10-QPeriod: Q1 FY2021

NIKE, Inc. Quarterly Report for Q1 Ended Aug 31, 2020

Filed October 8, 2020For Securities:NKE

Summary

Nike, Inc. reported its fiscal first quarter 2021 results, ending August 30, 2020, reflecting resilience amidst the ongoing COVID-19 pandemic. Total revenues saw a slight decrease of 1% year-over-year to $10.6 billion, largely due to currency-neutral revenues remaining flat. Net income, however, increased by 11% to $1.5 billion, with diluted earnings per share rising 10% to $0.95. The company's strategic shift towards digital and direct-to-consumer (DTC) channels proved effective, with NIKE Direct sales growing 13% on a currency-neutral basis, driven significantly by an 83% surge in digital commerce. Despite pressures on gross margin, which decreased by 90 basis points primarily due to increased promotions to manage inventory and higher product costs, Nike demonstrated strong cost management. Selling and administrative expenses were reduced by 11%, largely due to decreased demand creation expenses. The company also highlighted its robust liquidity position, ending the quarter with $9.5 billion in cash, cash equivalents, and short-term investments, supported by a temporary suspension of share repurchases to conserve capital. The results indicate Nike's ability to navigate the challenging retail environment by leveraging its digital acceleration strategy and disciplined financial management.

Financial Highlights

48 data points
Beta

Revenue

$10.59B

44.8% Gross Margin

Net Income

$1.52B

14.3% Net Margin

EPS (Diluted)

$0.95

Total Assets

$33.26B

Cash & Equivalents

$8.15B

Free Cash Flow

$706.00M

Financial Statements
Beta
Revenue$10.59B
Cost of Revenue$5.85B
Gross Profit$4.74B
SG&A Expenses$2.98B
Net Income$1.52B
EPS (Basic)$0.97
EPS (Diluted)$0.95
Shares Outstanding (Basic)1.56B
Shares Outstanding (Diluted)1.59B

Key Highlights

  • 1Revenues slightly declined by 1% to $10.6 billion, with currency-neutral revenues flat, indicating stable underlying business performance.
  • 2Net income increased by 11% to $1.5 billion, and diluted EPS rose 10% to $0.95, showcasing improved profitability.
  • 3NIKE Direct sales grew 13% on a currency-neutral basis, with digital commerce sales soaring 83%, underscoring the success of the digital acceleration strategy.
  • 4Gross margin decreased by 90 basis points to 44.8%, primarily impacted by higher promotions to clear inventory and increased product costs.
  • 5Selling and administrative expenses decreased by 11% due to reduced demand creation and operating overhead expenses, demonstrating effective cost control.
  • 6The company maintained a strong liquidity position with $9.5 billion in cash, cash equivalents, and short-term investments.
  • 7Share repurchases were temporarily suspended to preserve liquidity, with no repurchases made during the quarter.

Frequently Asked Questions

Nike's total revenues decreased by 1% to $10.6 billion in the first quarter of fiscal year 2021 compared to the prior year. On a currency-neutral basis, revenues were flat. This was primarily driven by a 1% decline in NIKE Brand revenues, while Converse saw a 1% increase. Geographically, higher revenues in Greater China and EMEA were offset by declines in Asia Pacific & Latin America and North America. The growth in NIKE Direct sales, up 13% currency-neutral, was a key factor in offsetting declines in other areas.

The COVID-19 pandemic had a mixed impact. While physical retail traffic declined, leading to a 20% contraction in comparable store sales on a currency-neutral basis, Nike's digital commerce surged by 83% currency-neutral. This shift accelerated the company's digital transformation and direct-to-consumer strategy. Nike also focused on recalibrating supply and demand, securing liquidity, and prudently managing expenses. Despite pressures on gross margin due to increased promotions and product costs, the company successfully reduced selling and administrative expenses and maintained a strong cash position.

Nike's consolidated gross margin decreased by 90 basis points to 44.8% in the first quarter of fiscal year 2021 compared to the prior year. The primary reasons cited were lower margins in the NIKE Direct business due to higher promotions aimed at reducing excess inventory (decreasing gross margin by 150 basis points) and higher NIKE Brand product costs (decreasing gross margin by approximately 120 basis points). These were partially offset by a significant increase in full-price Average Selling Price (ASP) for NIKE Brand products, which increased gross margin by approximately 200 basis points.

Nike's Direct to Consumer (DTC) business, referred to as NIKE Direct, showed strong performance, with sales growing 13% on a currency-neutral basis. Within NIKE Direct, digital commerce sales were a standout performer, increasing by an impressive 83% on a currency-neutral basis. This highlights the success of Nike's 'Consumer Direct Acceleration' strategy, which prioritizes digital platforms and direct consumer connections. NIKE Direct sales now represent approximately 36% of total NIKE Brand revenues, up from 32% in the prior year's comparable quarter, demonstrating its increasing importance to the company's overall business.