8-KOther Events

NIKE, Inc. 8-K Report, Corporate Update (Mar 25, 2020)

Filed March 25, 2020For Securities:NKE

Summary

Nike, Inc. reported its third-quarter fiscal 2020 results, showing continued revenue growth driven by a strong digital performance, with total revenues up 5% year-over-year (7% on a currency-neutral basis) to $10.1 billion. Diluted earnings per share (EPS) stood at $0.53, which was negatively impacted by a $0.25 non-recurring charge related to the transition of its South American businesses to a distributor model and the adverse effects of the emerging COVID-19 pandemic, particularly in Greater China. The company highlighted significant digital sales growth of 36% globally, underscoring its strategic focus on direct-to-consumer channels. However, the report also detailed the initial impacts of COVID-19, including temporary store closures in Greater China and the beginning of widespread closures outside of China as the pandemic spread. While Greater China experienced a revenue decline of 4% on a currency-neutral basis for the quarter, the company noted a recovery in store reopenings and digital demand by late March. The report also provided an update on inventory, which increased 7% to $5.8 billion, but noted a decline in closeout inventory units.

Key Highlights

  • 1Q3 FY2020 revenues increased 5% to $10.1 billion (7% currency-neutral), driven by 36% digital sales growth.
  • 2Diluted EPS of $0.53 was impacted by a $0.25 non-recurring charge for South America distributor transition and COVID-19 impacts.
  • 3COVID-19 began to materially impact Greater China revenues, down 4% currency-neutral, with temporary store closures and reduced operating hours.
  • 4As of March 16, 2020, Nike temporarily closed stores globally (outside of Greater China, Japan, and Korea) due to the pandemic.
  • 5Nike's inventory rose 7% to $5.8 billion, but closeout inventory units decreased year-over-year.
  • 6The company transitioned its South America (Brazil, Argentina, Chile, Uruguay) businesses to a strategic distributor model, incurring a $400 million non-recurring charge.
  • 7Gross margin decreased by 80 basis points due to COVID-19 impacts (lower mix in high-margin Greater China) and increased rebates.

Frequently Asked Questions

Revenue growth was primarily driven by a strong performance in NIKE Direct, with digital sales increasing by 36% year-over-year. Growth was also seen across EMEA, APLA, and North America regions.

COVID-19 had a material negative impact, particularly in Greater China where revenues declined by 4% currency-neutral due to temporary store closures and reduced operating hours. Globally, Nike began closing stores in mid-March 2020 to curb the spread of the virus, anticipating further adverse impacts.

Nike incurred a $400 million non-recurring, non-cash charge related to the execution of agreements to transition its brand businesses in Brazil, Argentina, Chile, and Uruguay to a strategic distributor model. This charge primarily reflects the anticipated release of associated cumulative foreign currency translation losses.

While Greater China revenues were down 4% currency-neutral in Q3, the situation began to recover. By late March 2020, nearly 80% of Nike-owned and partner stores in Greater China had reopened and were operating at normal hours, with digital demand remaining strong.