NIKE, Inc. (NYSE:NKE) today reported fiscal 2020 financial
results for its third quarter ended February 29, 2020.
- Revenues rose 5 percent on a reported basis and 7 percent on a
currency-neutral basis*; Digital sales up 36 percent versus prior
year
- Diluted earnings per share was $0.53, including a $0.25
non-recurring, non-cash charge associated with the transition to a
strategic distributor model in South America
- Inventory increased 7 percent to $5.8 billion; closeout
inventory units declined versus prior year
Revenues increased to $10.1 billion in the third quarter, up 5
percent on a reported basis and up 7 percent on a currency-neutral
basis, driven by 13 percent currency-neutral growth in NIKE Direct
with digital growth of 36 percent and strong growth across EMEA,
APLA and North America, offset by the impact of COVID-19 on our
business in Greater China. Digital sales in Greater China increased
more than 30 percent while brick and mortar retail sales were
impacted by temporary store closures related to COVID-19.
“In an extraordinarily dynamic time, NIKE’s strong results are
testament to our deep consumer connections, compelling product
innovation and agile teams around the world. We know it’s in times
like these that strong brands get even stronger,” said John
Donahoe, President and CEO, NIKE, Inc. “As we start to see recovery
in China, no one is better equipped than NIKE to navigate the
current climate.”**
Diluted earnings per share for the quarter was $0.53, including
a $0.25 non-recurring, non-cash charge related to our entry into
definitive agreements to transition our Brazil, Argentina, Chile
and Uruguay businesses to a strategic distributor model. Diluted
earnings per share was also adversely impacted by COVID-19.
“As we close Q3, NIKE’s Brand leadership and business momentum
have been stronger than ever and unrivaled around the world,” said
Andy Campion, Executive Vice President and Chief Financial Officer,
NIKE, Inc. “Amidst the dynamics that we are facing, we are
executing against an operational playbook that will expedite NIKE’s
return to profitable, capital efficient growth leveraging our
strong financial position, the strongest partnerships across the
value chain in our industry, and our leading digital
capabilities.”**
COVID-19 Update
As discussed in our press release issued on February 4, 2020,
operations in Greater China were materially impacted as a result of
COVID-19. In the third quarter, on a currency-neutral basis,
Greater China revenues were down 4 percent following 22 consecutive
quarters of double-digit growth. However, during the first two
months of the third quarter, Greater China’s revenue grew strong
double digits, offset by the impacts of COVID-19 beginning in late
January. At the peak in February, roughly 75 percent of NIKE-owned
and partner doors in Greater China were closed with others
operating on reduced hours. Currently, nearly 80 percent of doors
are open in Greater China with an even higher rate in key cities.
Beginning March 16th, all NIKE-owned stores, outside of Greater
China, Japan and Korea were closed to help curb the spread of
COVID-19.
NIKE, Inc. management will provide more detail on the financial
and operational impacts of COVID-19 during the conference call
later today.
Non-recurring Items Impacting Comparability in the Third
Quarter
Third quarter results contain several non-comparable
transactions. In February, we announced the execution of agreements
to transition our NIKE Brand businesses in Brazil, Argentina, Chile
and Uruguay to strategic distributor partnerships. As a result, we
classified the assets and liabilities of the entities to be sold as
held-for-sale on our Unaudited Consolidated Balance Sheets and
recognized a non-recurring, non-cash charge of $400 million. This
charge primarily reflects the anticipated release of associated
cumulative foreign currency translation losses and could fluctuate
due to changes in exchange rates up to the date of close.
Additionally, we completed the sale of the Hurley brand and
recognized an immaterial gain on sale. Both the Hurley gain on sale
and the charge associated with the transition in South America were
recognized in Other (income) expense, net on our Unaudited
Consolidated Statements of Income. As a result of the sale of the
Hurley business, the Company estimates that revenue growth in North
America was adversely impacted by approximately 1-2 percentage
points during the third quarter.
Third Quarter Income Statement Review
- Revenues for NIKE, Inc. increased 5 percent to $10.1
billion, up 7 percent on a currency-neutral basis.
- Revenues for the NIKE Brand were $9.6 billion, up 6 percent on
a currency-neutral basis driven by double-digit growth in NIKE
Direct and growth in wholesale; key categories including Sportswear
and the Jordan Brand, and continued growth across footwear and
apparel.
- Revenues for Converse were $506 million, up 11 percent on a
currency-neutral basis, mainly driven by double-digit growth in
Europe and in digital, globally.
- Gross margin decreased 80 basis points to 44.3 percent
primarily as a result of impacts from COVID-19, including a lower
mix of sales in Greater China which is our highest margin
geography, as well as increased rebates to wholesale partners and
higher costs related to factory cancellations to manage future
inventory. Gross margin also declined due to changes in foreign
exchange rates and incremental tariffs in North America.
- Selling and administrative expense increased 6 percent
to $3.3 billion. Demand creation expense was $870 million, up 1
percent due primarily to investments in key brand moments.
Operating overhead expense increased 8 percent to $2.4 billion
driven by wage-related expenses, which reflect investments in data
and analytics and other transformational initiatives to accelerate
our end-to-end digital transformation.
- Other (income) expense, net was $297 million comprised
primarily of a non-recurring, non-cash charge of $400 million
related to the execution of agreements to transition the Company’s
operating models in Brazil, Argentina, Chile and Uruguay. This
charge largely reflects the anticipated release of associated
cumulative foreign currency translation losses.
- The effective tax rate was 3.9 percent compared to 14.7
percent for the same period last year due to a shift in the
proportion of earnings taxed in the U.S., and increased benefits
from discrete items.
- Net income decreased 23 percent to $847 million and
diluted earnings per share decreased 22 percent to $0.53 as
strong revenue growth in NIKE Direct and across EMEA, APLA and
North America was offset primarily by the aforementioned
non-recurring charge and the impacts to Greater China from
COVID-19.
February 29, 2020 Balance Sheet Review
- Inventories for NIKE, Inc. were $5.8 billion, up 7
percent compared to the prior year period, reflecting anticipated
strong demand across all geographies as well as higher inventories
in Greater China due to COVID-19. APLA inventory declined due to
the reclassification of inventory in Brazil, Argentina, Chile and
Uruguay into Prepaid expenses and other current assets as a result
of the aforementioned transaction.
- Cash and equivalents and short-term investments were
$3.2 billion, $864 million lower than last year as share
repurchases, dividends, and investments in infrastructure more than
offset proceeds from net income.
Share Repurchases
During the third quarter, NIKE, Inc. repurchased 9.6 million
shares for approximately $957 million as part of the four-year, $15
billion program approved by the Board of Directors in June 2018. As
of February 29, 2020, a total of 43.3 million shares had been
repurchased under this program for approximately $3.9 billion.
Conference Call
NIKE, Inc. management will host a conference call beginning at
approximately 2:00 p.m. PT on March 24, 2020, to review fiscal
third quarter results. The conference call will be broadcast live
via the Internet and can be accessed at http://investors.nike.com.
For those unable to listen to the live broadcast, an archived
version will be available at the same location through 9:00 p.m.
PT, April 7, 2020.
About NIKE, Inc.
NIKE, Inc., based near Beaverton, Oregon, is the world's leading
designer, marketer and distributor of authentic athletic footwear,
apparel, equipment and accessories for a wide variety of sports and
fitness activities. Converse, a wholly-owned NIKE, Inc. subsidiary
brand, designs, markets and distributes athletic lifestyle
footwear, apparel and accessories. For more information, NIKE,
Inc.’s earnings releases and other financial information are
available on the Internet at http://investors.nike.com. Individuals
can also visit http://news.nike.com and follow @NIKE.
* See additional information in the accompanying Divisional
Revenues table regarding this non-GAAP financial measure.
** The marked paragraphs contain forward-looking statements that
involve risks and uncertainties that could cause actual results to
differ materially. These risks and uncertainties are detailed from
time to time in reports filed by NIKE with the U.S. Securities and
Exchange Commission (SEC), including Forms 8-K, 10-Q and 10-K.
(Tables Follow)
NIKE, Inc. CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED % NINE
MONTHS ENDED % (In millions, except per share data)
2/29/2020 2/28/2019 Change 2/29/2020
2/28/2019 Change Revenues
$ 10,104
$ 9,611
5%
$ 31,090
$ 28,933
7%
Cost of sales
5,631
5,272
7%
17,202
16,092
7%
Gross profit
4,473
4,339
3%
13,888
12,841
8%
Gross margin
44.3%
45.1%
44.7%
44.4%
Demand creation expense
870
865
1%
2,769
2,739
1%
Operating overhead expense
2,413
2,226
8%
7,166
6,557
9%
Total selling and administrative expense
3,283
3,091
6%
9,935
9,296
7%
% of revenues
32.5%
32.2%
32.0%
32.1%
Interest expense (income), net
12
12
—
39
37
—
Other expense (income), net
297
(55)
—
223
(50)
—
Income before income taxes
881
1,291
-32%
3,691
3,558
4%
Income tax (benefit) expense
34
190
-82%
362
518
-30%
Effective tax rate
3.9%
14.7%
9.8%
14.6%
NET INCOME
$ 847
$ 1,101
-23%
$ 3,329
$ 3,040
10%
Earnings per common share: Basic
$ 0.54
$ 0.70
-23%
$ 2.13
$ 1.92
11%
Diluted
$ 0.53
$ 0.68
-22%
$ 2.09
$ 1.87
12%
Weighted average common shares outstanding: Basic
1,556.3
1,572.8
1,559.8
1,582.8
Diluted
1,591.6
1,609.6
1,594.6
1,621.5
Dividends declared per common share
$ 0.245
$ 0.22
$ 0.71
$ 0.64
NIKE, Inc. CONSOLIDATED BALANCE SHEETS (Unaudited)
February 29,
February 28,
% Change
(Dollars in millions)
2020
2019
ASSETS Current assets: Cash and equivalents
$
2,863
$
3,695
-23 %
Short-term investments
319
351
-9 %
Accounts receivable, net
4,473
4,549
-2 %
Inventories
5,807
5,415
7 %
Prepaid expenses and other current assets
2,282
1,786
28 %
Total current assets
15,744
15,796
0 %
Property, plant and equipment, net
4,783
4,688
2 %
Operating lease right-of-use assets, net
2,907
—
—
Identifiable intangible assets, net
275
283
-3 %
Goodwill
223
154
45 %
Deferred income taxes and other assets
2,288
2,000
14 %
TOTAL ASSETS
$
26,220
$
22,921
14 %
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current
portion of long-term debt
$
4
$
6
-33 %
Notes payable
9
16
-44 %
Accounts payable
2,221
2,307
-4 %
Current portion of operating lease liabilities
422
—
—
Accrued liabilities
5,356
4,738
13 %
Income taxes payable
268
214
25 %
Total current liabilities
8,280
7,281
14 %
Long-term debt
3,463
3,465
0 %
Operating lease liabilities
2,758
—
—
Deferred income taxes and other liabilities
2,674
3,214
-17 %
Redeemable preferred stock —
—
—
Shareholders' equity
9,045
8,961
1 %
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
26,220
$
22,921
14 %
NIKE, Inc. DIVISIONAL REVENUES (Unaudited)
%
ChangeExcludingCurrencyChanges1 %
ChangeExcludingCurrencyChanges1 THREE MONTHS
ENDED % NINE MONTHS ENDED % (Dollars in
millions)
2/29/2020 2/28/2019 Change
2/29/2020 2/28/2019 Change North
America Footwear
$
2,628
$
2,509
5%
5%
$
7,723
$
7,309
6%
6%
Apparel
1,228
1,173
5%
5%
4,076
3,985
2%
2%
Equipment
123
128
-4%
-4%
455
443
3%
3%
Total
3,979
3,810
4%
4%
12,254
11,737
4%
4%
Europe, Middle East & Africa Footwear
1,711
1,589
8%
9%
5,005
4,650
8%
11%
Apparel
889
750
19%
20%
2,655
2,374
12%
15%
Equipment
109
96
14%
14%
359
331
8%
12%
Total
2,709
2,435
11%
13%
8,019
7,355
9%
13%
Greater China Footwear
1,075
1,115
-4%
-3%
3,486
3,095
13%
16%
Apparel
400
444
-10%
-9%
1,428
1,314
9%
12%
Equipment
31
29
7%
3%
118
102
16%
18%
Total
1,506
1,588
-5%
-4%
5,032
4,511
12%
15%
Asia Pacific & Latin America Footwear
963
909
6%
11%
2,890
2,669
8%
14%
Apparel
388
340
14%
20%
1,154
1,032
12%
18%
Equipment
63
58
9%
15%
183
174
5%
11%
Total
1,414
1,307
8%
13%
4,227
3,875
9%
15%
Global Brand Divisions2
8
8
0%
2%
24
33
-27%
-26%
TOTAL NIKE BRAND
9,616
9,148
5%
6%
29,556
27,511
7%
10%
Converse
506
463
9%
11%
1,541
1,415
9%
11%
Corporate3
(18)
—
—
—
(7)
7
—
—
TOTAL NIKE, INC. REVENUES
$
10,104
$
9,611
5%
7%
$
31,090
$
28,933
7%
10%
TOTAL NIKE BRAND Footwear
$
6,377
$
6,122
4%
5%
$
19,104
$
17,723
8%
10%
Apparel
2,905
2,707
7%
9%
9,313
8,705
7%
9%
Equipment
326
311
5%
6%
1,115
1,050
6%
9%
Global Brand Divisions2
8
8
0%
2%
24
33
-27%
-26%
TOTAL NIKE BRAND REVENUES
$
9,616
$
9,148
5%
6%
$
29,556
$
27,511
7%
10%
1 The percent change has been calculated using actual exchange
rates in use during the comparative prior year period to enhance
the visibility of the underlying business trends by excluding the
impact of translation arising from foreign currency exchange rate
fluctuations, which is considered a non-GAAP financial measure. 2
Global Brand Divisions revenues are primarily attributable to NIKE
Brand licensing businesses that are not part of a geographic
operating segment. 3 Corporate revenues primarily consist of
foreign currency hedge gains and losses related to revenues
generated by entities within the NIKE Brand geographic operating
segments and Converse but managed through the Company's central
foreign exchange risk management program.
NIKE, Inc.
EARNINGS BEFORE INTEREST AND
TAXES1
(Unaudited)
THREE MONTHS ENDED % NINE MONTHS ENDED
% (Dollars in millions)
2/29/2020 2/28/2019
Change 2/29/2020 2/28/2019 Change North
America
$
937
$
916
2 %
$
2,912
$
2,877
1 %
Europe, Middle East & Africa
575
538
7 %
1,694
1,489
14 %
Greater China
556
639
-13 %
1,919
1,702
13 %
Asia Pacific & Latin America
387
339
14 %
1,105
983
12 %
Global Brand Divisions2
(895)
(788)
-14 %
(2,624)
(2,432)
-8 %
TOTAL NIKE BRAND1
1,560
1,644
-5 %
5,006
4,619
8 %
Converse
96
79
22 %
324
221
47 %
Corporate3
(763)
(420)
-82 %
(1,600)
(1,245)
-29 %
TOTAL NIKE, INC. EARNINGS BEFORE INTEREST AND TAXES1
893
1,303
-31 %
3,730
3,595
4 %
Interest expense (income), net
12
12
—
39
37
—
TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES
$
881
$
1,291
-32 %
$
3,691
$
3,558
4 %
1 The Company evaluates the performance of individual operating
segments based on earnings before interest and taxes (commonly
referred to as “EBIT”), which represents net income before interest
expense (income), net and income tax expense. Total NIKE Brand EBIT
and Total NIKE, Inc. EBIT are considered non-GAAP financial
measures and are being provided as management believes this
additional information should be considered when assessing the
Company's underlying business performance and trends. References to
EBIT should not be considered in isolation or as a substitute for
other financial measures calculated and presented in accordance
with U.S. GAAP and may not be comparable to similarly titled
non-GAAP measures used by other companies. 2 Global Brand Divisions
primarily represent demand creation, operating overhead and product
creation and design expenses that are centrally managed for the
NIKE Brand. Revenues for Global Brand Divisions are primarily
attributable to NIKE Brand licensing businesses that are not part
of a geographic operating segment. 3 Corporate consists primarily
of unallocated general and administrative expenses, including
expenses associated with centrally managed departments;
depreciation and amortization related to the Company’s corporate
headquarters; unallocated insurance, benefit and compensation
programs, including stock-based compensation; and certain foreign
currency gains and losses, including certain hedge gains and
losses. For the three and nine months ended February 29, 2020,
Corporate includes the one-time, non-recurring charge, recognized
as a result of the Company’s decision to transition its operations
in Brazil, Argentina, Chile and Uruguay to third-party
distributors. This charge primarily reflects the anticipated
release of associated non-cash cumulative foreign currency
translation losses.
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Investor Contact: Matt Friend (503)
532-4213
Media Contact: Mark Rhodes (503)
532-8877
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