10-QPeriod: Q3 FY2020

NIKE, Inc. Quarterly Report for Q3 Ended Feb 29, 2020

Filed April 7, 2020For Securities:NKE

Summary

NIKE, Inc. reported its third-quarter fiscal year 2020 results, showing a 5% increase in revenues to $10.1 billion, reaching $31.1 billion for the nine-month period. This growth was primarily driven by the NIKE Brand, with strong performance in EMEA, North America, and Asia Pacific & Latin America, while Greater China experienced a decline due to COVID-19 impacts. The company's direct-to-consumer (NIKE Direct) channel continued its robust growth, particularly digital commerce. However, net income for the quarter saw a significant decrease of 23% to $847 million, primarily due to a $400 million non-recurring impairment charge related to the planned divestiture of its businesses in Brazil, Argentina, Chile, and Uruguay. The company also incurred higher selling and administrative expenses and a decline in gross margin. The report highlights NIKE's proactive response to the emerging COVID-19 pandemic, including store closures and the prioritization of employee safety, alongside the continued strength of its digital channels. The company is navigating significant uncertainties but is focused on long-term growth strategies and optimizing its operating model. Despite the short-term profit dip caused by the impairment charge and COVID-19 related costs, the underlying revenue trends and the strong performance of the NIKE Direct channel suggest resilience.

Financial Highlights

48 data points
Beta

Revenue

$10.10B

44.3% Gross Margin

Net Income

$847.00M

8.4% Net Margin

EPS (Diluted)

$0.53

Total Assets

$26.22B

Cash & Equivalents

$2.86B

Free Cash Flow

$905.00M

Financial Statements
Beta
Revenue$10.10B
Cost of Revenue$5.63B
Gross Profit$4.47B
SG&A Expenses$3.28B
Net Income$847.00M
EPS (Basic)$0.54
EPS (Diluted)$0.53
Shares Outstanding (Basic)1.56B
Shares Outstanding (Diluted)1.59B

Key Highlights

  • 1Total revenues increased by 5% to $10.1 billion for the third quarter and 7% to $31.1 billion for the first nine months of fiscal 2020.
  • 2The NIKE Brand reported a 5% revenue increase in Q3 and 7% for the nine-month period, driven by growth in EMEA, North America, and APLA, offset by a decline in Greater China.
  • 3NIKE Direct revenues grew by 13% on a currency-neutral basis for the quarter, with digital commerce sales up 36%, demonstrating continued strength in direct consumer engagement.
  • 4Net income for the third quarter decreased by 23% to $847 million, significantly impacted by a $400 million non-recurring impairment charge related to planned divestitures in South America.
  • 5Gross margin declined by 80 basis points in the third quarter, primarily due to unfavorable impacts from COVID-19, including a lower mix of sales from Greater China and increased rebates to wholesale partners.
  • 6Selling and administrative expenses increased by 6% in the quarter, driven by investments in data analytics, digital transformation, and enterprise resource planning tools.
  • 7The company is actively managing the impacts of the COVID-19 pandemic, including store closures and supply chain adjustments, while noting a recovery in Greater China and continued strong digital demand.

Frequently Asked Questions

The primary driver for the decrease in net income was a $400 million non-recurring impairment charge recognized due to the company's decision to transition its NIKE Brand businesses in Brazil, Argentina, Chile, and Uruguay to third-party distributors. Additionally, a decline in gross margin and higher selling and administrative expenses also contributed to the decrease.

COVID-19 had a material impact, particularly in Greater China where revenues declined. The company closed nearly all NIKE-owned stores outside of Greater China and Korea subsequent to the quarter-end. These impacts led to increased rebates for wholesale partners and higher factory cancellation costs, negatively affecting gross margin. However, digital commerce remained strong, growing 36% currency-neutral.

NIKE acknowledges significant uncertainty due to COVID-19 and expects a material adverse impact on future revenue growth and profitability. However, the company is prioritizing employee safety, continuing to invest in digital channels, and is seeing signs of recovery in Greater China. They are focused on long-term strategies and optimizing their operating model.

The company is managing supply chain impacts by adjusting operating procedures and has incurred factory cancellation costs to re-balance global supply and demand. They anticipate potentially higher than normal inventory levels and are monitoring these closely.