Business Context and Reporting Period
Company: NIKE, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and six months ended November 30, 1995 (Fiscal Year 1996)
Context: The Company reported its seventh consecutive quarter of record revenues and fifth consecutive quarter of record net income. A two-for-one stock split was effected on October 30, 1995, with prior period figures restated accordingly.
Key Financial Metrics
| Metric | Q2 1995 (3 Months) | Q2 1994 (3 Months) | YTD 1995 (6 Months) | YTD 1994 (6 Months) |
|---|---|---|---|---|
| Revenues | $1,443,027 | $1,053,746 | $3,057,676 | $2,224,101 |
| Net Income | $118,216 | $84,939 | $282,997 | $190,926 |
| Diluted EPS | $0.80 | $0.58 | $1.93 | $1.29 |
| Gross Margin % | 39.3% | 39.3% | 39.7% | 39.7% |
| Cash & Equivalents | $204,826 | $546,105 | $204,826 | $546,105 |
| Working Capital Ratio | 2.0:1 | N/A | 2.0:1 | N/A |
| Debt to Equity Ratio | 0.6:1 | 0.4:1 | 0.6:1 | 0.4:1 |
Note: All financial figures are in thousands, except per share data and ratios.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 37% year-over-year for the quarter, driven by a 33% increase in U.S. revenues and a 30% increase in international revenues. U.S. apparel sales doubled (100% increase), while U.S. footwear grew 18%.
- Profitability: Net income rose 39.2% for the quarter and 48.2% year-to-date. Gross margins remained stable at 39.3% for the quarter.
- Expense Increases: Selling and administrative expenses increased $89.7 million for the quarter, primarily due to planned marketing and advertising for U.S. operations and the inclusion of Canstar Sports expenses.
- Cash Flow: Cash provided by operations decreased to $111.3 million (YTD 1995) from $185.4 million (YTD 1994), largely due to a $216 million increase in working capital components (accounts receivable and inventories).
- Balance Sheet: Inventories increased $81.1 million to $710.8 million. Notes payable increased $45.9 million to fund operations, while long-term debt was reduced.
Guidance, Outlook, and Risks
- Order Book: Worldwide orders for delivery from December 1995 through April 1996 are approximately $2.7 billion, a 34% increase over the prior year. Management notes this is not necessarily indicative of total revenues due to shipment mix and exchange rate fluctuations.
- Margin Outlook: Gross profit percentages for the remainder of fiscal 1996 are expected to be affected by strong demand offset by increased air freight costs to meet delivery dates.
- Expense Outlook: Selling and administrative expenses as a percentage of revenues are expected to increase for the remainder of the fiscal year to levels consistent with the prior year, reflecting continued investment in growth and marketing.
- Tax Rate: The effective tax rate is anticipated to remain at 38.5% for fiscal year 1996.
- Liquidity: The Company maintains $500 million in committed unused lines of credit. Management believes funds from operations and available resources will adequately finance fiscal 1996 expenditures.
- Dividends: The quarterly cash dividend was increased by 20% to $0.15 per share.
Investor Verification Checklist
- Inventory Levels: Verify the $81.1 million increase in inventories against the $2.7 billion order book to assess potential future write-downs or obsolescence risks.
- Working Capital Efficiency: Monitor the $131.6 million increase in accounts receivable and its impact on future cash flow generation.
- Acquisition Integration: Assess the financial contribution of Canstar Sports (acquired prior fiscal year) to the reported revenue and expense increases.
- Freight Costs: Track the impact of increased air freight costs on gross margins in upcoming quarters as noted in management commentary.
- Debt Structure: Review the shift from long-term debt reduction to increased short-term notes payable ($443 million) to fund operations.