Nike reported earnings today for its fiscal third quarter. Net Income fell to $243.8m with an EPS of 50 cents a share down from 92 cents a share in the prior year’s third quarter for a year over year decrease of 47%. The reason for the significant decrease in EPS was due to a goodwill impairment charge from the Umbro acquisition of $241m. The reasons for the write down were a decrease in expected cash flows and the overall value of the company’s investment in Umbro declining largely due the fact that it is being hurt by the European recession. Excluding the write down Nike would have posted an EPS of 99 cents a share which would have been an 8% year over year growth rate. Revenues for the company declined 2% and on a currency neutral basis would have increased 2%. Gross Margin declined 120bp due primarily to higher input costs, the strengthening of the dollar and an increase in the amount of discounted items in an attempt to clear inventory due to current economic conditions.
While these results represented the obvious difficulties any consumer goods company will face due to the economic environment I still have confidence in Nikes opinion of themselves as a growth company and its ability to position its self in the current environment to become more competitive than ever. The company is making conscious efforts to cut costs and become more efficient as represented by its decline in SG&A expense. While Nike is suffering due to the current consumer environment it is still fairing better than its competitors and has been able to grow its market share in multiple business segments. I am still comfortable that the company can weather the economic downturn and continue to gain market share especially with its large cash position and manageable levels of debt and due to its brand innovation and aggressive marketing will be well positioned to benefit when the economy begins to recover and consumers are once again willing to spend a larger percentage of their income on discretionary items.