), a global leader in sports equipment and apparel, came up with
its first-quarter 2013 earnings of $1.27 per share, which ran past
the Zacks Consensus Estimate of $1.12. However, the quarterly
earnings dipped 9% year over year resulting from poor gross margin,
higher SG&A and increased tax rate.
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Nike's total revenue augmented 10% to $6,669 million driven by
superior demand for Nike brand. Adjusting for currency effect, the
company's revenue grew 15%. Revenue for the quarter also surpassed
the Zacks Consensus Estimate of $6,438 million.
On currency neutral basis, revenue for Nike brands elevated 16%,
while other businesses delivered 9% growth. Revenue from Cole Haan
and Umbro, which are to be divested, was up by 6%. During the
quarter, the company witnessed strength across all key categories
and geographies, except Japan.
Quarter in Detail
Nike's quarterly gross profit surged 8% from the year-ago quarter
to $2,903 million, while gross margin contracted 80 basis points to
43.5%. The margin contraction mainly resulted from higher input
costs due to higher materials and labor expenses, offset by better
pricing actions and product cost reduction initiatives. Another
factor which pulled down the gross margin was NIKE Brand switching
to a mix focused on lower margin businesses as well as the
transformation of the China market to direct distribution for
Selling and administrative expenses increased 18% to $2,153
million, including a 29% surge in demand creation expense and a 12%
growth in operating overhead expense. Higher demand creation
expenses came from increased marketing support for key product
initiatives, as well as supporting events like Olympics and
European Football Championships. Overhead expenses rose on the back
of increased investments in the wholesale business and higher
Direct to Consumer costs due to opening of new stores.
Global inventories registered a 10% growth year over year, rising
to $3,411 million. The growth was at par with revenue and was
driven by the strong demand for the company's products. Nike ended
the year with cash and cash equivalents of $2,165 million compared
with cash balance of $1,608 million in the year-ago period.
During the quarter, the company repurchased 8.2 million shares for
about $779 million as part of its 4-year, $5.0 billion share
repurchase program approved in September 2008. As of August 31,
2012, the company's total share repurchases under the program
totaled 58.5 million for an aggregate value of $4.9 billion. The
company completed the said $5 billion program in the second quarter
and commenced a new 4-year, $8 billion repurchase program.
Nike is the industry leader in the U.S. footwear and athletic
apparel industry. In an attempt to expand its global reach and
market share, Nike is aggressively expanding its operations in the
emerging markets while focusing on direct-to-consumer business and
other brands, which augur well for future operating performance. In
fiscal year 2012, Nike exhibited significant strength by innovative
products and services that helped boost its top lines.
Moreover, the company's near-to-debt free balance sheet offers
financial flexibility to drive future growth.
However, Nike faces intense competition in both domestic and
international markets from local as well as established players,
such as Adidas AG (including Reebok),
Brown Shoe Company Inc.
). These companies are primarily in athletic wear and intend to
grab market share in active wear or lifestyle consumer products.
Currently, Nike maintains a Zacks #3 Rank, which translates into a
short-term Hold rating. We retain a long-term 'Underperform'
recommendation on the stock.