Nike (NKE) Q4 2007 earnings summary

Executive summary

• FY07 revenue rose 9% to $16.3B; net income increased 7% to $1.5B and diluted EPS rose 11% to $2.93. Excluding Converse arbitration and stock-based compensation, net income grew 11% and diluted EPS 15% to $3.10.

• Growth spanned all geographic regions and product business units; demand for footwear, apparel and equipment remained strong.

• Long-term targets remain high-single-digit revenue growth, mid-teens EPS growth, higher return on invested capital and accelerated cash flow.

Financial highlights

• Revenue was $16,325.9M, up 9% YoY; gross margin was $7,160.5M, up 9%, while gross margin rate edged down 10 bps to 43.9%.

• Operating income was not separately presented; selling and administrative expense rose 12% to $5,028.7M, or 30.8% of revenue versus 29.9%.

• Income before taxes increased 3% to $2,199.9M; net income rose 7% to $1,491.5M and diluted EPS grew 11% to $2.93.

• Cash from operations increased to $1,878.7M from $1,667.9M; inventories were $2,121.9M versus $2,076.7M at year-end.

• FY07 included a $141.9M pre-tax stock-compensation charge and Converse arbitration effects; adjusted net income was $1,578.6M and adjusted diluted EPS was $3.10.

Outlook and guidance

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

• June-November 2007 worldwide footwear and apparel futures orders were $7.7B versus $6.6B a year earlier; nearly 12% higher, with ~95% historically expected to ship, but orders are not a reliable revenue forecast.

• FY08 apparel revenue growth in the Americas was expected to resume, supported by Brazil's shift from licensed to wholesale distribution.

• Cash generated from operations and external funding access were expected to cover operating and capital requirements in the foreseeable future.