Nike Inc. (NKE) Tuesday reported a 3 percent rise in profit for the second quarter on an 18 percent growth in revenues, even as higher product costs pulled down gross margins. Both earnings and revenues for the quarter came in ahead of Street estimates.
For the second quarter, Beaverton, Oregon-headquartered Nike's net income rose 3 percent to $469 million from $457 million in the year-ago period. Earnings per share rose to $1.00 from $0.94 last year, a rise of 6 percent reflecting repurchase of shares.
On average, 18 analysts polled by Thomson Reuters expected earnings of $0.97 per share for the quarter. Analysts' estimates typically exclude special items.
Revenues for the quarter grew 18 percent to $5.731 billion from $4.842 billion in the year-ago quarter. Seventeen Street analysts had a consensus revenue estimate of $5.630 billion for the quarter.
Excluding currency translation, revenue was up 16 percent from last year. NIKE brand revenues rose 18 percent with growth in every geography except Japan and in all key categories except Action Sports.
For other businesses, revenues increased 5 percent with minimal impact from currency changes. Growth at Converse more than offset lower revenues at NIKE Golf, Cole Haan, Hurley and Umbro.
Gross margin for the quarter declined to 42.7 percent from 45.3 percent last year due primarily to higher product costs. The increased costs more than offset the positive effects of growing sales in Direct to Consumer operations, price increases and ongoing cost reduction initiatives.
In Nike's biggest market North America, revenues grew 21 percent excluding currency changes. On that basis, Western Europe revenues grew 2 percent, Central & Eastern Europe revenues grew 19 percent, Greater China revenues grew 28 percent, Emerging Markets grew 26 percent. Only Japan registered a drop in revenues, of 7 percent, but was positive due to the impact of currency changes with a growth of 3 percent.
At November 30, inventories were 35 percent higher than a year ago, at $3.2 billion, attributed to significantly higher average unit product cost and growth in total units. Nineteen percentage points out of the 39 percent increase in NIKE Brand inventories were primarily a result of significantly higher product input costs. The remaining twenty percent was due to higher wholesale unit inventories, which, relative to revenues, the company said was broadly consistent with levels reported prior to the 2009 - 2010 economic downturn.
Cash and short-term investments were $3.4 billion, $1.4 billion lower than last year as higher working capital investments reduced free cash flow from operations. Other factors for the drop were repurchases, dividend payments and long-term debt payments.
During the second quarter, a total of 7.6 million shares were repurchased for about $672 million as part of the company's four-year, $5 billion share repurchase program, approved by the board in September 2008. As of quarter-end, a total of 45.6 million shares were repurchased for about $3.6 billion under this program.
As of the end of the quarter, worldwide future orders for NIKE Brand athletic footwear and apparel totaled $8.9 billion, 13 percent higher than orders reported for the same period last year, with no impact of currency. The orders are scheduled for delivery from December 2011 through April 2012.
NKE closed Tuesday's regular trading at $93.63, up $0.25 or 0.27%, on the NYSE. In after-hours, the stock gained $1.72 or 1.84%. Over the past year, the stock traded in a range of $69.43 - $98.25.
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