10-QPeriod: Q2 FY2019

NIKE, Inc. Quarterly Report for Q2 Ended Nov 30, 2018

Filed January 8, 2019For Securities:NKE

Summary

NIKE, Inc. reported a strong performance for the second quarter and the first six months ending November 30, 2018. Revenues saw a significant increase of 10% in both periods, reaching $9.4 billion and $19.3 billion respectively. This growth was driven by a broad-based increase across all geographical segments, with Greater China showing particularly robust growth of 26% and 31% for the quarter and 25% and 26% for the six-month period (reported and currency-neutral). Gross margin also improved, up 80 basis points for the quarter and 70 basis points for the six months, attributed to higher average selling prices (ASPs) and improved NIKE Direct margins, partially offset by rising product costs and currency headwinds. Net income rose 10% to $847 million for the quarter and 13% to $1.94 billion for the six months. Diluted earnings per share (EPS) followed suit, increasing by 13% to $0.52 for the quarter and 16% to $1.19 for the six months. The company's strategic focus on its 'Consumer Direct Offense' and 'Triple Double' strategies appears to be paying off, with NIKE Direct revenues growing and contributing a larger percentage to total NIKE Brand revenues. The company also continued its aggressive share repurchase program, demonstrating a commitment to returning capital to shareholders.

Financial Highlights

49 data points
Beta

Revenue

$9.37B

43.8% Gross Margin

Net Income

$847.00M

9.0% Net Margin

EPS (Diluted)

$0.52

Total Assets

$22.68B

Cash & Equivalents

$3.42B

Free Cash Flow

$1.24B

Financial Statements
Beta
Revenue$9.37B
Cost of Revenue$5.27B
Gross Profit$4.11B
SG&A Expenses$3.14B
Net Income$847.00M
EPS (Basic)$0.54
EPS (Diluted)$0.52
Shares Outstanding (Basic)1.58B
Shares Outstanding (Diluted)1.62B

Key Highlights

  • 1Revenues increased by 10% year-over-year for both the three and six months ended November 30, 2018, reaching $9.4 billion and $19.3 billion, respectively.
  • 2Net income grew by 10% to $847 million for the quarter and 13% to $1.94 billion for the six months, indicating improved profitability.
  • 3Gross margin expanded by 80 basis points for the quarter and 70 basis points for the six months, driven by higher average selling prices (ASPs) and strong NIKE Direct business margins.
  • 4Greater China was a standout performer, with revenues increasing by 26% (reported) and 31% (currency-neutral) for the quarter, and 25% and 26% for the six months, respectively.
  • 5NIKE Direct revenues continued to grow, representing 32% of NIKE Brand revenues for the quarter and 31% for the six months, up from 31% and 30% in the prior year periods.
  • 6Diluted Earnings Per Share (EPS) increased by 13% to $0.52 for the quarter and 16% to $1.19 for the six months.
  • 7The company repurchased $2.6 billion of its common stock during the six-month period, reflecting a commitment to capital return.

Frequently Asked Questions

Revenue growth was driven by a broad-based increase across all geographical segments, with particularly strong performance in Greater China and North America. Growth in footwear and apparel categories, especially in Sportswear, and the continued expansion of the NIKE Direct channel (including digital commerce) were significant contributors.

Gross margin improved by 80 basis points for the quarter and 70 basis points for the six months. This improvement was primarily due to higher average selling prices (ASPs) on full-price sales and improved margins within the NIKE Direct business. These gains were partially offset by increased NIKE Brand product costs and unfavorable changes in foreign currency exchange rates.

The company's 'Consumer Direct Offense' strategy, aimed at serving consumers more personally and at scale through innovation and digital platforms, appears to be progressing well. Evidence of this is the growth in NIKE Direct revenues and the increasing percentage it represents of total NIKE Brand revenues, along with strong digital commerce sales growth.

NIKE manages foreign currency risk centrally on a portfolio basis, using natural offsets and currency correlations. Where necessary, they employ derivative instruments like forward contracts and options to hedge remaining exposures. While currency headwinds existed, the company's strategies helped to mitigate some of the adverse impacts on revenues and profitability.