Driven by strong revenue growth and gross margin expansion, net income at sports goods marketer, Nike for the third fiscal quarter ended February 28, 2015 surged 16 percent year over year.
In the third quarter of fiscal 2015, Nike said its net income grew 16 per cent to $791 million, while diluted earnings per share increased 19 per cent to $0.89 per share.
Diluted earnings per share for the quarter were up 19 percent due to higher revenues, partially offset by higher SG&A investments and a higher effective tax rate, Nike said in a press release.
Revenues for the reporting quarter rose 7 per cent from the year ago quarter to $7.5 billion and also up 13 per cent on a currency neutral basis.
Revenues for the Nike brand were $6.9 billion, up 11 per cent on a currency neutral basis driven by growth in every geography and in most key categories.
Revenues for Converse totaled to $538 million, a surge of a massive 33 per cent on a currency neutral basis, mainly from continued growth and timing of shipments in North America.
Nike also attributed the surge in Converse revenue to the transition to direct distribution in Austria, Germany, Switzerland and growth in the Direct to Consumer (DTC) business.
Gross margin expanded 140 basis points to 45.9 per cent, which benefitted from a continued shift in mix to higher margin products, partially offset by higher product input and warehousing costs.
Selling and administrative expense increased 10 per cent to $2.4 billion, of which demand creation expense was $731 million, flat to the prior year quarter.
However, operating overhead expense ascended higher by 15 per cent to $1.6 billion, reflecting growth in the DTC business and investments in infrastructure and consumer-focused digital capabilities.
The effective tax rate was 24.4 per cent for the quarter under review compared to 22.5 per cent for the same period last year, primarily due to the impact of tax expense on intercompany transactions.
Inventories stood at $4.2 billion, up 12 per cent from February 28, 2014, driven by a 12 per cent increase in Nike brand wholesale inventories as well as higher inventories associated with growth in DTC.
Nike brand wholesale inventories were higher due to a 17 per cent increase in units, while changes in the average product cost per unit, decreased growth by approximately 5 percentage points.
Cash and short-term investments were $5.4 billion, $332 million higher than last year as growth in net income and collateral received from counterparties as a result of hedging activities.
“Our strong third quarter results show that our growth strategies are working, even under challenging macroeconomic conditions,” said Mark Parker, president and CEO, Nike, Inc.
“NIKE has the ability to deliver consistent shareholder value due to the strength of our brand, our relentless commitment to innovation and our powerful portfolio,” he added.
