Nike Inc. reported earnings and sales were well above Wall Street’s consensus estimates in the fourth quarter ended May 31. Revenues grew 96 percent year-over-year, supported by a 73 percent jump in Nike Direct sales.
- Fourth-quarter reported revenues were $12.3 billion, up 96 percent compared to the prior year and increasing 21 percent compared to the fourth quarter of 2019. The $12.3 billion in revenues in the quarter compares to Wall Street’s consensus estimate of $11.1 billion;
- Full-year reported revenues increased 19 percent to $44.5 billion;
- Nike Direct fourth-quarter sales increased 73 percent to $4.5 billion;
- Gross margin for the fourth quarter increased 850 basis points to 45.8 percent; and
- Diluted earnings per share for the fourth quarter was $0.93 and for the full year was $3.56. The 93 cents compares to Wall Street’s consensus estimate of 51 cents.
“Nike’s strong results this quarter and full fiscal year demonstrate Nike’s unique competitive advantage and deep connection with consumers all over the world,” said John Donahoe, President & CEO, Nike, Inc. “FY21 was a pivotal year for Nike as we brought our Consumer Direct Acceleration strategy to life across the marketplace. Fueled by our momentum, we continue to invest in innovation and our digital leadership to set the foundation for Nike’s long-term growth.”
Fourth-quarter revenue growth was led by higher wholesale shipments due to the annualization of COVID-19-related physical retail closures in the prior year in North America, EMEA and APLA. As physical retail re-opened, Nike Brand Digital continued to deliver strong revenue growth of 41 percent versus the prior year and 147 percent compared to the fourth quarter of 2019.
North America delivered record revenues, up 141 percent on a reported basis for the fourth quarter, up 29 percent compared to the fourth quarter of 2019, including increased wholesale revenue due to delayed shipments from the previous quarter. As markets re-opened and sport returned, North America Digital growth continued to be strong, increasing 54 percent versus the prior year and 177 percent compared to the fourth quarter of 2019.
EMEA’s fourth-quarter reported revenues increased 124 percent, up 21 percent compared to the fourth quarter of 2019, despite temporary COVID-19-related store closures throughout the quarter. As physical retail was temporarily closed, EMEA Digital’s fourth-quarter sales increased 40 percent, or 170 percent compared to the fourth quarter of 2019. Today, approximately 99 percent of stores in EMEA are open or operating on reduced hours.
Full year Nike, Inc. revenues increased 19 percent on a reported basis or 14 percent compared to the fiscal year 2019, reflecting growth across all geographies and Converse including seven consecutive years of double-digit, currency-neutral growth for its Greater China business.
“Nike’s brand momentum is a testament to our authentic consumer connections, digital strength and continued operational execution,” said Matt Friend, executive vice president and chief financial officer, Nike, Inc. “As we advance our consumer-led digital transformation, we are building a new financial model that will continue to fuel long-term sustainable, profitable growth for Nike.” *
Fourth Quarter Income Statement Review
- Revenues for Nike, Inc. rose 96 percent to $12.3 billion, up 88 percent on a currency-neutral basis, largely driven by the recovery of its business operations due to the impact of COVID-19 in the prior year;
- Revenues for the Nike Brand were $11.8 billion, up 88 percent to the prior year on a currency-neutral basis, driven by triple-digit growth in its wholesale business and strong double-digit growth in Nike Direct;
- Revenues for Converse were $596 million, up 85 percent on a currency-neutral basis, led by strong marketplace demand in North America and Western Europe;
- Gross margin increased 850 basis points to 45.8 percent, primarily due to annualizing the impacts of COVID-19 including lower factory cancellation charges, lower inventory obsolescence reserves and the favorable rate impact of supply chain fixed costs on a higher volume of wholesale shipments. The increase in gross margin also reflects favorable margins in its Nike Direct business;
- Selling and administrative expenses increased 17 percent to $3.7 billion.
- Demand creation expense was $997 million, up 21 percent, primarily due to the return of sport and brand events driving increased advertising and marketing expense as well as digital marketing investments;
- Operating overhead expenses increased 16 percent to $2.7 billion, due to an increase in wage-related expenses, higher strategic technology investments and Nike Direct variable costs, partially offset by lower bad debt expense;
- The effective tax rate was 18.6 percent compared to 1.7 percent for the same period last year, caused by a change in the proportion of earnings taxed in the U.S. related to recovery from the impact of COVID-19 and decreased benefits from discrete items; and
- Net income was $1.5 billion, and diluted earnings per share were $0.93 compared to a net loss for the fourth quarter of 2020 of $790 million and a net loss per share of $0.51.
Fiscal 2021 Income Statement Review
- Revenues for Nike, Inc. increased 19 percent to $44.5 billion, up 17 percent on a currency-neutral basis;
- Revenues for the Nike Brand were $42.3 billion, up 17 percent on a currency-neutral basis, driven by growth across Nike Direct and wholesale, double-digit growth across footwear and apparel, with growth led by Sportswear and the Jordan Brand;
- Nike Direct revenues were $16.4 billion, up 32 percent, or 30 percent on a currency-neutral basis, led by 64 percent, or 60 percent on a currency-neutral basis, growth in Nike Brand Digital, with all geographies growing strong double-digits;
- Despite temporary store closures across the marketplace due to COVID-19, comparable-store sales grew 4 percent;
- Revenues for Converse were $2.2 billion, up 16 percent on a currency-neutral basis, led by strong double-digit sales growth in its digital business;
- Gross margin increased 140 basis points to 44.8 percent, primarily due to annualizing the impacts of COVID-19 including lower factory cancellation charges, lower inventory obsolescence reserves and the favorable rate impact of supply chain fixed costs on a higher volume of wholesale shipments. The increase in gross margin also reflects higher full-price product margins across wholesale and Nike Direct;
- Selling and administrative expenses decreased 1 percent to $13.0 billion;
- Demand creation expense was $3.1 billion, down 13 percent to the prior year, primarily due to lower marketing and advertising expenses for its brand events and retail operations and lower sports marketing expenses as sporting events were postponed due to COVID-19. This activity was partially offset by higher digital marketing investments;
- Operating overhead expense increased 4 percent to $9.9 billion due to an increase in strategic technology investments, higher Nike Direct variable costs and approximately $260 million in restructuring-related costs, partially offset by lower bad debt expense and lower travel and related expenses;
- The effective tax rate was 14 percent, compared to 12.1 percent for the same period last year, due to decreased benefits from discrete items such as stock-based compensation; and
- Net income was $5.7 billion, and Diluted earnings per share was $3.56, up 123 percent.
May 31, 2021 Balance Sheet ReviewI
Inventories for Nike, Inc. were $6.9 billion, down 7 percent compared to the prior-year period, driven by strong consumer demand as Nike returned to healthy inventory levels across markets closed in the prior year due to COVID-19.
Cash and equivalents and short-term investments were $13.5 billion, $4.7 billion higher than last year, primarily due to proceeds from net income partially offset by cash dividends.
Nike has a strong track record of investing to fuel growth and consistently increasing returns to shareholders through dividends and share repurchases, including 19 consecutive years of increasing dividend payouts. In fiscal 2021, the company returned approximately $2.3 billion to shareholders, including:
- Dividends of $1.6 billion, compared with $1.5 billion in fiscal 2020; and
- Share repurchases totaling approximately $650 million for fiscal 2021, reflecting 4.9 million shares retired as part of the four-year, $15 billion programs approved by its Board of Directors in June 2018.
During the fourth quarter of 2021, Nike, Inc. resumed share repurchase activity. As of May 31, 2021, a total of 50 million shares for $4.7 billion had been repurchased under this program.
Photo courtesy Nike