10-QPeriod: Q3 FY2022

NIKE, Inc. Quarterly Report for Q3 Ended Feb 28, 2022

Filed April 5, 2022For Securities:NKE

Summary

NIKE, Inc. reported a solid performance for the third quarter of fiscal year 2022, with revenues increasing by 5% year-over-year to $10.9 billion, or 8% on a currency-neutral basis. This growth was driven by strong momentum in the NIKE Direct business, which saw a 17% increase (currency-neutral), and broad-based strength across North America, EMEA, and APLA, partially offset by a decline in Greater China due to COVID-19 resurgence and marketplace dynamics. Despite revenue growth, net income saw a slight decrease of 4% to $1.4 billion, resulting in diluted EPS of $0.87, down from $0.90 in the prior year. This was impacted by higher selling and administrative expenses, including increased demand creation and operating overhead, as well as a higher effective tax rate. However, gross margin improved by 100 basis points year-over-year, benefiting from lower promotional activity in the NIKE Direct business and favorable foreign currency impacts, though partially offset by higher product and logistics costs. The company continues to navigate supply chain challenges, expecting them to persist and impact product availability and costs. Investors should note the continued strategic shift towards NIKE Direct, which now represents 44% of NIKE Brand revenues in the quarter, highlighting the company's focus on direct consumer relationships and digital transformation. Management is managing persistent supply chain disruptions and elevated costs by implementing operational playbooks, strategic pricing, and a seasonless product approach, while remaining committed to long-term fiscal 2025 financial goals.

Financial Statements
Beta

Key Highlights

  • 1Revenues grew 5% to $10.9 billion, or 8% on a currency-neutral basis, driven by NIKE Direct and strong performance in North America, EMEA, and APLA.
  • 2Net income decreased 4% to $1.4 billion, resulting in diluted EPS of $0.87.
  • 3Gross margin improved by 100 basis points to 46.6%, driven by lower promotions in NIKE Direct and favorable currency impacts.
  • 4NIKE Direct business showed strong momentum, increasing 17% on a currency-neutral basis and representing 44% of NIKE Brand revenues.
  • 5Greater China revenues declined 5% (8% currency-neutral) due to COVID-19 resurgence and marketplace dynamics.
  • 6Selling and administrative expenses increased 13% due to higher demand creation and operating overhead investments.
  • 7The company continues to experience supply chain challenges impacting product availability and costs.

Frequently Asked Questions

Revenue growth was primarily driven by the strong performance of the NIKE Direct business, which saw a 17% increase on a currency-neutral basis. Geographically, North America, Europe, Middle East & Africa (EMEA), and Asia Pacific & Latin America (APLA) regions showed significant growth, while Greater China experienced a decline.

Net income decreased by 4% due to higher selling and administrative expenses, which rose by 13% mainly from increased investments in demand creation and operating overhead. Additionally, a higher effective tax rate also impacted profitability.

NIKE is implementing various strategies to mitigate supply chain challenges, including leveraging its operational playbook, shifting production capacity, strategic use of air freight, implementing pricing actions, and adopting a seasonless product approach. The company expects these challenges to persist and impact product availability and costs.

The significant growth in the NIKE Direct business (17% currency-neutral) to 44% of total NIKE Brand revenues underscores the company's strategic focus on building direct consumer relationships and enhancing digital and physical retail experiences. This channel typically offers higher margins.