Nike’s Q1 Revenues Fall Short Of Wall Street’s Targets

Nike Inc. reported net earnings rose 23.5 percent in the fiscal first quarter ended August 31 as sales grew 15.6 percent. Earnings came in slightly above Wall Street’s consensus targets while revenues were slightly below.

• First-quarter reported revenues were $12.2 billion, up 16 percent compared to the prior year and up 12 percent on a currency-neutral basis. Wall Street’s consensus estimate had been $12.46 billion.
• Nike Direct sales were $4.7 billion, up 28 percent on a reported basis and up 25 percent on a currency-neutral basis.
• Nike Brand Digital sales increased 29 percent, or 25 percent on a currency-neutral basis.
• Gross margin increased 170 basis points to 46.5 percent.
• Diluted earnings per share for the quarter was $1.16, up 22 percent. Wall Street’s consensus estimate had been $1.12.

“Nike’s strong results this quarter are continued proof of our deep consumer connections, unrelenting innovation pipeline and a digital advantage that fuels our brand momentum,” said John Donahoe, President and CEO, Nike, Inc. “We have the right playbook to navigate macroeconomic dynamics, as we create value through our relentless drive to fuel the future of sport.”

First Quarter revenues increased 12 percent, on a currency-neutral basis, with growth across all channels, led by Nike Direct growth of 25 percent. Contributing to Nike Direct growth was the steady normalization of owned physical retail, which grew 24 percent, exceeding pre-pandemic levels from the first quarter of fiscal 2020. Nike Brand Digital business continued strong growth, increasing by 25 percent, led by North America growth of 43 percent.

“Nike is a growth company with a market opportunity as large as it’s ever been,” said Matt Friend, executive vice president and CFO, Nike, Inc. “Our Q1 results illustrate how Nike’s Consumer Direct Acceleration strategy continues to fuel growth and transform our long-term financial model.”

First Quarter Income Statement Review

• Revenues for Nike, Inc. increased 16 percent to $12.2 billion compared to the prior year, up 12 percent on a currency-neutral basis.
  • Revenues for the Nike Brand were $11.6 billion, an increase of 12 percent to prior year on a currency-neutral basis, led by Nike Direct double-digit growth in North America, APLA and EMEA.
  • Revenues for Converse were $629 million, up 7 percent on a currency-neutral basis, led by performance in direct-to-consumer in North America and Europe.
• Gross margin increased 170 basis points to 46.5 percent, led by margin expansion in its Nike Direct business, a higher mix of full-price sales and favorable changes in foreign currency exchange rates, partially offset by higher product costs primarily due to increased freight costs.
• Selling and administrative expense increased 20 percent to $3.6 billion.
  • Demand creation expense was $918 million, up 36 percent, primarily due to normalization of spend against brand campaigns as the company annualized marketplace closures in the prior year and continued investments in digital marketing to support heightened digital demand.
  • Operating overhead expense increased 15 percent to $2.7 billion, primarily due to an increase in wage-related expenses, higher strategic technology investments and Nike Direct variable costs.
• The effective tax rate for the quarter was 11.0 percent compared to 11.5 percent for the same period last year due to increased benefits from stock-based compensation and discrete items offset by a shift in our earnings mix.
• Net income was $1.9 billion, up 23 percent, and Diluted earnings per share were $1.16, increasing 22 percent.

Divisional Breakout

• Sales for Nike Brand in North America rose 15.5 percent to $4.88 billion and grew 15 percent on a currency-neutral basis. Operating earnings in the region grew 10 percent to $1.43 billion from $1.3 billion.
• In the Europe, Middle East & Africa (EMEA) region, revenues for Nike Brand improved 13.6 percent to $3.31 billion and gained 8 percent on a currency-neutral basis. Operating earnings in the region grew 26 percent to $875 million from $692 million.
• Greater China’s sales for Nike Brand grew 11.3 percent to $1.98 billion and gained 1 percent on a currency-neutral basis. Operating earnings in the region inched up 2 percent to $701 million from $688 million.
• In the Asia Pacific & Latin America (APLA) region, sales for Nike Brand were up 33.3 percent to $1.47 billion and rose 31 percent on a currency-neutral basis. Operating earnings in the region grew 72 percent to $481 million from $280 million.
• Nike Brand revenue overall rose 16.2 percent to $11.6 billion and moved up 12 percent on a currency-neutral basis. Operating earnings in the region grew 19 percent to $2.5 billion from $2.11 billion.
• Among product categories, Nike Brand footwear sales grew 14.0 percent to $7.7 billion and gained 10 percent on a currency-neutral basis. Apparel revenues jumped 20.0 percent to $3.45 billion and lifted 16 percent on a currency-neutral basis. Equipment sales were up 25.3 percent to $465 million and increased 22 percent on a currency-neutral basis.
• Converse’s sales jumped 11.7 percent to $629 million and advanced 7 percent on a currency-neutral basis. Operating earnings in the region grew 21 percent to $204 million from $168 million.

August 31, 2021 Balance Sheet Review

• Inventories for Nike, Inc. were $6.7 billion, flat compared to the prior-year period, driven by consumer demand during the quarter, offset by elevated in-transit inventories due to extended lead times from ongoing supply chain disruptions.
• Cash and equivalents and short-term investments were $13.7 billion, up approximately $4.2 billion from last year, due to free cash flow generation, partially offset by cash dividends and share repurchases.

Shareholder Returns
Nike continues to have a strong track record of investing to fuel growth and consistently increasing returns to shareholders, including 19 consecutive years of increasing dividend payouts. In the first quarter, Nike returned approximately $1.2 billion to shareholders, including:

• Dividends of $435 million, up 13 percent from the prior year; and
• Share repurchases of $742 million for the quarter, reflecting 4.8 million shares retired as part of the four-year, $15 billion program approved by its Board of Directors in June 2018; and
• As of August 31, 2021, a total of 54.8 million shares have been repurchased under the program for a total of approximately $5.4 billion.

Photo courtesy Nike/Bloomberg