Nike, Inc. reported earnings topped Wall Street’s targets by 15 cents in the fiscal third quarter ended February 28 with sales also slightly ahead of estimates. Sales grew 8 percent on a currency-neutral basis, led by a 17 percent gain in direct-to-consumer (DTC) and a 22 percent gain in digital.

Third-Quarter Highlights

  • Reported revenues in the third quarter were $10.9 billion, up 5 percent compared to the prior year and up 8 percent on a currency-neutral basis;
  • Nike Direct sales were $4.6 billion, up 15 percent on a reported basis and up 17 percent on a currency-neutral basis;
  • Nike Brand Digital sales increased 19 percent, or 22 percent on a currency-neutral basis, led by 33 percent growth in North America;
  • Gross margin increased 100 basis points to 46.6 percent; and
  • Diluted earnings per share for the quarter were $0.87.

Earnings of 87 cents toppled Wall Street’s consensus target of 72 cents. Sales of $10.9 billion were just ahead of Wall Street’s consensus target of $10.6 billion.

“Nike’s strong results this quarter show that our Consumer Direct Acceleration strategy is working, as we invest to achieve our growth opportunities,” said John Donahoe, president and CEO. “Fueled by deep consumer connections, compelling product innovation and an expanding digital advantage, we have the right playbook to navigate volatility and create value through our relentless drive to serve the future of sport.”

Third Quarter revenues increased 8 percent on a currency-neutral basis, led by Nike Direct growth of 17 percent. Nike Brand Digital’s business fueled growth, increasing by 22 percent, driven by double-digit growth in North America, APLA and EMEA, partially offset by declines in Greater China. Further contributing to Nike Direct’s growth was the normalization of traffic in its retail stores, up 14 percent. Wholesale revenues declined one percent on a reported basis and were up one percent on a currency-neutral basis, with growth in EMEA and APLA offset by declines in North America and Greater China.

“Our third-quarter results demonstrate Nike’s ability to navigate through volatility while continuing to serve consumers directly and digitally at scale,” said Matt Friend, executive vice president and chief financial officer. “Marketplace demand continues to significantly exceed available inventory supply with a healthy pull market across our geographies.”

Third Quarter Income Statement Review

  • Revenues for Nike, Inc. increased 5 percent to $10.9 billion compared to the prior year and were up 8 percent on a currency-neutral basis. Revenues for the Nike Brand were $10.3 billion, up 8 percent compared to the prior year on a currency-neutral basis, led by 13 percent growth in EMEA. Revenues for Converse were $567 million, down one percent on a reported basis and up 2 percent on a currency-neutral basis, led by strong performance in North America and Europe partially offset by declines in Asia.
  • Gross margin increased 100 basis points to 46.6 percent, driven by margin expansion in its Nike Direct business driven by lower markdowns, changes in foreign currency exchange rates and a higher mix of full-price sales partially offset by lower full-price product margins largely due to increased freight and logistics costs.
  • Selling and administrative expenses increased 13 percent to $3.4 billion. Demand creation expense was $854 million, up 20 percent, primarily due to the normalization of spend against brand campaigns and continued investments in digital marketing to support heightened digital demand. Operating overhead expenses increased 11 percent to $2.6 billion, primarily due to higher strategic technology investments and wage-related expenses.
  • Effective tax rate for the quarter was 16.4 percent compared to 11.4 percent for the same period last year due to a shift in its earnings mix, the effects of stock-based compensation and recently finalized U.S. tax regulations.
  • Net income was $1.4 billion, down 4 percent.
  • Diluted earnings per share were $0.87.

February 28, 2022 Balance Sheet Review

  • Inventories for Nike, Inc. were $7.7 billion, up 15 percent compared to the prior-year period, driven by elevated in-transit inventories due to extended lead times from ongoing supply chain disruptions, partially offset by consumer demand during the quarter.
  • Cash and equivalents and short-term investments were $13.5 billion, up approximately $939 million from last year, driven by strong free cash flow, partially offset by share repurchases and cash dividends.

Shareholder Returns
Nike said it continues to have a strong track record of investing to fuel growth and consistently increasing returns to shareholders, including 20 consecutive years of increasing dividend payouts. In the third quarter, Nike returned approximately $1.7 billion to shareholders, including:

  • Dividends of $484 million, up 12 percent from the prior year; and
  • Share repurchases of $1.2 billion for the quarter, reflecting 8.1 million shares retired as part of the four-year, $15 billion program approved by its Board of Directors in June 2018. As of February 28, 2022, a total of 68.9 million shares were repurchased under the program for a total of approximately $7.6 billion.

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