Nike Inc. (NKE) – a global leader in sports equipment and apparel – came up with its third-quarter fiscal 2013 earnings of 73 cents per share, which surpassed the Zacks Consensus Estimate of 67 cents. Moreover, the quarterly earnings climbed 19.7% year over year, resulting from increased revenues, improved margins, lower share count and reduced tax rate.
Quarter in Detail
Nike's total revenue grew 9% year over year to $6,187 million but fell short of the Zacks Consensus Estimate of $6,229 million. Adjusting for the currency effect, the company’s revenues increased 10%. The year-over-year elevation in revenues was primarily driven by robust performances across all geographical regions barring Greater China and Japan. Moreover, the company registered growth in all key categories excluding Sportswear and Action Sports.
On a currency neutral basis, revenues for Nike brands elevated 10%, while other businesses delivered 9% growth. Increase in Nike’s other businesses revenue was primarily led by strong performance at Converse and NIKE Golf, which was partially offset by weak sales at Hurley.
Nike's quarterly gross profit grew 10% from the year-ago quarter to $2,736 million, and gross margin expanded 30 basis points to 44.2%. The margin expansion mainly resulted from better pricing actions and lower material costs, partially offset by increased labor expenses, higher discounts in Greater China and adverse foreign exchange rates. Another factor that pulled down the gross margin was the switch of the NIKE Brand to a mix focused on lower margin businesses.
Selling and administrative expenses increased 9% to $1,863 million, including a rise of 11% and 5% in operating overhead costs and demand creation expense, respectively. Overhead expenses rose on the back of increased investments in the wholesale business and higher Direct to Consumer costs due to new store openings and mounting expenses at existing stores.
Operating income for the quarter increased 12.4% year over year to $873 million, while operating margin expanded 40 basis points to 14.1%. The year-over-year expansion in margins was primarily due to higher gross margin.
Balance Sheet
Global inventories increased 4% at the end of third quarter to $3,329 million compared with $3,206 million in the same period of fiscal 2012. The year-over-year increase in global inventories was primarily led by a 7% rise in NIKE Brand wholesale unit inventories, partially offset by a 3% negative impact from unfavorable foreign currency translations.
Nike, which competes with Deckers Outdoor Corporation (DECK) and Skechers USA Inc. (SKX), ended the quarter with cash and cash equivalents of $2,557 million compared with cash balance of $2,021 million as of Feb 29, 2012. Moreover, the company has a long-term debt of $161 million and shareholders’ equity of $10,667 million at the end of third quarter.