Nike (NKE) Q4 2004 earnings summary

Executive summary

• FY04 revenue rose 15% to $12.253B; gross margin expanded 190 bps to 42.9%, and income before the accounting change increased 28% to $945.6M.

• Diluted EPS before accounting change was $3.51, up 27%; reported net income was $945.6M versus $474.0M, which included a prior-year $266.1M goodwill and trademark impairment charge.

• Performance benefited from higher revenue and margins across regions, favorable currency effects, working-capital management, and Converse acquisition contribution.

Financial highlights

• FY04 revenue $12,253.1M, up 15%; cost of sales $7,001.4M, up 11%; gross margin $5,251.7M, up 20%.

• Selling and administrative expense rose 17% to $3,702.0M, including demand creation expense of $1,377.9M, up 18%.

• Income before income taxes and accounting change was $1,450.0M; income taxes were $504.4M and net income was $945.6M.

• Q4 revenue was $3,487.1M vs. $2,985.1M YoY; gross margin was 43.8% vs. 41.5%, net income $305.0M vs. $246.2M, and diluted EPS before accounting change $1.13 vs. $0.92.

Outlook and guidance

• Long-term targets: high-single-digit revenue growth, mid-teens EPS growth, higher return on invested capital and accelerated cash flow, with consistent results across the business portfolio.

• Worldwide footwear and apparel futures and advance orders for June–November 2004 were 11.3% higher YoY; order growth is not necessarily indicative of revenue growth.

• Expected positive FY05 gross-margin impact from improved year-over-year hedge rates, primarily the euro; the net currency benefit to FY05 income was expected to be significantly lower than FY04.

• Management expected cash from operations and access to external funding to cover operating and capital needs; most remaining supply-chain system implementations were expected over the next two years.