, respectively, on an annual compounded basis. Our return on invested capital has increased from 18% to 24% and we expanded gross margins by approximately 260 basis points.
On November 15, 2012, we announced a two-for-one stock split of both Class A and Class B Common shares. The stock split was in the form of a 100 percent stock dividend payable on December 24, 2012 to shareholders of record at the close of business December 10, 2012. Common stock began trading at the split-adjusted price on December 26, 2012. All share numbers and per share amounts presented reflect the stock split.
Our fiscal 2013 results from continuing operations demonstrated the power of the NIKE, Inc. portfolio to deliver consistent growth in revenues, earnings, and cash returns to shareholders, while investing for long-term growth. Despite the ongoing challenges in the global economy, we delivered record revenues and earnings per share in fiscal 2013. Our revenues grew 8% to $25.3 billion, net income from continuing operations increased 9% to $2.5 billion, and we delivered diluted earnings per share of $2.69, an 11% increase from fiscal 2012. Earnings before interest and income taxes for continuing operations increased 8% for fiscal 2013, driven by revenue growth and improved gross margin, which more than offset higher selling and administrative expense as a percentage of revenue. The increase in revenues was driven by growth across most NIKE Brand geographies, key categories and product types. This growth was primarily fueled by:
Innovative performance and sportswear products, incorporating proprietary technology platforms such as NIKE Air, Lunar, Shox, FREE, Flywire, Dri-F.I.T, FlyKnit, NIKE +, and NIKE Fuel;

Deep brand connections to consumers through a category lens, reinforced by investments in endorsements by high profile athletes and teams (such as the NFL, FC Barcelona, Michael Jordan), high impact marketing around global sporting events (such as the Olympics, European Football Championships and NBA Finals) and digital marketing; and

Strong category retail presentation online and at NIKE owned and retail partner stores.

Revenues also improved for each of our Other Businesses (Converse, NIKE Golf and Hurley).
Our gross margins improved largely due to the positive impact of higher average selling prices, partially offset by higher product input costs, primarily labor cost inflation, and foreign currency headwinds.
For fiscal 2013, the growth of our net income from continuing operations was positively affected by a year-over-year decrease in our effective tax rate. In addition, diluted earnings per share grew at a higher rate than net income due to a 2% decrease in the weighted average number of diluted common shares outstanding, as a result of share repurchases during fiscal 2013.
On May 31, 2012, we announced our intention to divest of the Cole Haan and Umbro businesses, which would allow us to better focus our resources on driving growth in the NIKE, Jordan, Converse and Hurley brands. During the second quarter of fiscal 2013 we completed the sale of certain assets of the Umbro brand and recorded a loss on the sale of these assets of $107 million, net of tax. During the third quarter of fiscal 2013 we completed the sale of Cole Haan and recorded a gain on sale of $231 million, net of tax. As of May 31, 2013 the Company had substantially completed all transition services related to the sale of both businesses. Unless otherwise indicated, the following disclosures reflect the Company's continuing operations; refer to our "Discontinued Operations" section for additional information regarding our discontinued operations. While we expect to face continued macroeconomic uncertainties in the global economy, we continue to see opportunities to drive future growth and remain committed to effectively managing our business to achieve our financial goals over the long-term, by executing against the operational strategies outlined above.


Table of Contents

Results of Operations

Unless otherwise indicated, the following disclosures reflect the Company's continuing operations.

                                                                    FY13 vs.                       FY12 vs.
(Dollars in millions, except                                         FY12 %                         FY11 %
per share data)                   Fiscal 2013      Fiscal 2012       Change       Fiscal 2011       Change
Revenues                         $     25,313     $     23,331            8 %    $     20,117           16 %
Cost of sales                          14,279           13,183            8 %          10,915           21 %
Gross profit                           11,034           10,148            9 %           9,202           10 %
Gross margin %                           43.6 %           43.5 %                         45.7 %
Demand creation expense                 2,745            2,607            5 %           2,344           11 %
Operating overhead expense              5,035            4,458           13 %           4,017           11 %
Total selling and                       7,780            7,065           10 %           6,361           11 %
administrative expense
% of Revenues                            30.7 %           30.3 %                         31.6 %
Interest (income) expense, net             (3 )              4            -                 4            -
Other (income) expense, net               (15 )             54            -               (25 )          -
Income before income taxes              3,272            3,025            8 %           2,862            6 %
Income tax expense                        808              756            7 %             690           10 %
Effective tax rate                       24.7 %           25.0 %                         24.1 %
Net income from continuing              2,464            2,269            9 %           2,172            4 %
operations
Net income (loss) from                     21              (46 )          -               (39 )          -
discontinued operations
Net income                       $      2,485     $      2,223           12 %    $      2,133            4 %
Diluted earnings per share -     $       2.69     $       2.42           11 %    $       2.24            8 %
Continuing Operations
Diluted earnings per share -     $       0.02     $      (0.05 )          -      $      (0.04 )          -
Discontinued Operations


Table of Contents

Consolidated Operating Results


Revenues
                                                                   FY13 vs. FY12                           FY12 vs. FY11
                                                                     % Change                                % Change
                                                                     Excluding                   FY12 vs.    Excluding
(Dollars                                           FY13 vs. FY12 %   Currency                     FY11 %     Currency
in millions)          Fiscal 2013    Fiscal 2012       Change       Changes(2)    Fiscal 2011     Change    Changes(2)
NIKE, Inc.
Revenues (1):
NIKE Brand Revenues
by:
Footwear             $     14,539   $     13,428             8  %        11 %    $     11,519        17 %        15 %
Apparel                     6,820          6,336             8  %        10 %           5,516        15 %        13 %
Equipment                   1,405          1,204            17  %        20 %           1,022        18 %        16 %
Global Brand
Divisions                     117            111             5  %         8 %              96        16 %        13 %
Total NIKE Brand           22,881         21,079             9  %        11 %          18,153        16 %        15 %
Other Businesses            2,500          2,298             9  %         9 %           2,041        13 %        12 %
Corporate(3)                  (68 )          (46 )           -            -               (77 )       -           -
TOTAL NIKE, INC.
REVENUES             $     25,313   $     23,331             8  %        11 %    $     20,117        16 %        15 %
Supplemental NIKE
Brand Revenues
Details:
NIKE Brand Revenues
by:
Sales to Wholesale
Customers            $     18,438   $     17,438             6  %         8 %    $     15,181        15 %        14 %
Sales Direct to
Consumer                    4,326          3,530            23  %        24 %           2,876        23 %        21 %
Global Brand
Divisions                     117            111             5  %         8 %              96        16 %        13 %
TOTAL NIKE BRAND
REVENUES             $     22,881   $     21,079             9  %        11 %    $     18,153        16 %        15 %
NIKE Brand Revenues
on a Wholesale
Equivalent Basis:(4)
Sales to Wholesale
Customers            $     18,438   $     17,438             6  %         8 %    $     15,181        15 %        14 %
Sales from our
Wholesale Operations
to Direct to
Consumer Operations         2,450          1,986            23  %        25 %           1,603        24 %        22 %
NIKE BRAND WHOLESALE
EQUIVALENT REVENUES  $     20,888   $     19,424             8  %        10 %    $     16,784        16 %        14 %
NIKE Brand Wholesale
Equivalent Revenues
by Category:(4)
Running              $      4,274   $      3,696            16  %        18 %    $      2,789        33 %        31 %
Basketball                  2,627          2,169            21  %        22 %           1,863        16 %        16 %
Football (Soccer)           1,931          1,862             4  %         9 %           1,667        12 %        10 %
Men's Training              2,380          2,064            15  %        17 %           1,752        18 %        17 %
Women's Training            1,067          1,011             6  %         8 %             840        20 %        19 %
Action Sports                 495            497             0  %         2 %             446        11 %         2 %
Sportswear                  5,637          5,741            -2  %         1 %           5,293         8 %         7 %
Others(5)                   2,477          2,384             4  %         6 %           2,134        12 %        11 %


TOTAL NIKE BRAND
WHOLESALE EQUIVALENT
REVENUES $ 20,888 $ 19,424 8 % 10 % $ 16,784 16 % 14 %

(1) Certain prior year amounts have been reclassified to conform to fiscal 2013 presentation.

(2) Results have been restated using actual exchange rates in use during the comparative period to enhance the visibility of the underlying business trends by excluding the impact of translation arising from foreign currency exchange rate fluctuations.

(3) Corporate revenues primarily consist of intercompany revenue eliminations and foreign currency revenue-related hedge gains and losses generated by entities within the NIKE Brand geographic operating segments and certain Other Businesses through our centrally managed foreign exchange risk management program.

(4) References to NIKE Brand wholesale equivalent revenues are intended to provide context as to the total size of our NIKE Brand market footprint if we had no Direct to Consumer operations. NIKE Brand wholesale equivalent revenues consist of (1) sales to external wholesale customers and (2) internal sales from our wholesale operations to our Direct to Consumer operations which are charged at prices that are comparable to prices charged to external wholesale customers.

(5) Others include all other categories and certain adjustments that are not allocated at the category level.


Table of Contents

Fiscal 2013 Compared to Fiscal 2012
On a currency neutral basis, revenues from our NIKE, Inc. continuing operations grew 11% for fiscal 2013, driven by increases in revenues for both the NIKE Brand and our Other Businesses. Every NIKE Brand geography except Greater China delivered higher revenues for fiscal 2013. North America contributed 7 percentage points of the increase in NIKE, Inc. revenues, while Emerging Markets contributed 2 percentage points and Western and Central and Eastern Europe each contributed 1 percentage point. Greater China's results reduced NIKE, Inc. revenue growth by 1 percentage point. Revenues for our Other Businesses contributed 1 percentage point to our consolidated revenue growth.
Excluding the effects of changes in currency exchange rates, NIKE Brand footwear and apparel revenue increased 11% and 10%, respectively, while NIKE Brand equipment revenues increased 20% during fiscal 2013. The increase in NIKE Brand footwear revenue for fiscal 2013 was attributable to growth across our Running, Basketball, Football (Soccer), and Sportswear categories. The growth of NIKE footwear revenues continued to be fueled by increased demand for performance products, including Running models with NIKE FREE and Lunar technologies, NIKE and Brand Jordan Basketball styles, and performance Football (soccer) products. In fiscal 2013, unit sales of footwear increased approximately 7% and the average selling price per pair increased approximately 4%, driven equally by price increases and a shift in mix to higher priced products.
For NIKE Brand apparel, the increase in revenue for fiscal 2013 was driven by our Men's Training category (which includes the NFL licensed business), in addition to strong demand for Running and Basketball products. Apparel unit sales in fiscal 2013 increased approximately 7% and the average selling price per unit increased approximately 3%, reflecting a favorable mix of higher priced products, such as performance Running, Basketball, and NFL licensed apparel, and to a lesser extent, higher selling prices.
While wholesale revenues remain the largest component of overall NIKE Brand revenues, we continue to expand Direct to Consumer revenues. Our NIKE Brand Direct to Consumer operations include NIKE owned in-line and factory stores, as well as online sales through NIKE owned websites. For fiscal 2013, Direct to Consumer revenues represented approximately 19% of our total NIKE Brand revenues compared to 17% in fiscal 2012. On a currency neutral basis, Direct to Consumer revenues grew 24% for fiscal 2013, as comparable store sales grew 14% and we continue to expand our store network and e-commerce business. Comparable store sales include revenues from NIKE owned in-line and factory stores for which all three of the following requirements have been met: (1) the store has been open at least one year, (2) square footage has not changed by more than 15% within the past year, and (3) the store has not been permanently repositioned within the past year.
Revenues for our Other Businesses are comprised of results from Converse, Hurley and NIKE Golf. Excluding the impact of currency changes, revenues for these businesses increased 9% in fiscal 2013, reflecting growth across all businesses. Fiscal 2012 Compared to Fiscal 2011
On a currency neutral basis, revenues for NIKE, Inc.'s continuing operations grew 15% for fiscal 2012, driven by increases in revenues for both the NIKE Brand and our Other Businesses. Excluding the effects of changes in currency exchange rates, revenues for the NIKE Brand increased 15%, as every NIKE Brand geography delivered higher revenues for fiscal 2012. North America contributed approximately 7 percentage points to the NIKE Brand revenue increase, while the Emerging Markets and Greater China geographies contributed approximately 4 and 2 percentage points to the NIKE Brand revenue growth, respectively. Revenues for our Other Businesses grew 12% during fiscal 2012, contributing 1 percentage point of our consolidated revenue growth.
Excluding the effects of changes in currency exchange rates, NIKE Brand footwear and apparel revenue increased 15% and 13%, respectively, while NIKE Brand equipment revenues increased 16% during fiscal 2012. Continuing to fuel the growth of our NIKE Brand footwear business was the increased demand for performance products, including the NIKE Lunar and FREE technologies. The increase in NIKE Brand footwear revenue for fiscal 2012 was attributable to double-digit percentage growth in unit sales along with a low-single-digit percentage increase in average selling price per pair, primarily reflecting the favorable impact from product price increases, partially offset by higher discounts on close-out sales. The overall increase in footwear sales was driven by growth across all key categories, notably Running, Sportswear and Basketball. For NIKE Brand apparel, the increase in revenue for fiscal 2012 was driven by mid-single-digit percentage increases in both unit sales and average selling prices. The increase in average selling prices was primarily driven by product price increases, partially offset by a higher mix of close-out sales. The overall increase in apparel sales was reflective of increased demand across most key categories.
For fiscal 2012, Direct to Consumer channels represented approximately 17% of our total NIKE Brand revenues compared to 16% in fiscal 2011. On a currency neutral basis, Direct to Consumer revenues grew 21% for fiscal 2012, as comparable store sales grew 13% and we continue to expand our store network and e-commerce business.
Revenues for our Other Businesses consisted of results from our affiliate brands; Converse, Hurley and NIKE Golf. Excluding the impact of currency changes, revenues for these businesses increased by 12% in fiscal 2012, reflecting growth across all businesses except Hurley, which was down slightly for the fiscal year.
Futures Orders
Futures orders for NIKE Brand footwear and apparel scheduled for delivery from June through November 2013 were 8% higher than the orders reported for the comparable prior year period. The U.S. Dollar futures order amount is calculated based upon our internal forecast of the currency exchange rates under which our revenues will be translated during this period. Excluding the impact of currency changes, futures orders also increased 8%, as unit orders contributed approximately 5 percentage points of growth and average selling price per unit contributed approximately 3 percentage points of growth.


Table of Contents

By geography, futures orders growth was as follows:

                                                                                 Futures Orders
                                                        Reported Futures       Excluding Currency
                                                         Orders Growth             Changes(1)
North America                                                   12  %                  12 %
Western Europe                                                   2  %                   0 %
Central & Eastern Europe                                        14  %                  12 %
Greater China                                                    3  %                   0 %
Japan                                                          -17  %                   6 %
Emerging Markets                                                12  %                  12 %
Total NIKE Brand Futures Orders                                  8  %                   8 %

(1) Growth rates have been restated using constant exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations.

The reported futures orders growth is not necessarily indicative of our expectation of revenue growth during this period. This is due to year-over-year changes in shipment timing, because the mix of orders can shift between futures and at-once orders, and the fulfillment of certain orders may fall outside of the schedule noted above. In addition, exchange rate fluctuations as well as differing levels of order cancellations and discounts can cause differences in the comparisons between futures orders and actual revenues. Moreover, a significant portion of our revenue is not derived from futures orders, including at-once and close-out sales of NIKE Brand footwear and apparel, sales of NIKE Brand equipment, sales from our Direct to Consumer operations, and sales from our Other Businesses.

Gross Margin
                                                                                                           FY12 vs.
                                                                       FY13 vs. FY12                        FY11 %
(Dollars in millions)                Fiscal 2013       Fiscal 2012       % Change        Fiscal 2011        Change
Gross Profit                       $      11,034     $      10,148            9 %      $       9,202           10 %
Gross Margin %                                                                                              (220)
                                            43.6 %            43.5 %         10  bps            45.7 %        bps

Fiscal 2013 Compared to Fiscal 2012
For fiscal 2013, our consolidated gross margin was 10 basis points higher than fiscal 2012, primarily driven by higher net average selling prices (approximately 160 basis points) that were attributable to higher prices and a favorable sales mix. The positive benefit of higher net average selling prices was largely offset by higher product costs (approximately 110 basis points), primarily due to higher factory labor costs, and unfavorable foreign currency exchange rate movements (approximately 40 basis points).
In addition, we have seen significant shifts in the mix of revenues from higher to lower margin segments of our business. While growth in these lower gross margin segments delivers incremental revenue and profits, it has a negative effect on our consolidated gross margin. Fiscal 2012 Compared to Fiscal 2011
For fiscal 2012, our consolidated gross margin was 220 basis points lower than the prior year period, primarily driven by higher product input costs, including materials and labor, across most businesses. Also contributing to the decrease in gross margin were higher customs duty charges, discounts on close-out sales and an increase in investments in our digital business and infrastructure. Together, these factors decreased consolidated gross margin by approximately 390 basis points. Partially offsetting this decrease were positive impacts from product price increases, lower air freight costs, the growth of our NIKE Brand Direct to Consumer business, and benefits from our ongoing product cost reduction initiatives.

Selling and Administrative Expense
                                                                                                       FY12 vs.
                                                                     FY13 vs. FY12                      FY11 %
(Dollars in millions)                 Fiscal 2013     Fiscal 2012      % Change       Fiscal 2011       Change
Demand creation expense(1)           $     2,745     $     2,607            5 %      $     2,344           11 %
Operating overhead expense                 5,035           4,458           13 %            4,017           11 %
Selling and administrative expense   $     7,780     $     7,065           10 %      $     6,361           11 %
% of Revenues                                                                                           (130)
                                            30.7 %          30.3 %         40  bps          31.6 %        bps

(1) Demand creation consists of advertising and promotion expenses, including costs of endorsement contracts.

Fiscal 2013 Compared to Fiscal 2012
Demand creation expense increased 5% compared to the prior year, mainly driven by an increase in sports marketing expense, marketing support for key product initiatives, including the NIKE Fuelband and NFL launch, as well as an increased level of marketing spending around global sporting events such as the European Football Championships and London Summer Olympics. Excluding the effects of changes in foreign currency exchange rates, demand creation expense increased 8%.


Table of Contents

Compared to the prior year, operating overhead expense increased 13%, primarily attributable to increased investments in our Direct to Consumer operations, higher personnel costs, and corporate initiatives to support the growth of our overall business. Excluding the effects of changes in foreign currency exchange rates, the growth in operating overhead expense was 15%. Fiscal 2012 Compared to Fiscal 2011
Overall, selling and administrative expense grew at a slower rate than revenues for fiscal 2012.
Demand creation expense increased 11% compared to the prior year, mainly driven by an increase in sports marketing expense, marketing support for key product initiatives, including the NIKE Fuelband and NFL launch, as well as an increased level of brand event spending in advance of the European Football Championships and London Summer Olympics. For fiscal 2012, changes in currency exchange rates increased the growth of demand creation expense by 1 percentage point. Compared to the prior year, operating overhead expense increased 11%, primarily attributable to increased investments in our Direct to Consumer operations, higher personnel costs as well as travel expenses to support the growth of our . . .

  Add NKE to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for NKE - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.