NIKE, Inc. 10-Q Filing Summary
Business Context and Reporting Period
This filing covers the quarterly period ended February 28, 2009 (Fiscal Q3 2009) and the nine months ended February 28, 2009. NIKE, Inc. operates globally in the design, production, marketing, and selling of sports and fitness footwear, apparel, and equipment. The company is a large accelerated filer incorporated in Oregon.
Key Financial Metrics
| Metric | Q3 2009 | Q3 2008 | 9 Months 2009 | 9 Months 2008 |
|---|---|---|---|---|
| Revenues | $4,440.8 million | $4,544.4 million | $14,463.1 million | $13,539.0 million |
| Gross Margin | $1,948.5 million (43.9%) | $2,047.9 million (45.1%) | $6,560.6 million (45.4%) | $6,056.0 million (44.7%) |
| Net Income | $243.8 million | $463.8 million | $1,145.3 million | $1,392.9 million |
| Diluted EPS | $0.50 | $0.92 | $2.33 | $2.76 |
| Cash from Operations (9mo) | $662.4 million (vs. $1,303.8 million prior year) | |||
| Cash & Equivalents | $1,892.1 million (as of Feb 28, 2009) | |||
| Total Debt (Current + Long-term) | $469.8 million (Current: $32.0m + Notes: $331.1m + LT: $437.8m) |
Material Changes vs. Prior Period
- Revenue Decline: Q3 revenues decreased 2% year-over-year, primarily due to a 4 percentage point negative impact from foreign currency exchange rates. On a constant currency basis, most regions grew except EMEA.
- Significant Impairment Charges: The company recorded a $401.3 million pre-tax non-cash impairment charge related to the Umbro acquisition (Goodwill: $199.3m; Intangibles: $181.3m; Other assets: $20.7m). This reduced Q3 net income by approximately 47%.
- Margin Pressure: Gross margin percentage declined 120 basis points in Q3 to 43.9%, driven by higher product costs, increased discounts (particularly in apparel), and higher inventory obsolescence reserves.
- Operating Expenses: Selling and administrative expenses decreased 4% in Q3 due to cost-cutting measures, including a hiring freeze and reduced travel and demand creation spending.
- Segment Performance:
- U.S. Region: Revenue up 3%; Pre-tax income up 2%.
- EMEA Region: Revenue down 14% (currency impact); Pre-tax income down 18%.
- Asia Pacific: Revenue up 8%; Pre-tax income up 11%.
- Other (includes Umbro): Pre-tax income swung from a $106.1 million profit to a $344.1 million loss due to impairment charges.
Guidance, Outlook, and Risks
- Restructuring Plan: Management announced a plan to reduce the global workforce by up to 4%, expecting gross restructuring charges between $175 million and $225 million, primarily severance costs. Most charges are expected in Q4 2009 and Q1 2010.
- Future Orders: Worldwide futures and advance orders for NIKE Brand footwear and apparel (delivery March–July 2009) were 10% lower than the prior year. Excluding currency, declines in apparel units in the U.S. and EMEA drove the decrease.
- Outlook: Management expects S&A expenses to decline by a double-digit percentage in Q4 2009. The effective tax rate for Q4 is estimated at approximately 29%.
- Risks: The filing highlights significant risks from the deteriorating macroeconomic environment, including reduced consumer discretionary spending, credit market volatility, and potential supply chain disruptions. Continued monitoring of goodwill and intangible assets for future impairment is noted.
Investor Verification Checklist
- Verify the sustainability of the Umbro impairment and whether further write-downs are anticipated given the "continued adverse conditions."
- Monitor the execution of the restructuring plan and the timing of the $175–$225 million in charges.
- Assess the impact of the 10% decline in futures orders on Q4 and Q1 2010 revenue guidance.
- Review the gross margin trajectory as the company navigates higher product costs and increased discounting in a weak retail environment.
- Confirm the company's ability to maintain liquidity and access credit markets despite the adverse conditions in commercial paper markets.