Nike Inc. reported earnings for its first quarter handily topped Wall Street targets, but said it was postponing its upcoming Investor Day and indicated it “would address its approach to guidance” on its quarterly analyst call in light of the appointment of Nike veteran Elliott Hill as CEO. Sales in the quarter were down 10 percent with declines of 13 percent in direct and 8 percent in wholesale channels.
Earnings in the quarter ended August 31 came in at 70 cents a share, topping analysts’ consensus target of 52 cents. Sales reached $11.6 billion, slightly ahead of consensus estimates of $11 billion.
Highlights of the quarter included:
- First quarter revenues were $11.6 billion, down 10 percent on a reported basis compared to the prior year and down 9 percent on a currency-neutral basis*
- Nike Direct revenues were $4.7 billion, down 13 percent on a reported basis and down 12 percent on a currency-neutral basis
- Wholesale revenues were $6.4 billion, down 8 percent on a reported basis and down 7 percent on a currency-neutral basis
- Gross margin increased 120 basis points to 45.4 percent
- Diluted earnings per share was $0.70 for the first quarter, down 26 percent
Nike noted that on September 19, it announced that the Board of Directors of the company appointed Hill as president and CEO of the company, effective as of October 14. Before retiring in 2020, Hill was president of consumer and marketplace, leading all commercial and marketing operations for Nike and Jordan Brand, including the P&L across the company’s four geographies. John Donahoe, CEO since early 2022, is retiring.
Nike said in its statement, “Given the company is reporting Q1 results in the midst of a CEO transition, it will address its approach to guidance on the conference call. In addition, the company’s previously announced Investor Day is being postponed.”
The Investor Day had been scheduled for November 19.
“Nike’s first quarter results largely met our expectations. A comeback at this scale takes time, but we see early wins — from momentum in key sports to accelerating our pace of newness and innovation,” said Matthew Friend, executive vice president and chief financial officer, Nike, Inc. “Our teams are energized as Elliott Hill returns to lead Nike’s next stage of growth.”
First Quarter Income Statement Review
- Revenues for Nike, Inc. were $11.6 billion, down 10 percent on a reported basis compared to the prior year and down 9 percent on a currency-neutral basis.
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- Nike Brand Revenues were $11.1 billion, down 10 percent on a reported basis and down 9 percent on a currency-neutral basis, due to declines across all geographies.
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- Nike Direct revenues were $4.7 billion, down 13 percent on a reported basis and down 12 percent on a currency-neutral basis, primarily due to a 20 percent decrease in Nike Brand Digital, partially offset by a 1 percent increase in Nike-owned stores.
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- Wholesale revenues were $6.4 billion, down 8 percent on a reported basis and down 7 percent on a currency-neutral basis.
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- Revenues for Converse were $501 million, down 15 percent on a reported basis and down 14 percent on a currency-neutral basis, due to declines across all territories.
- Gross margin increased 120 basis points to 45.4 percent, primarily due to lower Nike Brand product costs, lower warehousing and logistics costs, and benefits from strategic pricing actions from the prior year.
- Selling and administrative expense decreased 2 percent to $4.0 billion.
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- Demand creation expense was $1.2 billion, up 15 percent, primarily due to an increase in brand marketing expense, reflecting investment in key sports events.
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- Operating overhead expense decreased 7 percent to $2.8 billion, primarily due to lower wage-related expenses.
- The effective tax rate was 19.6 percent compared to 12.0 percent for the same period last year, primarily due to a one-time item benefit in the first quarter of the prior year provided by the delay of the effective date of U.S. foreign tax credit regulations.
- Net income was $1.1 billion, down 28 percent, and Diluted earnings per share was $0.70, a decrease of 26 percent.
Regional Performance
- North America revenues for Nike Brand declined 11 percent on a currency-neutral basis (11.0 percent reported) to $4.83 billion. EBIT (earnings before interest and taxes) fell 15.2 percent to $1.43 million.
- Europe, Middle East & Africa (EMEA) revenues for Nike Brand were down 13 percent on a currency-neutral basis (15.2 percent reported) to $3.1 billion. EBIT slumped 14.8 percent to $792 million.
- Greater China’s revenues for Nike Brand declined 3 percent on a currency-neutral basis (4.0 percent reported) to $1.67 billion. EBIT was down 4.4 percent to $502 million.
- Asia Pacific & Latin America (APLA) revenues for Nike Brand slipped 2 percent on a currency-neutral basis (7 percent reported) to $1.46 billion. EBIT declined 2.9 percent to $402 million.
August 31, 2024 Balance Sheet Review
- Inventories for Nike, Inc. were $8.3 billion, down 5 percent compared to the prior year, reflecting product mix shifts and lower product input costs.
- Cash and equivalents and short-term investments were $10.3 billion, up approximately $1.5 billion from last year, as cash generated by operations was partially offset by share repurchases, cash dividends and capital expenditures.
Shareholder Returns
Nike continues to have a strong track record of consistently increasing returns to shareholders, including 22 consecutive years of increasing dividend payouts.
In the first quarter, the company returned approximately $1.8 billion to shareholders, including:
- Dividends of $558 million, up 6 percent from the prior year.
- Share repurchases of $1.2 billion, reflecting 14.8 million shares retired as part of the company’s four-year, $18 billion program approved by the Board of Directors in June 2022.
As of August 31, 2024, a total of 99.7 million shares have been repurchased under the program for a total of approximately $10.2 billion.