Nike 2015 Annual Report Download - page 21

PART II
ITEM 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
NIKE designs, develops, markets and sells athletic footwear, apparel,
equipment, accessories and services worldwide. We are the largest seller of
athletic footwear and apparel in the world. We sell our products to retail
accounts, through NIKE-owned in-line and factory retail stores and NIKE-
owned internet websites (which we refer to as our “Direct to Consumer” or
“DTC” operations), and through a mix of independent distributors, licensees
and sales representatives in virtually all countries around the world. Our goal is
to deliver value to our shareholders by building a profitable global portfolio of
branded footwear, apparel, equipment and accessories businesses. Our
strategy is to achieve long-term revenue growth by creating innovative, “must
have” products, building deep personal consumer connections with our
brands and delivering compelling consumer experiences at retail and online.
In addition to achieving long-term, sustainable revenue growth, we continue
to strive to deliver shareholder value by driving operational excellence in
several key areas:
•Expanding gross margin by:
–Delivering innovative, premium products that command higher prices
while maintaining a balanced price-to-value proposition for consumers;
–Reducing product costs through a continued focus on manufacturing
efficiency, product design and innovation;
–Making our supply chain a competitive advantage by investing in new
technologies that increase automation, help reduce waste and have long-
term potential to increase both customization of our products and speed
to market; and
–Driving growth in our higher gross margin DTC business as part of an
integrated marketplace growth strategy across our DTC and wholesale
operations.
•Optimizing selling and administrative expense by focusing on:
–Investments in consumer engagement that drive economic returns in the
form of incremental revenue and gross profit;
–Infrastructure investments that improve the efficiency and effectiveness of
our operations; and
–Increasing the productivity of our legacy infrastructure.
•Improving working capital efficiency; and
•Deploying capital effectively.
Through execution of this strategy, our long-term financial goals continue to
be:
•High single-digit revenue growth,
•Mid-teens earnings per share growth,
•Strong return on invested capital and accelerated cash flows and
•Sustainable, profitable, long-term growth through effective management of
our diversified portfolio of businesses.
Over the past ten years, we have achieved many of these financial goals.
During this time, revenues and diluted earnings per common share for NIKE,
Inc., inclusive of both continuing and discontinued operations, have grown
8% and 13%, respectively, on an annual compounded basis. Our return on
invested capital has increased from 23.2% to 28.1% and we expanded gross
margins by approximately 150 basis points.
On November 15, 2012, we announced a two-for-one stock split of both
Class A and Class B Common shares. The stock split was in the form of a
100% stock dividend payable on December 24, 2012 to shareholders of
record at the close of business on December 10, 2012. Common stock
began trading at the split-adjusted price on December 26, 2012. All share
numbers and per share amounts presented reflect the stock split.
Our fiscal 2015 results from continuing operations demonstrated NIKE’s
ongoing commitment to deliver consistent growth in revenues, earnings and
cash returns to shareholders, while investing for long-term growth. Despite
significant foreign currency headwinds, we delivered record revenues and
earnings per share in fiscal 2015. NIKE, Inc. Revenues grew 10% to $30.6
billion, gross margin expanded 120 basis points, Net income from continuing
operations increased 22% to $3.3 billion and diluted earnings per common
share increased 25% to $3.70.
Earnings before interest and income taxes (“EBIT”) from continuing operations
increased 18% for fiscal 2015, driven by revenue growth and gross margin
expansion, which more than offset higher selling and administrative expense.
The increase in revenues was attributable to growth across nearly all
NIKE Brand geographies, key categories and product types. This broad-
based growth was primarily fueled by:
•Innovative performance and sportswear products, incorporating proprietary
technology platforms such as NIKE Air, Free, Zoom, Lunar, Flywire, Dri-Fit
and Flyknit;
•Deep brand connections to consumers through a category lens, reinforced
by investments in endorsements by high-profile athletes, sports teams and
leagues, high-impact marketing around global sporting events (such as the
World Cup and NFL Super Bowl) and digital marketing; and
•Strong category retail presentation online and at NIKE-owned and retail
partner stores.
Our Converse business also grew, with revenue and EBIT growth of 18% and
4%, respectively.
Gross margin increased primarily due to higher average selling prices and the
favorable impact of our higher-margin DTC businesses, partially offset by
higher product input costs, primarily a result of labor input cost inflation and
shifts in mix to higher-cost products.
For fiscal 2015, the growth of our net income from continuing operations was
positively affected by a year-over-year decrease in our effective tax rate of 180
basis points primarily due to the favorable resolution of audits in several
jurisdictions. In addition, diluted earnings per common share grew at a higher
rate than net income due to a 2% decrease in the weighted average diluted
common shares outstanding, driven by our share repurchase program.
While foreign currency markets remain volatile, we continue to see
opportunities to drive future growth and remain committed to effectively
managing our business to achieve our financial goals over the long-term by
executing against the operational strategies outlined above.
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