Business Context and Reporting Period
Company: NIKE, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: November 30, 1996 (Second Quarter of Fiscal Year 1997)
Reporting Basis: Unaudited condensed consolidated financial statements. Prior year comparative data (1995) has been adjusted to eliminate a one-month reporting lag in certain international operations to ensure comparability.
Key Financial Metrics
| Metric | Three Months Ended Nov 30, 1996 | Six Months Ended Nov 30, 1996 | Three Months Ended Nov 30, 1995 (Adj.) | Six Months Ended Nov 30, 1995 (Adj.) |
|---|---|---|---|---|
| Revenues | $2,107,034 | $4,388,960 | $1,356,758 | $3,056,778 |
| Net Income | $176,872 | $402,935 | $97,812 | $279,910 |
| Diluted EPS | $0.60 | $1.36 | $0.34 | $0.96 |
| Gross Margin % | 39.4% | 39.9% | 39.0% | 39.8% |
| Cash & Equivalents | $267,534 (as of Nov 30, 1996) | |||
| Working Capital | $1,605,414 (Current Assets $3,070,956 - Current Liab. $1,465,542) | |||
| Current Ratio | 2.10:1 | |||
| Debt-to-Equity | 0.6:1 |
Note: All figures in thousands except per share data and percentages.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 55% for the quarter and 44% year-to-date. This marks the ninth consecutive quarter of double-digit revenue growth.
- Profitability: Net income surged 81% for the quarter and 44% year-to-date. Year-to-date net income ($402.9 million) exceeded the total net income for the entire 1995 fiscal year.
- Segment Performance:
- U.S. Operations: Revenues up 63% for the quarter. U.S. Apparel grew 93%; U.S. Footwear grew 52% (driven by a 48% increase in pairs sold).
- International: Revenues up 60% for the quarter. Japan was the largest non-U.S. market, up 171% for the quarter. Asia Pacific grew 96%.
- Other Brands: Slight decline of 1% for the quarter.
- Expense Management: Selling and administrative expenses decreased as a percentage of revenue for the quarter (25.2% vs. 26.1% prior year) despite a $177 million dollar increase, due to revenue outstripping costs.
- Cash Flow: Cash provided by operations was $125 million for the six months, compared to $93 million in the prior year. However, cash used in investing activities increased significantly to $203 million (vs. $95 million prior year) due to capital expenditures.
Guidance, Outlook, and Risks
- Order Backlog: Worldwide orders for delivery from December 1996 through April 1997 were approximately $4.1 billion, a 54% increase over the prior year. Management notes this is not necessarily indicative of future revenue growth due to a shift toward "futures" orders.
- Margin Outlook: Management expects full-year gross margin percentage to be up only slightly from the prior fiscal year. Increases in pricing and demand are expected to be offset by higher air freight costs.
- Expense Outlook: Selling and administrative expenses as a percentage of revenue are expected to approximate the prior year's level for the full fiscal year.
- Tax Rate: The effective tax rate is anticipated to remain at approximately 38.75% for fiscal 1997.
- Dividends: The quarterly cash dividend was increased by 33% to $0.10 per share.
- Subsequent Event: In December 1996, the company issued $200 million in seven-year notes at 6.375% interest to refinance short-term debt and for general corporate purposes.
- Risks: Exchange rates negatively impacted revenue by $38 million for the quarter and $93 million year-to-date. Forward-looking statements are subject to risks detailed in SEC filings.
Investor Verification Checklist
- Inventory Levels: Verify the sustainability of the $50 million increase in inventory ($981 million total) and the reported inventory turn improvement to 5.56.
- Order Mix: Assess the impact of the shift from "at once" to "futures" orders on future revenue recognition timing.
- Freight Costs: Monitor the impact of increased air freight costs on the projected slight improvement in gross margins.
- International Exposure: Evaluate the sensitivity of future earnings to foreign exchange rate fluctuations, given the significant international revenue growth.
- Capital Expenditures: Review the $188 million in capital additions for the six-month period to ensure alignment with long-term growth strategy.