Nike, Inc. reported earnings for the second quarter ended November 30 rose 7 percent and easily topped Wall Street’s consensus target. Sales inched up one percent, led by Nike Brand Digital growth of 11 percent, while gross margins improved 280 basis points. 

Q3  Highlights

  • Second-quarter reported revenues were $11.4 billion, up 1 percent compared to prior year and flat on a currency-neutral basis;
  • Nike Direct sales were $4.7 billion, up 9 percent on a reported basis and up 8 percent on a currency-neutral basis;
  • Nike Brand Digital sales increased 12 percent, or 11 percent on a currency-neutral basis, led by 40 percent growth in North America;
  • Gross margin increased 280 basis points to 45.9 percent; and
  • Diluted earnings per share for the quarter was $0.83, up 6 percent.

Earnings of 83 cents topped Wall Street’s consensus target of 63 cents. Revenues of $11.4 billion were slightly above Wall Street’s consensus target of $11.25 billion.

“Nike’s strong results this quarter provide further proof that our strategy is working, as we execute through a dynamic environment,” said John Donahoe, president and CEO, Nike, Inc. “We are now in a much stronger competitive position today than we were 18 months ago. And I want to thank our roughly 75,000 global teammates for all their work to provide consumers with the compelling new product, innovation and experiences that only Nike can deliver.”

Second-quarter revenues were flat on a currency-neutral basis as we continue to manage the ongoing impact of supply chain challenges across the marketplace. Revenues in Greater China and APLA declined largely due to lower levels of available inventory resulting from COVID-19-related factory closures. While closures had an impact across our portfolio, North America and EMEA delivered growth due to higher levels of in-transit inventory entering the second quarter.

Despite continued inventory constraints and supply chain challenges, Nike Direct grew 8 percent, led by North America Direct growth of 30 percent, including record Black Friday week results. Nike Brand Digital delivered strong revenue growth of 11 percent led by double-digit growth in North America and APLA partially offset by a decline in Greater China. Contributing to Nike Direct growth was the steady normalization of owned physical retail with Nike owned stores up 4 percent.

“Our second-quarter results reflect our deep consumer connections, the continued strength of our brands and strong marketplace demand,” said Matt Friend, executive vice president and chief financial officer, Nike, Inc. “As we navigate through short-term supply challenges, we are focused on executing our Consumer Direct Acceleration strategy to fuel our long-term financial outlook.”

Second Quarter Income Statement Review

  • Revenues for Nike, Inc. increased 1 percent to $11.4 billion compared to the prior year and were flat on a currency-neutral basis.
  • Revenues for the Nike Brand were $10.8 billion, flat to prior-year on a currency-neutral basis, driven by Nike Direct growth, offset by lower revenues in its wholesale business.
  • Revenues for Converse were $557 million, up 16 percent on a currency-neutral basis led by strong performance across all channels in Europe and North America.
  • Gross margin increased 280 basis points to 45.9 percent led by margin expansion in its  Nike Direct business driven by lower markdowns, a higher mix of full-price sales and changes in foreign currency exchange rates partially offset by lower full-price product margins largely due to increased freight and logistics costs.
  • Selling and administrative expenses increased 15 percent to $3.8 billion.
  • Demand creation expense was $1.0 billion, up 40 percent, primarily due to normalization of spending against brand campaigns and continued investments in digital marketing to support heightened digital demand.
  • Operating overhead expenses increased 8 percent to $2.7 billion, primarily due to higher strategic technology investments and wage-related expenses.
  • The effective tax rate for the quarter was 10.9 percent compared to 14.1 percent for the same period last year due to a shift in its earnings mix and the effects of stock-based compensation.
  • Net income was $1.3 billion, up 7 percent.
  • Diluted earnings per share were $0.83, increasing 6 percent.

November 30, 2021 Balance Sheet Review
Inventories for Nike, Inc. were $6.5 billion, up 7 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 strong consumer demand during the quarter.

Cash and equivalents and short-term investments were $15.1 billion, up approximately $3.3 billion from last year, driven by strong free cash flow, partially offset by share repurchases and cash dividends.

Shareholder Returns
Nike continues to have a strong track record of investing to fuel growth and consistently increase returns to shareholders, including 20 consecutive years of increased dividend payouts. In the second quarter, Nike returned approximately $1.4 billion to shareholders, including:

  • Dividends of $437 million, up 14 percent from the prior year; and
  • Share repurchases of $968 million for the quarter reflecting 6.0 million shares retired as part of the four-year, $15 billion programs approved by the Board of Directors in June 2018. As of November 30, 2021, a total of 60.8 million shares were repurchased under the program for a total of approximately $6.4 billion.

Photo courtesy Nike