Nike Sailing into Q4 Earnings

| About: Nike Inc. (NKE)

Nike, Inc. (NYSE:NKE) will be releasing its fourth quarter fiscal 2009 earnings on Wednesday, June 24th, 2009 at approximately 1:15 p.m. PT, after the close of regular stock market trading hours. Nike management will then hold a conference call beginning at 2:00 p.m. PT to review the results.

Analysts expect the company to announce earnings of $0.96 for the fourth quarter.

Its third quarter balance sheet was very strong with its short term assets ($5496.6, in millions) more than covering it immediate liabilities ($2858.2, in millions). Their Selling and administrative expenses dropped by 5% due to the changes in foreign currency exchange rates. The company experienced growth in certain emerging markets like Russia, South Africa, Turkey, and especially China.

If we look past its third quarter and factor in the several changes in the economy, we may come to several plausible results for its fourth quarter.

In May, the company announced that it would cut 1750 jobs worldwide, just as it had mentioned in its 3rd quarter report:

During the third quarter of fiscal 2009, the Company announced a plan to restructure the organization. As part of this plan, the Company intends to streamline its management structure and eliminate operational redundancies to enhance consumer focus, drive innovation more quickly to market, and establish a more scalable cost structure. As a result of these actions, on March 16, 2009, the Company announced that it expects to reduce its global workforce by up to four percent …..

The effect of this decision in the fourth quarter and the following quarter is as stated by Nike, Inc in their 3rd quarterly report:

……and incur gross restructuring charges of between $175 million and $225 million, primarily consisting of cash charges related to severance costs. The Company expects to recognize most of these charges during the fourth quarter of fiscal 2009 and the first quarter of fiscal 2010. As of February 28, 2009, no restructuring charges have yet been incurred.

Nike, Inc. is taking these measures in order to cut costs in the foreseeable future, for their long-term and short-term plan.

The company also stated their course of plan when taking into consideration their Selling and administrative expenses:

For the fourth quarter of fiscal 2009, we will continue to take steps to reduce selling and administrative spending levels while shifting resources to fund initiatives that are critical to the achievement of our long-term growth goals. We expect our selling and administrative expenses will decline by a double digit percentage in the fourth quarter of 2009 as compared to the same period in the prior year, reflecting both lower demand creation and operating overhead spending….

The company also stated that they have tightened their inventory purchasing:

We are taking steps we believe prudent and necessary to identify and manage potential exposures over the short and long term. Steps taken to date include reductions in planned selling and administrative expenses, including the implementation of a hiring freeze and reductions in planned spending for travel, meetings and demand creation, as well as tighter inventory purchasing and working capital management, and an increased focus on monitoring the financial health of suppliers and customers.

This is no surprise considering the company, as of the end of the 3rd quarter, had $2,466.6 in Inventory, which consisted mostly of “substantially finished goods”. The company can afford to tighten their inventory purchasing as they work to sell the inventory they currently hold. If they find it necessary, they can purchase or produce inventory at a later time.

The weak dollar has also played a role in Nike, Inc’s earnings. It could increase revenue due to currency exchange rates. Nike, Inc has protected itself from risks resulting from transactions in foreign currencies by participating in foreign currency hedging activities. They have fiscal positions until fiscal’11 and this has been very effect for them in order to offset the dollar.


If we summarize all this information we will get:

  • initial strong balance sheet;
  • minimizing selling and administrative expenses by double digits
  • cut of workforce to cut costs in the long run;
  • tightening inventory purchasing, working to sell current inventory as of the end of the 3rd quarter;
  • increasing sales in the emerging markets, with brands such as Converse and Cole Haan that appeal to the lower price market;
  • weak dollar, that can add to sales, compared to the euro and pound, with protection from hedge positions;
  • and finally, the recognition of the Nike brand.

If Nike has followed the course it laid out in its 3rd quarterly report, and has taken the proper measures to continue appealing to consumers who are more aware of how they spend their money, then Nike should be reporting a solid fourth quarter.

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Tagged: , Textile - Apparel Footwear & Accessories, Earnings
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