Strong Dollar Weighs on Nike’s Sales

The Iconic Shoemaker continues to look to international markets to fuel future growth

Source: Company's Website
Source: Company’s Website

Footwear giant Nike Inc. (NYSE: NKE) announced its Q4 FY16 and full year FY16 financial results on June 28th, 2016. Nike, based near Beaverton, Oregon, is the world’s leading designer, marketer, and distributor of athletic footwear, apparel, equipment and accessories for a variety of sports and fitness activities. The Company offers products in eight key categories: Running, Basketball, Football, Men’s Training, Women’s Training, Action Sports, Sportswear and Golf. Nike’s wholly owned subsidiary brands include Converse, which designs, distributes and licenses casual sneakers, apparel and accessories; and Hurley, which designs and distributes a line of action sports and youth lifestyle apparel and accessories. Read more about the Nike’s financial results below.

Q4 FY16 financial highlights

Nike’s Q4 FY16 revenues rose 6% to $8.2 billion as compared to the year-ago quarter. Revenues would have climbed 9% without the impact of foreign exchange. Revenues for the Nike brand grew 8% to $7.7 billion on a currency-neutral basis, driven by double-digit growth in Western Europe, Greater China, Emerging Markets, and Japan, as well as growth in Sportswear, Global Football and the Jordan brand. Revenues for Converse rose 18% to $513 million on a currency-neutral basis during Q4 FY16.

However, gross margins during Q4 FY16 contracted 30 basis points to 45.9% since better average selling prices were offset by higher product costs and unfavorable foreign currency exchange rates. Moreover, selling and administrative expenses increased 7% to $2.8 billion during the quarter under review. Operating overhead expenses also grew 7% to $1.9 billion, reflecting investments in operational infrastructure and consumer-focused digital capabilities.

As a result, Nike’s net income decreased 2% to $846 million, or $0.49 per share, as revenue growth was more than offset by lower gross margin, higher expenses, and a higher tax rate.

FY16 financial highlights

Nike’s full year FY16 revenues rose 6% to $32.4 billion. Revenues would have climbed 12% without the impact of foreign exchange. Revenues for the Nike brand grew 13% to $30.5 billion excluding the impact of changes in foreign currency during FY16. As of May 31st, 2016, the Nike brand operated 919 direct to consumer stores versus 832 a year ago.

Source: Company's Website
Source: Company’s Website

On a currency neutral basis, the Nike brand’s revenue increase was due to robust growth in Sportswear, Running and the Jordan Brand. Revenues for Converse were up 2% to $2 billion on a currency neutral basis during FY16.

For the full year FY16, Nike’s gross margins expanded 20 basis points to 46.2% driven by higher average selling prices and growth in the higher margin DTC business. These increases were partially offset by higher product costs and the negative impact of foreign currency exchange rates.

Nike’s FY16 selling and administrative expenses grew 6% to $10.5 billion owing to investments in DTC marketing, brand events and sports marketing, which were partially offset by lower advertising expenses. Operating overhead expenses grew 8% to $7.2 billion during FY16 owing to investments in operational infrastructure and consumer-focused digital capabilities.

Net income grew 15% to $3.8 billion in FY16 on account of global revenue growth, gross margin expansion, and a lower tax rate. As a result, diluted earnings per share increased 17% to $2.16 during FY16, versus $1.85 in the previous year.

Share repurchase

During Q4 FY16, Nike repurchased nine million shares for approximately $540 million as part of its $12 billion share repurchase program approved in November 2015. As of the end of FY16, Nike had repurchased 20.1 million shares under this program for approximately $1.2 billion, at an average cost of $59.21 per share.

In FY16, Nike repurchased a total of 55.4 million shares for approximately $3.2 billion, at an average cost of $58.44 per share, under its $12 share repurchase billion program as well as the previous $8 billion program approved in September 2012.

Futures orders

As of May 31st, 2016, global futures orders for the Nike brand footwear and apparel scheduled for delivery from June through November 2016 totaled $14.9 billion, which is 8% higher than orders reported for the same period last year, and 11% higher on a currency neutral basis.

Stock Performance

N3Nike’s stock stood at $55.13, up 3.84%, at the close on Wednesday, June 29th, 2016, having vacillated between an intraday high of $55.14 and a low of $52.89 during the session. The stock’s trading volume was at 36,072,342 for the day. The Company’s market cap was at $92.88 billion as of Wednesday’s close.

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