Nike reported financial results for its fiscal 2016 second quarter ended November 30, 2015.
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Diluted earnings per share grew faster than revenue, up 22 percent, primarily due to gross margin expansion, a lower effective tax rate and a lower average share count, which more than offset higher SG&A investments in Nike, Inc. brands and business capabilities.
Revenues for Nike, Inc. increased 4 percent to $7.7 billion, up 12 percent on a currency neutral basis. Revenues for the Nike Brand were $7.3 billion, up 13 percent on a currency neutral basis, driven by double-digit growth in every geography and most key categories.
Revenues for Converse were $398 million, down 5 percent on a currency neutral basis, as strong growth in North America was more than offset by a decline in Europe.
Gross margin increased 50 basis points to 45.6 percent, primarily due to higher average selling prices, partially offset by higher product input costs and unfavorable changes in foreign exchange rates.
Selling and administrative expense increased 5 percent to $2.6 billion. Demand creation expense was $769 million, flat versus the prior year.
Operating overhead expense increased 7 percent to $1.8 billion, reflecting continued growth in the Direct To Consumer (DTC) business, as well as investments in operational infrastructure and consumer-focused digital capabilities.
Other income, net was $34 million comprised primarily of net foreign currency exchange gains, and a favorable settlement of a legal judgment related to a bankruptcy case in Western Europe.
For the quarter, the Company estimates the year-over-year change in foreign currency related gains and losses included in other income, net, combined with the impact of changes in currency exchange rates on the translation of foreign currency-denominated profits, decreased pretax income by approximately $109 million.
The effective tax rate was 19.1 percent, compared to 25.4 percent for the same period last year, primarily due to adjustments in the prior year to tax expense on intercompany transactions and an increase in earnings from operations outside the U.S. in the current period, which are generally subject to a lower tax rate.
These factors were partially offset by the resolution of tax audits across multiple jurisdictions in the prior year period.
Net income increased 20 percent to $785 million, while diluted earnings per share increased 22 percent to $0.90, reflecting revenue growth, gross margin expansion, a lower tax rate and a one percent decline in the weighted average diluted common shares outstanding. ■