Nike 2014 Annual Report Download - page 33

PART II
Fiscal 2014 Compared to Fiscal 2013
Excluding changes in currency exchange rates, revenues for Converse
increased 15% for fiscal 2014. Revenue growth in direct distribution markets,
which represent approximately 84% of Converse revenues, contributed 16
percentage points to the total increase for fiscal 2014, while licensing
revenues decreased overall revenue by 1 percentage point. Revenues from
our direct distribution markets grew 19% for fiscal 2014 driven by growth in
“comparable” direct distribution markets (i.e., markets served under a direct
distribution model for comparable periods in the current and prior fiscal years),
primarily the United States, China, and the United Kingdom. Comparable
direct distribution markets revenue increased 13%, contributing 12
percentage points of direct distribution markets revenues growth for fiscal
2014, while conversion of markets from licensed to direct distribution
contributed 7 percentage points. Comparable direct distribution markets unit
sales increased 12% and average selling price per unit increased 1% for fiscal
2014. The increase in average selling price per unit resulted primarily from a
favorable mix of higher priced product. Due to market conversions and
business declines in Latin America, licensing revenues decreased 3% for
fiscal 2014.
On a reported basis, EBIT at Converse grew 17% for fiscal 2014 as higher
revenues and gross margin were partially offset by higher selling and
administrative expense. Gross margin increased 80 basis points, primarily
due to growth in higher margin territories and products within our direct
distribution markets. Selling and administrative expense grew faster than
revenue for fiscal 2014 due to higher operating overhead to support growth
initiatives and DTC expansion, as well as higher demand creation spending.
Fiscal 2013 Compared to Fiscal 2012
Constant currency revenues for Converse increased 10% for fiscal 2013.
Revenue growth in direct distribution markets, which represented
approximately 81% of Converse revenues, contributed 11 percentage points
to the total increase for fiscal 2013, while licensing revenues decreased overall
revenue growth by 1 percentage point. Revenues from our direct distribution
markets grew 15% for fiscal 2013 driven by growth in comparable direct
distribution markets, primarily the United States, China, and the United
Kingdom. Comparable direct distribution markets revenues increased 11%,
contributing 10 percentage points of direct distribution markets revenue
growth for fiscal 2013; conversion of markets from licensed to direct
distribution contributed 5 percentage points. Comparable direct distribution
markets unit sales increased 6% and average selling price per unit increased
5% for fiscal 2013. The increase in average selling price per unit resulted
primarily from a higher mix of higher priced product. Due to market
conversions and business declines in Latin America, licensing revenues
decreased 7% for fiscal 2013.
On a reported basis, EBIT for Converse grew 8% for fiscal 2013 as higher
revenues and gross margin were partially offset by higher selling and
administrative expense. Gross margin increased 120 basis points, primarily
due to growth in higher margin territories and products within our direct
distribution markets. Selling and administrative expense grew faster than
revenue for fiscal 2013 due to higher operating overhead to support growth
initiatives and DTC expansion, as well as higher demand creation spending.
Corporate
(Dollars in millions) Fiscal 2014 Fiscal 2013 % Change Fiscal 2012 % Change
Revenues $ 3 $ (17) — $ (4) —
(Loss) Before Interest and Taxes $ (1,009) $ (884) 14%$ (674) 31%
Corporate revenues primarily consist of foreign currency hedge gains and
losses related to revenues generated by entities within the NIKE Brand
geographic operating segments and Converse but managed through our
central foreign exchange risk management program.
The Corporate loss before interest and taxes consists largely of unallocated
general and administrative expenses, including expenses associated with
centrally managed departments; depreciation and amortization related to our
corporate headquarters; unallocated insurance, benefit, and compensation
programs, including stock-based compensation; and certain foreign currency
gains and losses.
In addition to the foreign currency gains and losses recognized in Corporate
revenues, foreign currency results included in gross margin are gains and
losses resulting from the difference between actual foreign currency rates and
standard rates used to record non-functional currency denominated product
purchases within the NIKE Brand geographic operating segments and
Converse; related foreign currency hedge results; conversion gains and
losses arising from re-measurement of monetary assets and liabilities in non-
functional currencies; and certain other foreign currency hedge results.
Fiscal 2014 Compared to Fiscal 2013
For fiscal 2014, Corporate’s loss before interest and taxes increased by $125
million primarily due to the following:
•a $99 million increase in corporate overhead expense related to corporate
initiatives to support the growth of the business as well as performance-
based compensation;
•a $90 million increase in foreign currency net losses, reported as a
component of Other expense (income), net; and
•a $56 million decrease in foreign exchange losses related to the difference
between actual foreign currency exchange rates and standard foreign
currency exchange rates assigned to the NIKE Brand geographic operating
segments and Converse, net of hedge gains; these losses are reported as a
component of consolidated gross margin.
Fiscal 2013 Compared to Fiscal 2012
For fiscal 2013, Corporate’s loss before interest and taxes increased by $210
million primarily due to the following:
•a $165 million increase in foreign exchange losses related to the difference
between actual foreign currency exchange rates and standard foreign
currency exchange rates assigned to the NIKE Brand geographic operating
segments and Converse, net of hedge gains; these losses are reported as a
component of consolidated gross margin;
•an $86 million increase in corporate overhead expense related to corporate
initiatives to support the growth of the business and performance-based
compensation; and
•a $48 million decrease in foreign currency net losses, reported as a
component of Other expense (income), net.
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