10-QPeriod: Q1 FY2020

NIKE, Inc. Quarterly Report for Q1 Ended Aug 31, 2019

Filed October 4, 2019For Securities:NKE

Summary

NIKE, Inc. reported strong results for the first quarter of fiscal year 2020, with revenues increasing 7% to $10.7 billion. On a currency-neutral basis, revenues grew 10%, demonstrating robust underlying business momentum. Net income saw a significant 25% increase to $1.37 billion, translating to diluted earnings per share of $0.86, up 28% from the prior year. This performance was driven by broad-based growth across all NIKE Brand geographies and Converse, with particular strength in Greater China and Europe, Middle East & Africa. The company also achieved a substantial 150 basis point improvement in gross margin to 45.7%, attributed to higher full-price average selling prices (ASPs), growth in the higher-margin NIKE Direct business, and improved Converse margins. While selling and administrative expenses increased due to investments in digital transformation and innovation, the overall revenue and gross margin expansion led to a healthy 23% increase in income before income taxes. NIKE continues to execute its 'Consumer Direct Offense' strategy, focusing on innovation, speed to market, and direct consumer connections, which is clearly reflected in the strong digital commerce sales growth and increasing proportion of NIKE Direct revenue.

Financial Highlights

48 data points
Beta

Revenue

$10.66B

45.7% Gross Margin

Net Income

$1.37B

12.8% Net Margin

EPS (Diluted)

$0.86

Total Assets

$26.25B

Cash & Equivalents

$3.45B

Free Cash Flow

$110.00M

Financial Statements
Beta
Revenue$10.66B
Cost of Revenue$5.79B
Gross Profit$4.87B
SG&A Expenses$3.33B
Net Income$1.37B
EPS (Basic)$0.87
EPS (Diluted)$0.86
Shares Outstanding (Basic)1.56B
Shares Outstanding (Diluted)1.60B

Key Highlights

  • 1Total revenues increased 7% to $10.7 billion, with a 10% increase on a currency-neutral basis, indicating strong organic growth.
  • 2Net income grew 25% to $1.37 billion, and diluted earnings per share rose 28% to $0.86.
  • 3Gross margin improved significantly by 150 basis points to 45.7%, driven by higher full-price ASPs and growth in the higher-margin NIKE Direct channel.
  • 4Greater China and Europe, Middle East & Africa (EMEA) demonstrated particularly strong revenue growth (27% and 12% currency-neutral, respectively), showcasing international market strength.
  • 5NIKE Direct revenue increased 17% on a currency-neutral basis, with digital commerce sales up 42%, highlighting the success of the company's digital strategy.
  • 6The company repurchased approximately $995 million of common stock during the quarter, demonstrating a commitment to returning capital to shareholders.

Frequently Asked Questions

Revenue growth was driven by strong performance across all NIKE Brand geographies and Converse, with particular strength in Greater China and EMEA. On a currency-neutral basis, total revenues increased by 10%, with NIKE Direct revenue showing a 17% increase, fueled by a 42% rise in digital commerce sales.

NIKE's gross margin improved by 150 basis points to 45.7%. This improvement was primarily due to higher NIKE Brand full-price Average Selling Prices (ASPs), net of discounts, growth in the higher-margin NIKE Direct business, and improved gross margins from Converse. These factors were partially offset by unfavorable foreign currency exchange rates and higher NIKE Brand product costs.

NIKE's 'Consumer Direct Offense' strategy, focused on doubling the impact of innovation, increasing speed to market, and growing direct connections with consumers, is evident in the results. The strong growth in NIKE Direct revenues, particularly digital commerce, and the strategic focus on key categories and geographies reflect the successful execution of this strategy.

NIKE manages foreign exchange risk centrally on a portfolio basis using derivatives to hedge probable forecasted future cash flows. While foreign currency movements had some impact on reported results, the company's hedging program aims to mitigate volatility. On a currency-neutral basis, revenue growth significantly outpaced reported growth, indicating effective management of currency impacts.