10-QPeriod: Q1 FY2023

NIKE, Inc. Quarterly Report for Q1 Ended Aug 31, 2022

Filed October 6, 2022For Securities:NKE

Summary

For the first quarter of fiscal year 2023, NIKE, Inc. reported revenues of $12.7 billion, a 4% increase year-over-year, or 10% on a currency-neutral basis. This growth was primarily driven by strong performance in North America, EMEA, and APLA, though partially offset by a decline in Greater China due to COVID-19 related disruptions. Net income for the quarter was $1.47 billion, a decrease of 22% from the prior year, resulting in diluted earnings per share of $0.93, down from $1.16. The company faced challenges with gross margin, which contracted by 220 basis points to 44.3%, largely due to elevated freight and logistics costs, increased promotional activity, and higher inventory obsolescence. Selling and administrative expenses increased by 10%, with operating overhead rising significantly. Despite the revenue growth and strategic pricing initiatives, increased costs and promotional efforts impacted profitability. NIKE continued to focus on its direct-to-consumer (DTC) strategy, with DTC revenues representing 42% of total NIKE Brand revenues, up from 40% in the prior year. The company also actively managed its capital through share repurchases, spending $0.98 billion on repurchases during the quarter.

Financial Highlights

47 data points
Beta

Revenue

$12.69B

44.3% Gross Margin

Net Income

$1.47B

11.6% Net Margin

EPS (Diluted)

$0.93

Total Assets

$41.09B

Cash & Equivalents

$7.23B

Free Cash Flow

$93.00M

Financial Statements
Beta
Revenue$12.69B
Cost of Revenue$7.07B
Gross Profit$5.62B
SG&A Expenses$3.92B
Net Income$1.47B
EPS (Basic)$0.94
EPS (Diluted)$0.93
Shares Outstanding (Basic)1.57B
Shares Outstanding (Diluted)1.59B

Key Highlights

  • 1Total revenues increased by 4% to $12.7 billion, or 10% on a currency-neutral basis, indicating underlying business strength despite macroeconomic headwinds.
  • 2Net income decreased by 22% to $1.47 billion, and diluted EPS fell to $0.93 from $1.16, reflecting margin pressures.
  • 3Gross margin declined by 220 basis points to 44.3% due to higher freight costs, increased promotional activity, and inventory obsolescence.
  • 4The Direct-to-Consumer (DTC) channel continues to grow, representing 42% of NIKE Brand revenues, up from 40% in the prior year, demonstrating successful execution of the consumer-focused strategy.
  • 5Greater China revenue declined by 16% (13% currency-neutral) due to COVID-19 disruptions, impacting overall growth.
  • 6Selling and administrative expenses increased by 10%, driven by higher operating overhead and demand creation investments.
  • 7The company repurchased $983 million of common stock during the quarter, indicating a continued commitment to returning capital to shareholders.

Frequently Asked Questions

The decrease in net income was primarily driven by a decline in gross margin, which fell by 220 basis points due to factors like elevated freight and logistics costs, increased promotional activity, and higher inventory obsolescence. Additionally, selling and administrative expenses increased by 10%, with operating overhead expenses seeing a significant rise.

The DTC strategy continues to show strength. DTC revenues accounted for 42% of total NIKE Brand revenues in the first quarter of fiscal 2023, up from 40% in the same period last year. This growth was driven by NIKE Brand Digital sales increasing by 23% on a currency-neutral basis and comparable store sales increasing by 4%.

Foreign currency exchange rates had a significant unfavorable impact. On a reported basis, revenues increased by 4%, but on a currency-neutral basis, the increase was 10%. The company noted that unfavorable changes in foreign currency exchange rates are expected to have a material negative impact on reported revenues and income before taxes in the second quarter of fiscal 2023.

The company expects continued pressure on gross margins in the second quarter of fiscal 2023 due to the ongoing combination of elevated freight and logistics costs and increased promotional activity. Worsening macroeconomic conditions could also impact consumer demand and lead to higher inventory levels and promotional activity, further affecting profitability.