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Nike (NKE)

Q4 2012 Earnings Call

June 28, 2012 5:00 pm ET


Kelly Hall - Vice President of Treasury and Investor Relations

Mark G. Parker - Chief Executive Officer, President, Executive Director and Member of Executive Committee

Charles D. Denson - President of Nike Brand

Donald W. Blair - Chief Financial Officer and Vice President


Kate McShane - Citigroup Inc, Research Division

Robert S. Drbul - Barclays Capital, Research Division

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Jim Duffy - Stifel, Nicolaus & Co., Inc., Research Division

Omar Saad - ISI Group Inc., Research Division

Joseph Parkhill - Morgan Stanley, Research Division

Taposh Bari - Jefferies & Company, Inc., Research Division

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Good afternoon, everyone. Welcome to NIKE's Fiscal 2012 Fourth Quarter Conference Call. For those who need to reference today's press release, you'll find it at Leading today's call is Kelly Hall, Vice President, Treasury and Investor Relations.

Before I turn the call over to Ms. Hall, let me remind you that participants on this call will make forward-looking statements based on current expectations, and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in the reports filed with the SEC, including forms 8-K, 10-K and 10-Q. Some forward-looking statements concern future orders that are not necessarily indicative of changes in total revenues for subsequent periods due to mix of futures and At-Once orders, exchange rate fluctuations, order cancellations and discounts, which may vary significantly from quarter-to-quarter. In addition, it is important to remember a significant portion of NIKE, Inc. business, including Equipment, NIKE Golf, Cole Haan, Converse, Hurley and Umbro are not included in these futures numbers.

Finally, participants may discuss non-GAAP financial measures, including references to total wholesale equivalent sales for NIKE, Inc. businesses that have license sales. Wholesale equivalent sales include both reported revenue and estimations of sales by licensee based on the royalties paid. References to total wholesale equivalent sales are only intended to provide context as to the overall current market footprint of the brands owned by NIKE, Inc., and should not be relied upon as a financial measure of actual results.

Participants may also make references to other nonpublic financial and statistical information and non-GAAP financial measures. Discussion of nonpublic financial and statistical information and presentations of comparable GAAP measures and quantitative reconciliation can be found at NIKE's website,

Now I would like to turn the call over to Kelly Hall, Vice President, Treasury and Investor Relations.

Kelly Hall

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE's fiscal 2012 fourth quarter results. As the operator indicated, participants on today's call may discuss non-GAAP financial measures. You will find the appropriate reconciliations in our press release, which was issued about 1 hour ago and at our website,

Joining us on today's call will be NIKE, Inc.'s President and CEO, Mark Parker; followed by Charlie Denson, President of the NIKE Brand; and finally, you will hear from our Chief Financial Officer, Don Blair, who will give you an in-depth review of our financial results. Following their prepared remarks, we will take your questions. [Operator Instructions] Thanks for your cooperation with this.

With that, I'll now turn the call over to NIKE, Inc.'s President and CEO, Mark Parker.

Mark G. Parker

Thanks, Kelly, and good afternoon, everyone. Fiscal 2012 said a lot about NIKE and a lot about our world. We operate in a highly competitive industry in a rapidly evolving global economy. Success requires a growth strategy anchored in strength, focus and flexibility. In fiscal 2012, we demonstrated our strengths: products, services and digital experiences that lead the industry; connections to athletes and consumers that are deep and meaningful; a portfolio of businesses that is broad, deep and financially strong; and most important, talent and leadership that is world-class. These are important competitive advantages for NIKE, and we've leveraged them over the last decade to deliver growth in line with our long-term financial model. And as you know, that model is defined by 4 key metrics: high-single digit revenue growth, mid-teens EPS growth, expanding ROIC and consistent increases in cash payouts to shareholders. That model helped drive total shareholder return that put NIKE, Inc. in the top 15% of companies in the S&P 500.

In fiscal '12, our revenues reached $24.1 billion; that's up 16%, our highest growth rate in 15 years. NIKE Brand revenues grew 16%, and Converse had another great year with revenues up 17%. There's no doubt about the power of our brands and the strong consumer demand for our products. That said, we didn't deliver as much of that growth to the bottom line as we would have liked. We've faced significant input cost pressures throughout the year, as well as some unexpected items in the fourth quarter, which Don will detail in a minute.

Although we successfully raised prices and improved our inventory position quarter-by-quarter, gross margin fell 220 basis points on the year. We offset a significant portion of that downdraft by leveraging SG&A, which grew slower than revenue. As a result, earnings per share grew 8% to $4.73. Those results are solid given the volatility in the global economy, and we remain confident that our earnings will grow faster than revenue over the long-term.

Fiscal 2012 also demonstrated our focus. We continue to work the levers of our business model to mitigate risks from macroeconomic forces, while we invest in the biggest growth opportunities. NIKE has the size and breadth to do that on a global scale. Sometimes the decisions are easy, like investing in a new generation of digital products and services while bringing great consumer experiences to retail. And sometimes the decisions are much tougher, like divesting of Cole Haan and Umbro. But every decision is based on increasing our ability to deliver sustainable, profitable growth. And we're confident our NIKE, Converse, Jordan and Hurley brands have virtually unlimited growth potential.

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