GROSS MARGIN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
(Dollars in millions)
|
2020
|
2019
|
% CHANGE
|
|
2020
|
2019
|
% CHANGE
|
Gross Profit
|
$
|
4,847
|
|
$
|
4,544
|
|
7
|
%
|
|
$
|
9,588
|
|
$
|
9,415
|
|
2
|
%
|
Gross Margin
|
43.1
|
%
|
44.0
|
%
|
(90) bps
|
|
43.9
|
%
|
44.9
|
%
|
(100) bps
|
For the second quarter and first six months of fiscal 2021, our consolidated gross margin was 90 and 100 basis points lower than the respective prior year period and reflected unfavorable impacts from COVID-19. For the second quarter of fiscal 2021, the change in gross margin primarily reflected the following factors:
•Lower margin in our NIKE Direct business, reflecting higher promotions to reduce excess inventory as a result of COVID-19 (decreasing gross margin approximately 80 basis points);
•Lower mix of full-price sales (decreasing gross margin approximately 70 basis points);
•Higher other costs, in part reflecting higher warehousing and freight as well as restructuring-related costs related to our organizational realignment, partially offset by lower inventory obsolescence (decreasing gross margin approximately 40 basis points);
•Unfavorable changes in net foreign currency exchange rates, including hedges, (decreasing gross margin approximately 30 basis points); and
•Lower NIKE Brand product costs, on a wholesale equivalent basis, due to favorable product mix, lower air freight and reduced tariffs in North America (increasing gross margin approximately 110 basis points).
For the first six months of fiscal 2021, the change in gross margin primarily reflected the following factors:
•Lower margin in our NIKE Direct business, reflecting higher promotions to reduce excess inventory as a result of COVID-19 (decreasing gross margin approximately 120 basis points);
•Lower mix of full-price sales (decreasing gross margin approximately 70 basis points);
•Unfavorable changes in net foreign currency exchange rates, including hedges, (decreasing gross margin approximately 30 basis points);
•Higher other costs, in part reflecting higher warehousing and freight as well as restructuring-related costs, partially offset by lower inventory obsolescence and the favorable impact from the release of factory cancellation cost accruals due to higher than anticipated consumer demand (decreasing gross margin approximately 10 basis points); and
•Higher NIKE Brand full-price ASP, net of discounts, (increasing gross margin approximately 110 basis points).
TOTAL SELLING AND ADMINISTRATIVE EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
(Dollars in millions)
|
2020
|
2019
|
% CHANGE
|
|
2020
|
2019
|
% CHANGE
|
Demand creation expense(1)
|
$
|
729
|
|
$
|
881
|
|
-17
|
%
|
|
$
|
1,406
|
|
$
|
1,899
|
|
-26
|
%
|
Operating overhead expense
|
2,538
|
|
2,443
|
|
4
|
%
|
|
4,836
|
|
4,753
|
|
2
|
%
|
Total selling and administrative expense
|
$
|
3,267
|
|
$
|
3,324
|
|
-2
|
%
|
|
$
|
6,242
|
|
$
|
6,652
|
|
-6
|
%
|
% of revenues
|
29.1
|
%
|
32.2
|
%
|
(310) bps
|
|
28.6
|
%
|
31.7
|
%
|
(310) bps
|
(1)Demand creation expense consists of advertising and promotion costs, including costs of endorsement contracts, complimentary product, television, digital and print advertising and media costs, brand events and retail brand presentation.
SECOND QUARTER OF FISCAL 2021 COMPARED TO SECOND QUARTER OF FISCAL 2020
Demand creation expense decreased 17% for the second quarter of fiscal 2021 due primarily to lower advertising and marketing costs, as well as a decline in sports marketing expense and retail brand presentation costs as a result of COVID-19. This activity was partially offset by an increase in digital marketing to support heightened digital demand. Changes in foreign currency exchange rates increased Demand creation expense by approximately 1 percentage point.
Operating overhead expense increased 4% primarily due to $137 million of restructuring-related costs associated with changes to our organizational model announced in July 2020, as well as continued investments in digital capabilities to support the Consumer Direct Acceleration strategy. These costs were slightly offset by disciplined expense management including lower wage-related expenses and lower travel and related costs. Changes in foreign currency exchange rates increased Operating overhead expense by approximately 1 percentage point.
FIRST SIX MONTHS OF FISCAL 2021 COMPARED TO FIRST SIX MONTHS OF FISCAL 2020
Demand creation expense decreased 26% for the first six months of fiscal 2021, driven by lower advertising and marketing costs, as well as a decline in sports marketing expense and retail brand presentation costs as a result of COVID-19. This activity was partially offset by an increase in digital marketing to support heightened digital demand. Changes in foreign currency exchange rates had an insignificant impact on Demand creation expense.
Operating overhead expense increased 2%, primarily due to $184 million of restructuring-related costs associated with changes to our organizational model announced in July 2020, as well as our continued investments in digital capabilities, partially offset by lower travel and related expenses. Changes in foreign currency exchange rates had an insignificant impact on Operating overhead expense.
For more information related to our organizational realignment and related costs, see Note 14 — Restructuring within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
OTHER (INCOME) EXPENSE, NET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
(Dollars in millions)
|
2020
|
2019
|
|
2020
|
2019
|
Other (income) expense, net
|
$
|
54
|
|
$
|
(41)
|
|
|
$
|
40
|
|
$
|
(74)
|
|
Other (income) expense, net comprises foreign currency conversion gains and losses from the re-measurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments, as well as unusual or non-operating transactions that are outside the normal course of business.
For the second quarter of fiscal 2021, Other (income) expense, net changed from $41 million of other income, net to $54 million of other expense, net in the current year, primarily due to a net detrimental change in foreign currency conversion gains and losses, including hedges, as well as a charge related to our planned, strategic distributor partnership transition within APLA.
For the first six months of fiscal 2021, Other (income) expense, net changed from $74 million of other income, net to $40 million of other expense, net in the current year, primarily due to charges related to our planned, strategic distributor partnership transition within APLA, as well as a net detrimental change in foreign currency conversion gains and losses, including hedges.
For more information related to our distributor partnership transition within APLA, see Note 13 — Acquisitions and Divestitures within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
We estimate the combination of the translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency-related gains and losses included in Other (income) expense, net had favorable impacts of approximately $10 million and unfavorable impacts of approximately $28 million on our Income before income taxes for the second quarter and first six months of fiscal 2021, respectively.
INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
|
2020
|
2019
|
% CHANGE
|
|
2020
|
2019
|
% CHANGE
|
Effective tax rate
|
14.1
|
%
|
10.7
|
%
|
340 bps
|
|
12.7
|
%
|
11.7
|
%
|
100 bps
|
Our effective tax rate was 14.1% for the second quarter of fiscal 2021, compared to 10.7% for the second quarter of fiscal 2020, primarily due to changes in the proportion of earnings taxed in the U.S. and an increase in tax associated with the recent finalization of U.S. tax regulations, partially offset by a more favorable impact from stock-based compensation.
Our effective tax rate was 12.7% for the first six months of fiscal 2021, compared to 11.7% for the first six months of fiscal 2020, primarily due to changes in the proportion of earnings taxed in the U.S. and the recognition of a reserve in the first quarter of fiscal 2021 related to Altera Corp. v. Commissioner, partially offset by discrete items which include a more favorable impact from stock-based compensation.
Refer to Note 6 — Income Taxes within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.
OPERATING SEGMENTS
Our operating segments are evidence of the structure of the Company's internal organization. The NIKE Brand segments are defined by geographic regions for operations participating in NIKE Brand sales activity.
Each NIKE Brand geographic segment operates predominantly in one industry: the design, development, marketing and selling of athletic footwear, apparel and equipment. The Company's reportable operating segments for the NIKE Brand are: North America; Europe, Middle East & Africa (EMEA); Greater China; and Asia Pacific & Latin America (APLA), and include results for the NIKE and Jordan brands. The Company's NIKE Direct operations are managed within each geographic operating segment. Converse is also a reportable operating segment for the Company, and operates predominately in one industry: the design, marketing, licensing and selling of athletic lifestyle sneakers, apparel and accessories.
As part of our centrally managed foreign exchange risk management program, standard foreign currency exchange rates are assigned twice per year to each NIKE Brand entity in our geographic operating segments and Converse. These rates are set approximately nine and twelve months in advance of the future selling seasons to which they relate (specifically, for each currency, one standard rate applies to the fall and holiday selling seasons and one standard rate applies to the spring and summer selling seasons) based on average market spot rates in the calendar month preceding the date they are established. Inventories and Cost of sales for geographic operating segments and Converse reflect the use of these standard rates to record non-functional currency product purchases into the entity's functional currency. Differences between assigned standard foreign currency exchange rates and actual market rates are included in Corporate, together with foreign currency hedge gains and losses generated from our centrally managed foreign exchange risk management program and other conversion gains and losses.
The breakdown of revenues is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
(Dollars in millions)
|
2020
|
2019
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES(1)
|
|
2020
|
2019
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES(1)
|
North America
|
$
|
4,006
|
|
$
|
3,982
|
|
1
|
%
|
1
|
%
|
|
$
|
8,231
|
|
$
|
8,275
|
|
-1
|
%
|
0
|
%
|
Europe, Middle East & Africa
|
2,958
|
|
2,537
|
|
17
|
%
|
12
|
%
|
|
5,868
|
|
5,310
|
|
11
|
%
|
8
|
%
|
Greater China
|
2,298
|
|
1,847
|
|
24
|
%
|
19
|
%
|
|
4,078
|
|
3,526
|
|
16
|
%
|
14
|
%
|
Asia Pacific & Latin America
|
1,471
|
|
1,468
|
|
0
|
%
|
5
|
%
|
|
2,570
|
|
2,813
|
|
-9
|
%
|
-3
|
%
|
Global Brand Divisions(2)
|
8
|
|
10
|
|
-20
|
%
|
-20
|
%
|
|
12
|
|
16
|
|
-25
|
%
|
-25
|
%
|
TOTAL NIKE BRAND
|
10,741
|
|
9,844
|
|
9
|
%
|
8
|
%
|
|
20,759
|
|
19,940
|
|
4
|
%
|
4
|
%
|
Converse
|
476
|
|
480
|
|
-1
|
%
|
-4
|
%
|
|
1,039
|
|
1,035
|
|
0
|
%
|
-1
|
%
|
Corporate(3)
|
26
|
|
2
|
|
—
|
|
—
|
|
|
39
|
|
11
|
|
—
|
|
—
|
|
TOTAL NIKE, INC. REVENUES
|
$
|
11,243
|
|
$
|
10,326
|
|
9
|
%
|
7
|
%
|
|
$
|
21,837
|
|
$
|
20,986
|
|
4
|
%
|
4
|
%
|
(1) The percent change excluding currency changes represents a non-GAAP financial measure. See "Use of Non-GAAP Financial Measures" for further information.
(2) Global Brand Divisions revenues include NIKE Brand licensing as well as other miscellaneous revenues 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 our central foreign exchange risk management program.
The primary financial measure used by the Company to evaluate performance of individual operating segments is EBIT, which represents Net income before Interest expense (income), net and Income tax expense in the Unaudited Condensed Consolidated Statements of Income. As discussed in Note 12 — Operating Segments in the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements, certain corporate costs are not included in EBIT of our operating segments.
The breakdown of earnings before interest and taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
(Dollars in millions)
|
2020
|
2019
|
% CHANGE
|
|
2020
|
2019
|
% CHANGE
|
North America
|
$
|
1,023
|
|
$
|
875
|
|
17
|
%
|
|
$
|
2,325
|
|
$
|
1,975
|
|
18
|
%
|
Europe, Middle East & Africa
|
660
|
|
510
|
|
29
|
%
|
|
1,352
|
|
1,119
|
|
21
|
%
|
Greater China
|
891
|
|
694
|
|
28
|
%
|
|
1,579
|
|
1,363
|
|
16
|
%
|
Asia Pacific & Latin America
|
424
|
|
377
|
|
12
|
%
|
|
704
|
|
718
|
|
-2
|
%
|
Global Brand Divisions
|
(841)
|
|
(872)
|
|
4
|
%
|
|
(1,694)
|
|
(1,729)
|
|
2
|
%
|
TOTAL NIKE BRAND(1)
|
2,157
|
|
1,584
|
|
36
|
%
|
|
4,266
|
|
3,446
|
|
24
|
%
|
Converse
|
87
|
|
90
|
|
-3
|
%
|
|
255
|
|
228
|
|
12
|
%
|
Corporate
|
(718)
|
|
(413)
|
|
-74
|
%
|
|
(1,215)
|
|
(837)
|
|
-45
|
%
|
TOTAL NIKE, INC. EARNINGS BEFORE INTEREST AND TAXES(1)
|
1,526
|
|
1,261
|
|
21
|
%
|
|
3,306
|
|
2,837
|
|
17
|
%
|
Interest expense (income), net
|
70
|
|
12
|
|
—
|
|
|
135
|
|
27
|
|
—
|
|
TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES
|
$
|
1,456
|
|
$
|
1,249
|
|
17
|
%
|
|
$
|
3,171
|
|
$
|
2,810
|
|
13
|
%
|
(1) Total NIKE Brand EBIT and Total NIKE, Inc. EBIT represent non-GAAP financial measures. See "Use of Non-GAAP Financial Measures" for further information.
NORTH AMERICA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
(Dollars in millions)
|
2020
|
2019
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
|
2020
|
2019
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
Revenues by:
|
|
|
|
|
|
|
|
|
|
Footwear
|
$
|
2,512
|
|
$
|
2,426
|
|
4
|
%
|
4
|
%
|
|
$
|
5,469
|
|
$
|
5,095
|
|
7
|
%
|
7
|
%
|
Apparel
|
1,368
|
|
1,417
|
|
-3
|
%
|
-3
|
%
|
|
2,493
|
|
2,848
|
|
-12
|
%
|
-12
|
%
|
Equipment
|
126
|
|
139
|
|
-9
|
%
|
-10
|
%
|
|
269
|
|
332
|
|
-19
|
%
|
-19
|
%
|
TOTAL REVENUES
|
$
|
4,006
|
|
$
|
3,982
|
|
1
|
%
|
1
|
%
|
|
$
|
8,231
|
|
$
|
8,275
|
|
-1
|
%
|
0
|
%
|
Revenues by:
|
|
|
|
|
|
|
|
|
|
Sales to Wholesale Customers
|
$
|
2,354
|
|
$
|
2,734
|
|
-14
|
%
|
-14
|
%
|
|
$
|
5,073
|
|
$
|
5,598
|
|
-9
|
%
|
-9
|
%
|
Sales through NIKE Direct
|
1,652
|
|
1,248
|
|
32
|
%
|
32
|
%
|
|
3,158
|
|
2,677
|
|
18
|
%
|
18
|
%
|
TOTAL REVENUES
|
$
|
4,006
|
|
$
|
3,982
|
|
1
|
%
|
1
|
%
|
|
$
|
8,231
|
|
$
|
8,275
|
|
-1
|
%
|
0
|
%
|
EARNINGS BEFORE INTEREST AND TAXES
|
$
|
1,023
|
|
$
|
875
|
|
17
|
%
|
|
|
$
|
2,325
|
|
$
|
1,975
|
|
18
|
%
|
|
We believe there continues to be a meaningful shift in the way consumers shop for product and make purchasing decisions across each of our geographies. Consumers are demanding a constant flow of fresh and innovative product, and have an expectation for superior service and rapid delivery, all fueled by the shift toward digital and mono-brand experiences in NIKE Direct. We anticipate continued evolution within the retail landscape, driven by shifting consumer traffic patterns across digital and physical channels. Specifically in North America, we remain focused on building long-term momentum with our differentiated strategic wholesale customers and over the last three years have significantly reduced the number of undifferentiated accounts. Additionally, during the second quarter of fiscal 2021, we took further steps towards account and channel consolidation by reprioritizing product allocation to benefit NIKE Direct and our differentiated strategic wholesale customers. We expect over the next two fiscal years, we will more aggressively accelerate these changes as we work to reprofile the shape of the marketplace and recapture wholesale revenue declines over time.
SECOND QUARTER OF FISCAL 2021 COMPARED TO SECOND QUARTER OF FISCAL 2020
On a currency-neutral basis, North America revenues for the second quarter of fiscal 2021 increased 1%, largely driven by significant growth in digital. NIKE Direct revenues increased 32% as strong digital sales growth of 107% more than offset an 11% decline in comparable store sales primarily due to reduced physical retail traffic, in part resulting from safety-related measures in response to COVID-19.
Footwear revenues increased 4% on a currency-neutral basis, largely driven by significant growth in digital. Unit sales of footwear decreased 4%, while higher ASP per pair contributed approximately 8 percentage points of footwear revenue growth. Higher ASP per pair was primarily due to the favorable impact of growth in our NIKE Direct business, as well as higher NIKE Direct and full-price ASPs.
On a currency-neutral basis, apparel revenues decreased 3%, as growth in Sportswear was more than offset by lower revenues in several key categories, led by Training, and the divestiture of Hurley in the prior year. Unit sales of apparel were flat while lower ASP per unit reduced apparel revenues by approximately 3 percentage points. The decrease in ASP per unit was primarily driven by lower full-price ASP, in part reflecting higher discounts, partially offset by the favorable impact of growth in our NIKE Direct business and higher NIKE Direct ASP.
Reported EBIT increased 17% driven by lower selling and administrative expense, gross margin expansion and higher revenues. Gross margin increased approximately 100 basis points primarily due to lower product costs reflecting the impact of lower air freight and reduced tariffs, as well as lower inventory obsolescence. These impacts were partially offset by lower full-price ASP, reflecting higher discounts to reduce excess inventory due to COVID-19 and a lower mix of full-price sales. Selling and administrative expense decreased due to lower demand creation and operating overhead expense. The decrease in demand creation expense reflected lower advertising and marketing costs, as well as a decline in retail brand presentation costs, partially offset by continued investments in digital marketing to support heightened digital demand. Operating overhead expense decreased primarily as a result of lower wage-related expense, partially offset by an increase in professional services costs.
FIRST SIX MONTHS OF FISCAL 2021 COMPARED TO FIRST SIX MONTHS OF FISCAL 2020
On a currency-neutral basis, North America revenues for the first six months of fiscal 2021 were flat as growth in Sportswear was offset by declines in nearly all other key categories, led by Training and Running. NIKE Direct revenues increased 18%, primarily due to digital sales growth of 103%, partially offset by comparable store sales contraction of 25%, primarily due to reduced physical retail traffic, in part resulting from safety-related measures in response to COVID-19.
Footwear revenues increased 7% on a currency-neutral basis as growth in Sportswear was partially offset by declines in nearly all other key categories, led by Running. Unit sales of footwear increased 2%, while higher ASP per pair contributed approximately 5 percentage points of footwear revenue growth. Higher ASP per pair was primarily due to higher NIKE Direct and full-price ASPs, as well as the favorable impact of growth in our NIKE Direct business.
On a currency-neutral basis, apparel revenues decreased 12%, driven by declines in most key categories, led by Training, NIKE Basketball, as well as the divestiture of Hurley in the prior year. Unit sales of apparel declined 10% and lower ASP per unit reduced apparel revenues by approximately 2 percentage points. The decrease in ASP per unit was driven by lower full-price ASP and a lower mix of full-price sales, partially offset by the favorable impact of growth in our NIKE Direct business and higher NIKE Direct ASP.
Reported EBIT increased 18% driven by lower selling and administrative expense and gross margin expansion. Gross margin increased approximately 130 basis points due to higher full-price ASP and lower other costs, partially offset by lower margin in our NIKE Direct business and a lower mix of full-price sales. The decrease in other costs was primarily a result of lower inventory obsolescence and the favorable impact from the release of factory cancellation cost accruals due to an increase in consumer demand. Selling and administrative expense decreased due to lower demand creation expense and operating overhead expense. The decrease in demand creation expense was primarily due to lower advertising and marketing costs, retail brand presentation costs and sports marketing expense, partially offset by continued investments in digital marketing to support heightened digital demand. Operating overhead expense decreased primarily as a result of lower wage-related expense, partially offset by an increase in professional services costs.
EUROPE, MIDDLE EAST & AFRICA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
(Dollars in millions)
|
2020
|
2019
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
|
2020
|
2019
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
Revenues by:
|
|
|
|
|
|
|
|
|
|
Footwear
|
$
|
1,731
|
|
$
|
1,536
|
|
13
|
%
|
8
|
%
|
|
$
|
3,533
|
|
$
|
3,294
|
|
7
|
%
|
5
|
%
|
Apparel
|
1,104
|
|
897
|
|
23
|
%
|
18
|
%
|
|
2,075
|
|
1,766
|
|
17
|
%
|
15
|
%
|
Equipment
|
123
|
|
104
|
|
18
|
%
|
16
|
%
|
|
260
|
|
250
|
|
4
|
%
|
3
|
%
|
TOTAL REVENUES
|
$
|
2,958
|
|
$
|
2,537
|
|
17
|
%
|
12
|
%
|
|
$
|
5,868
|
|
$
|
5,310
|
|
11
|
%
|
8
|
%
|
Revenues by:
|
|
|
|
|
|
|
|
|
|
Sales to Wholesale Customers
|
$
|
1,985
|
|
$
|
1,794
|
|
11
|
%
|
6
|
%
|
|
$
|
3,958
|
|
$
|
3,836
|
|
3
|
%
|
1
|
%
|
Sales through NIKE Direct
|
973
|
|
743
|
|
31
|
%
|
25
|
%
|
|
1,910
|
|
1,474
|
|
30
|
%
|
26
|
%
|
TOTAL REVENUES
|
$
|
2,958
|
|
$
|
2,537
|
|
17
|
%
|
12
|
%
|
|
$
|
5,868
|
|
$
|
5,310
|
|
11
|
%
|
8
|
%
|
EARNINGS BEFORE INTEREST AND TAXES
|
$
|
660
|
|
$
|
510
|
|
29
|
%
|
|
|
$
|
1,352
|
|
$
|
1,119
|
|
21
|
%
|
|
SECOND QUARTER OF FISCAL 2021 COMPARED TO SECOND QUARTER OF FISCAL 2020
On a currency-neutral basis, EMEA revenues for the second quarter of fiscal 2021 grew 12%, driven by higher revenues across most territories, led by UK & Ireland, Central Europe and Northern Europe, which grew 32%, 21% and 7%, respectively. Revenues increased in all key categories, led by Sportswear, Football (Soccer) and the Jordan Brand. NIKE Direct revenues increased 25% driven by strong digital sales growth of 96%, partially offset by comparable store sales contraction of 20% primarily due to reduced physical retail traffic, in part resulting from safety-related measures in response to COVID-19.
Currency-neutral footwear revenues grew 8%, driven by higher revenues in nearly all key categories, led by the Jordan Brand, Training and Sportswear. Unit sales of footwear increased 9%, while lower ASP per pair reduced footwear revenues by approximately 1 percentage point, primarily due to unfavorable full-price mix.
Currency-neutral apparel revenues increased 18% due to growth in most key categories, led by Football (Soccer) and Sportswear. Unit sales of apparel increased 19%, while lower ASP per unit reduced apparel revenues by approximately 1 percentage point. Lower ASP per unit was primarily due to lower NIKE Direct ASP and a lower mix of NIKE Direct sales, as well as lower off-price ASP, which more than offset higher full-price ASP, in part reflecting lower discounts.
Reported EBIT increased 29% as higher revenues and lower selling and administrative expense more than offset a decline in gross margin. Gross margin decreased approximately 200 basis points as lower product costs due to favorable product mix were more than offset by unfavorable changes in standard foreign currency exchange rates, lower margin in our NIKE Direct business, and a lower mix of full-price sales. Lower margin in our NIKE Direct business was driven by higher promotions to reduce excess inventory due to COVID-19. Selling and administrative expense decreased due to lower demand creation expense, while operating overhead expense was flat. Lower demand creation expense was driven by lower advertising and marketing expense.
FIRST SIX MONTHS OF FISCAL 2021 COMPARED TO FIRST SIX MONTHS OF FISCAL 2020
On a currency-neutral basis, EMEA revenues for the first six months of fiscal 2021 grew 8%, driven by higher revenues across most territories, led by UK & Ireland and Central Europe, which grew 31% and 17%, respectively. Revenues increased in all key categories, led by Sportswear, the Jordan Brand and Football (Soccer). NIKE Direct revenues increased 26% driven by digital sales growth of 105%, partially offset by a 15% decline in comparable store sales primarily due to reduced physical retail traffic, in part resulting from safety-related measures in response to COVID-19.
Currency-neutral footwear revenues grew 5%, driven by higher revenues in nearly all key categories, led by the Jordan Brand. Unit sales of footwear increased 1% and higher ASP per pair contributed approximately 4 percentage points of footwear revenue growth resulting from higher full-price ASP.
Currency-neutral apparel revenues increased 15% due to growth in all key categories, led by Football (Soccer) and Sportswear. Unit sales of apparel increased 14% and higher ASP per unit contributed approximately 1 percentage point of apparel revenue growth. Higher ASP per unit was primarily due to higher full-price ASP, in part reflecting lower discounts.
Reported EBIT increased 21% for the first six months of fiscal 2021 as higher revenues and lower selling and administrative expense more than offset a decline in gross margin. Gross margin decreased approximately 290 basis points as lower NIKE Direct margins driven by higher promotions to reduce excess inventory due to COVID-19, unfavorable changes in standard foreign currency exchange rates and a lower mix of full-price sales, more than offset lower product costs. Selling and administrative expense decreased due to lower demand creation and operating overhead expense. The decrease in demand creation expense was driven by lower advertising and marketing costs, as well as lower sports marketing expense. Lower operating overhead expense was primarily due to lower travel and related expenses, partially offset by increases in professional services costs.
GREATER CHINA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
(Dollars in millions)
|
2020
|
2019
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
|
2020
|
2019
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
Revenues by:
|
|
|
|
|
|
|
|
|
|
Footwear
|
$
|
1,567
|
|
$
|
1,247
|
|
26
|
%
|
20
|
%
|
|
$
|
2,818
|
|
$
|
2,411
|
|
17
|
%
|
15
|
%
|
Apparel
|
681
|
|
563
|
|
21
|
%
|
16
|
%
|
|
1,159
|
|
1,028
|
|
13
|
%
|
11
|
%
|
Equipment
|
50
|
|
37
|
|
35
|
%
|
29
|
%
|
|
101
|
|
87
|
|
16
|
%
|
14
|
%
|
TOTAL REVENUES
|
$
|
2,298
|
|
$
|
1,847
|
|
24
|
%
|
19
|
%
|
|
$
|
4,078
|
|
$
|
3,526
|
|
16
|
%
|
14
|
%
|
Revenues by:
|
|
|
|
|
|
|
|
|
|
Sales to Wholesale Customers
|
$
|
1,159
|
|
$
|
1,028
|
|
13
|
%
|
8
|
%
|
|
$
|
2,123
|
|
$
|
2,014
|
|
5
|
%
|
4
|
%
|
Sales through NIKE Direct
|
1,139
|
|
819
|
|
39
|
%
|
33
|
%
|
|
1,955
|
|
1,512
|
|
29
|
%
|
27
|
%
|
TOTAL REVENUES
|
$
|
2,298
|
|
$
|
1,847
|
|
24
|
%
|
19
|
%
|
|
$
|
4,078
|
|
$
|
3,526
|
|
16
|
%
|
14
|
%
|
EARNINGS BEFORE INTEREST AND TAXES
|
$
|
891
|
|
$
|
694
|
|
28
|
%
|
|
|
$
|
1,579
|
|
$
|
1,363
|
|
16
|
%
|
|
SECOND QUARTER OF FISCAL 2021 COMPARED TO SECOND QUARTER OF FISCAL 2020
On a currency-neutral basis, Greater China revenues for the second quarter of fiscal 2021 increased 19% due to higher revenues in nearly all key categories, led by Sportswear, the Jordan Brand and NIKE Basketball. NIKE Direct revenues increased 33% due to digital sales growth of 37%, comparable store sales growth of 27% and the addition of new stores.
Currency-neutral footwear revenues increased 20% for the second quarter of fiscal 2021 driven by higher revenues in most key categories, primarily Sportswear, the Jordan Brand and NIKE Basketball. Unit sales of footwear increased 24%, while lower ASP per pair reduced footwear revenues by approximately 4 percentage points, driven by lower NIKE Direct and full-price ASPs, as well as unfavorable full-price mix.
Currency-neutral apparel revenues grew 16% for the second quarter of fiscal 2021 due to higher revenues in nearly all key categories, led by Sportswear, the Jordan Brand and Training. Unit sales of apparel increased 21%, while lower ASP per unit reduced apparel revenues by approximately 5 percentage points as unfavorable full-price mix and lower NIKE Direct ASP, more than offset higher off-price ASP.
Reported EBIT increased 28% for the second quarter of fiscal 2021 as higher revenues and lower selling and administrative expense more than offset a decline in gross margin. Gross margin decreased approximately 260 basis points reflecting unfavorable changes in standard foreign currency exchange rates and lower margin in our NIKE Direct business driven by higher promotions to reduce excess inventory, as well as a lower mix of full-price sales. Selling and administrative expense decreased due to lower demand creation expense, partially offset by higher operating overhead expense. Demand creation expense decreased primarily due to lower advertising and marketing expenses. Growth in operating overhead expense was driven by higher investments within our NIKE Direct operations.
FIRST SIX MONTHS OF FISCAL 2021 COMPARED TO FIRST SIX MONTHS OF FISCAL 2020
On a currency-neutral basis, Greater China revenues for the first six months of fiscal 2021 increased 14%, driven by higher revenues in nearly all key categories, led by Sportswear, the Jordan Brand and NIKE Basketball. NIKE Direct revenues increased 27%, driven by digital sales growth of 34%, comparable store sales growth of 20% and the addition of new stores.
Currency-neutral footwear revenues increased 15%, driven by growth in most key categories, led by Sportswear, the Jordan Brand and NIKE Basketball. Unit sales of footwear increased 22%, while lower ASP per pair reduced footwear revenues by approximately 7 percentage points. Lower ASP was driven by lower NIKE Direct ASP and unfavorable full-price mix.
Currency-neutral apparel revenue growth of 11% was fueled by higher revenues in nearly all key categories, most notably Sportswear and the Jordan Brand. Unit sales of apparel increased 15%, while lower ASP per unit reduced apparel revenues by approximately 4 percentage points. Lower ASP was driven by an unfavorable full-price mix and lower NIKE Direct ASP, slightly offset by higher off-price ASP.
Reported EBIT increased 16%, as higher revenues and lower selling and administrative expense more than offset a decline in gross margin. Gross margin decreased approximately 390 basis points primarily due to lower margin in our NIKE Direct business, unfavorable changes in standard foreign currency exchange rates and higher product costs. Selling and administrative expense decreased due to lower demand creation expense, partially offset by higher operating overhead expense. Demand creation expense decreased primarily due to lower advertising and marketing expenses. Growth in operating overhead expense was driven by higher investments within our NIKE Direct operations.
ASIA PACIFIC & LATIN AMERICA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
(Dollars in millions)
|
2020
|
2019
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
|
2020
|
2019
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
Revenues by:
|
|
|
|
|
|
|
|
|
|
Footwear
|
$
|
991
|
|
$
|
997
|
|
-1
|
%
|
5
|
%
|
|
$
|
1,749
|
|
$
|
1,927
|
|
-9
|
%
|
-3
|
%
|
Apparel
|
432
|
|
410
|
|
5
|
%
|
9
|
%
|
|
733
|
|
766
|
|
-4
|
%
|
0
|
%
|
Equipment
|
48
|
|
61
|
|
-21
|
%
|
-17
|
%
|
|
88
|
|
120
|
|
-27
|
%
|
-22
|
%
|
TOTAL REVENUES
|
$
|
1,471
|
|
$
|
1,468
|
|
0
|
%
|
5
|
%
|
|
$
|
2,570
|
|
$
|
2,813
|
|
-9
|
%
|
-3
|
%
|
Revenues by:
|
|
|
|
|
|
|
|
|
|
Sales to Wholesale Customers
|
$
|
925
|
|
$
|
1,022
|
|
-9
|
%
|
-5
|
%
|
|
$
|
1,633
|
|
$
|
1,972
|
|
-17
|
%
|
-11
|
%
|
Sales through NIKE Direct
|
546
|
|
446
|
|
22
|
%
|
27
|
%
|
|
937
|
|
841
|
|
11
|
%
|
16
|
%
|
TOTAL REVENUES
|
$
|
1,471
|
|
$
|
1,468
|
|
0
|
%
|
5
|
%
|
|
$
|
2,570
|
|
$
|
2,813
|
|
-9
|
%
|
-3
|
%
|
EARNINGS BEFORE INTEREST AND TAXES
|
$
|
424
|
|
$
|
377
|
|
12
|
%
|
|
|
$
|
704
|
|
$
|
718
|
|
-2
|
%
|
|
As discussed previously, we entered into definitive agreements to sell our NIKE Brand businesses in Brazil, Argentina, Chile and Uruguay and shift to a distributor operating model. The impacts of entering into these agreements are included within Corporate and are not reflected in the APLA operating segment results. For more information see Note 13 — Acquisitions and Divestitures within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
SECOND QUARTER OF FISCAL 2021 COMPARED TO SECOND QUARTER OF FISCAL 2020
On a currency-neutral basis, APLA revenues increased 5% for the second quarter of fiscal 2021. The increase was due to higher revenues across most territories, led by Korea and SOCO (which comprises Argentina, Chile and Uruguay), which increased 17% and 18%, respectively. Revenues increased due to growth in Sportswear and the Jordan Brand, partially offset by lower revenues in all other key categories. NIKE Direct revenues increased 27%, driven by digital sales growth of 92%, partially offset by comparable store sales contraction of 3% primarily due to reduced physical retail traffic, in part resulting from safety-related measures in response to COVID-19.
Currency-neutral footwear revenues increased 5% for the second quarter of fiscal 2021 due to higher revenues in most key categories, primarily the Jordan Brand and Sportswear, partially offset by Running. Unit sales of footwear decreased 6%, while higher ASP per pair contributed approximately 11 percentage points. Higher ASP per pair was driven by higher full-price ASP, in part reflecting inflationary conditions in our SOCO territory, as well as the favorable impact of growth in our NIKE Direct business.
Currency-neutral apparel revenues increased 9% for the second quarter of fiscal 2021 due to higher revenues in most key categories, primarily Sportswear. Unit sales of apparel increased 8%, and higher ASP per unit contributed approximately 1 percentage point to apparel revenue growth, driven by higher full-price ASP, in part reflecting inflationary conditions in our SOCO territory.
Reported EBIT increased 12% for the second quarter of fiscal 2021 as lower selling and administrative more than offset a decline in gross margin. Gross margin decreased approximately 40 basis points as higher full-price ASP, in part reflecting inflationary conditions in our SOCO territory, was more than offset by higher product costs, lower margin in our NIKE Direct business and unfavorable changes in standard foreign currency exchange rates. Lower margin in our NIKE Direct business was driven by higher promotions to reduce excess inventory due to COVID-19. Selling and administrative expense decreased due to lower demand creation and operating overhead expense. The decrease in demand creation expense was primarily due to lower advertising and marketing costs, as well as a decline in sports marketing expense. Lower operating overhead expense was primarily due to lower travel and related expenses.
FIRST SIX MONTHS OF FISCAL 2021 COMPARED TO FIRST SIX MONTHS OF FISCAL 2020
On a currency-neutral basis, APLA revenues decreased 3% for the first six months of fiscal 2021. The decline was due to lower revenues across most territories, led by a 61% decline in our Latin America third-party distributor business due to impacts from COVID-19, partially offset by higher revenues in Korea, which increased 12%. Revenues decreased in most key categories, led by Running and Football (Soccer), partially offset by higher revenues in the Jordan Brand and Sportswear. NIKE Direct revenues increased 16%, primarily fueled by digital sales growth of 91%, partially offset by comparable store sales contraction of 16% primarily due to reduced physical retail traffic, in part resulting from safety-related measures in response to COVID-19.
Currency-neutral footwear revenues decreased 3% for the first six months of fiscal 2021 due to lower revenues in most key categories, primarily Running and Football (Soccer), partially offset by growth in the Jordan Brand. Unit sales of footwear decreased 15%, while higher ASP per pair contributed approximately 12 percentage points of footwear revenue growth, driven by higher full-price ASP, in part reflecting inflationary conditions in our SOCO territory, as well as the favorable impact of growth in our NIKE Direct business.
Currency-neutral apparel revenues were flat for the first six months of fiscal 2021, as higher revenues in Sportswear were offset by lower revenues in nearly all other key categories, most notably Running. Unit sales of apparel decreased 3%, offset by higher ASP per unit, which contributed approximately 3 percentage points of apparel revenue growth. Higher ASP per unit was driven by higher full-price ASP, in part reflecting inflationary conditions in our SOCO territory.
Reported EBIT decreased 2% for the first six months of fiscal 2021 primarily due to lower revenues and a decline in gross margin, partially offset by lower selling and administrative expense. Gross margin decreased approximately 70 basis points as higher full-price ASP, in part reflecting inflationary conditions in our SOCO territory, was more than offset by higher product costs, lower margin in our NIKE Direct business, unfavorable standard foreign currency exchange rates and a lower mix of full-price sales. Lower margin in our NIKE Direct business was driven by higher promotions to reduce excess inventory due to COVID-19. Selling and administrative expense decreased due to lower demand creation and operating overhead expense. The decrease in demand creation expense was primarily due to lower advertising and marketing expense, as well as a decline in sports marketing costs. Lower operating overhead expense was primarily due to lower travel and related expenses.
GLOBAL BRAND DIVISIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
(Dollars in millions)
|
2020
|
2019
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
|
2020
|
2019
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
Revenues
|
$
|
8
|
|
$
|
10
|
|
-20
|
%
|
-20
|
%
|
|
$
|
12
|
|
$
|
16
|
|
-25
|
%
|
-25
|
%
|
Earnings (Loss) Before Interest and Taxes
|
$
|
(841)
|
|
$
|
(872)
|
|
4
|
%
|
|
|
$
|
(1,694)
|
|
$
|
(1,729)
|
|
2
|
%
|
|
Global Brand Divisions primarily represent demand creation and operating overhead expense, including product creation and design expenses that are centrally managed for the NIKE Brand, as well as costs associated with NIKE Direct global digital operations and enterprise technology. Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment.
SECOND QUARTER OF FISCAL 2021 COMPARED TO SECOND QUARTER OF FISCAL 2020
Global Brand Divisions' loss before interest and taxes decreased 4% for the second quarter of fiscal 2021 driven by lower total selling and administrative expense. Operating overhead expense decreased, primarily due to lower wage-related costs and lower travel and related expenses, partially offset by our continued investment in digital capabilities. Lower demand creation expense was primarily due to lower sports marketing expense, partially offset by higher advertising and marketing costs.
FIRST SIX MONTHS OF FISCAL 2021 COMPARED TO FIRST SIX MONTHS OF FISCAL 2020
Global Brand Divisions' loss before interest and taxes decreased 2% for the first six months of fiscal 2021 driven by lower total selling and administrative expense. Lower demand creation expense was primarily due to lower sports marketing costs. The decrease in operating overhead expense was primarily due lower travel and related expenses as well as lower wage-related costs, partially offset by our continued investment in digital capabilities.
CONVERSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
(Dollars in millions)
|
2020
|
2019
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
|
2020
|
2019
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
Revenues by:
|
|
|
|
|
|
|
|
|
|
Footwear
|
$
|
416
|
|
$
|
416
|
|
0
|
%
|
-3
|
%
|
|
$
|
929
|
|
$
|
912
|
|
2
|
%
|
1
|
%
|
Apparel
|
32
|
|
30
|
|
7
|
%
|
0
|
%
|
|
54
|
|
56
|
|
-4
|
%
|
-6
|
%
|
Equipment
|
7
|
|
6
|
|
17
|
%
|
19
|
%
|
|
16
|
|
15
|
|
7
|
%
|
8
|
%
|
Other(1)
|
21
|
|
28
|
|
-25
|
%
|
-19
|
%
|
|
40
|
|
52
|
|
-23
|
%
|
-18
|
%
|
TOTAL REVENUES
|
$
|
476
|
|
$
|
480
|
|
-1
|
%
|
-4
|
%
|
|
$
|
1,039
|
|
$
|
1,035
|
|
0
|
%
|
-1
|
%
|
Revenues by:
|
|
|
|
|
|
|
|
|
|
Sales to Wholesale Customers
|
$
|
259
|
|
$
|
286
|
|
-9
|
%
|
-13
|
%
|
|
$
|
632
|
|
$
|
653
|
|
-3
|
%
|
-5
|
%
|
Sales through Direct to Consumer
|
196
|
|
166
|
|
18
|
%
|
15
|
%
|
|
367
|
|
330
|
|
11
|
%
|
10
|
%
|
Other(1)
|
21
|
|
28
|
|
-25
|
%
|
-19
|
%
|
|
40
|
|
52
|
|
-23
|
%
|
-18
|
%
|
TOTAL REVENUES
|
$
|
476
|
|
$
|
480
|
|
-1
|
%
|
-4
|
%
|
|
$
|
1,039
|
|
$
|
1,035
|
|
0
|
%
|
-1
|
%
|
EARNINGS BEFORE INTEREST AND TAXES
|
$
|
87
|
|
$
|
90
|
|
-3
|
%
|
|
|
$
|
255
|
|
$
|
228
|
|
12
|
%
|
|
(1) Other revenues consist of territories serviced by third-party licensees who pay royalties to Converse for the use of its registered trademarks and other intellectual property rights. We do not own the Converse trademarks in Japan and accordingly do not earn revenues in Japan.
SECOND QUARTER OF FISCAL 2021 COMPARED TO SECOND QUARTER OF FISCAL 2020
On a currency-neutral basis, Converse revenues decreased 4% for the second quarter of fiscal 2021. The decrease in revenues was driven by declines in wholesale revenues in North America and Europe as a result of supply chain management and strategic distribution shifts, partially offset by growth in Asia. Direct to consumer revenues increased 15%, as strong digital sales growth across all geographies more than offset declines from Converse owned stores, reflecting the ongoing impact of COVID-19. Combined unit sales within the wholesale and direct to consumer channels decreased 11%, while ASP increased 9%, primarily due to growth in digital.
Reported EBIT decreased 3%, driven by declines in gross margin, partially offset by lower selling and administrative expense. Gross margin decreased approximately 230 basis points as higher full-price ASP due to product mix was offset by lower margin in our direct to consumer channel, higher product costs due to product mix, a lower mix of full-price sales, lower revenues in our licensing business and unfavorable changes in standard foreign currency exchange rates. Lower margin in direct to consumer was driven by higher promotions to reduce excess inventory due to COVID-19. Selling and administrative expense decreased primarily due to lower operating overhead, partially offset by increased demand creation expense. Operating overhead expense decreased primarily due to lower travel and related expenses. Demand creation expense increased primarily as a result of higher advertising costs.
FIRST SIX MONTHS OF FISCAL 2021 COMPARED TO FIRST SIX MONTHS OF FISCAL 2020
On a currency-neutral basis, Converse revenues decreased 1% for the first six months of fiscal 2021, driven by lower wholesale revenues in North America, as a result of supply chain management and strategic distribution shifts, partially offset by growth in Asia. Direct to consumer revenues increased 10%, as strong digital sales growth across all geographies more than offset declines from Converse owned stores reflecting the ongoing impact of COVID-19. Combined unit sales within the wholesale and direct to consumer channels decreased 3%, while ASP increased 4%, primarily due to growth in digital.
Reported EBIT increased 12%, primarily due to lower selling and administrative expense, partially offset by lower gross margin. Gross margin decreased approximately 220 basis points as higher full-price ASP was more than offset by lower margin in our direct to consumer channel, higher product costs due to product mix, unfavorable changes in standard foreign currency exchange rates and lower revenues in our licensing business. Lower margin in direct to consumer was driven by higher promotions to reduce excess inventory due to COVID-19. Selling and administrative expense decreased due to lower operating overhead and demand creation expense. Operating overhead expense decreased primarily due to lower administrative expenses. Demand creation expense decreased as a result of lower advertising and marketing costs, as well as lower retail brand presentation costs.
CORPORATE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
(Dollars in millions)
|
2020
|
2019
|
% CHANGE
|
|
2020
|
2019
|
% CHANGE
|
Revenues
|
$
|
26
|
|
$
|
2
|
|
—
|
|
|
$
|
39
|
|
$
|
11
|
|
—
|
|
Earnings (Loss) Before Interest and Taxes
|
$
|
(718)
|
|
$
|
(413)
|
|
-74
|
%
|
|
$
|
(1,215)
|
|
$
|
(837)
|
|
-45
|
%
|
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 our central foreign exchange risk management program.
The Corporate loss before interest and taxes primarily consists of unallocated general and administrative expenses, including expenses associated with centrally managed departments; depreciation and amortization related to our corporate headquarters; unallocated insurance, benefit and compensation programs, including stock-based compensation; and certain foreign currency gains and losses.
In addition to the foreign currency gains and losses recognized in Corporate revenues, foreign currency results in Corporate include gains and losses resulting from the difference between actual foreign currency exchange rates and standard rates used to record non-functional currency denominated product purchases within the NIKE Brand geographic operating segments and Converse; related foreign currency hedge results; conversion gains and losses arising from re-measurement of monetary assets and liabilities in non-functional currencies; and certain other foreign currency derivative instruments.
SECOND QUARTER OF FISCAL 2021 COMPARED TO SECOND QUARTER OF FISCAL 2020
Corporate's loss before interest and taxes increased $305 million for the second quarter of fiscal 2021, primarily due to the following:
•an unfavorable change of $276 million in part due to $171 million of restructuring-related costs associated with changes to our organizational model announced in July 2020, as well as a charge related to our planned, strategic distributor partnership transition within APLA;
•an unfavorable change in net foreign currency gains and losses of $53 million related to the re-measurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments, reported as a component of consolidated Other (income) expense, net; and
•a favorable change of $24 million related to the difference between actual foreign currency exchange rates and standard foreign currency exchange rates assigned to the NIKE Brand geographic operating segments and Converse, net of hedge gains and losses; these results are reported as a component of consolidated gross margin.
FIRST SIX MONTHS OF FISCAL 2021 COMPARED TO FIRST SIX MONTHS OF FISCAL 2020
Corporate's loss before interest and taxes increased $378 million for the first six months of fiscal 2021, primarily due to the following:
•an unfavorable change of $416 million in part due to $218 million of restructuring-related costs associated with changes to our organizational model announced in July 2020, as well as charges related to our planned, strategic distributor partnership transition within APLA;
•a favorable change of $100 million related to the difference between actual foreign currency exchange rates and standard foreign currency exchange rates assigned to the NIKE Brand geographic operating segments and Converse, net of hedge gains and losses; these results are reported as a component of consolidated gross margin; and
•an unfavorable change in net foreign currency gains and losses of $62 million related to the re-measurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments, reported as a component of consolidated Other (income) expense, net.
For more information related to our distributor partnership transition within APLA, as well as more information related to our organizational realignment and related costs, see Note 13 — Acquisitions and Divestitures and Note 14 — Restructuring, respectively, within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
FOREIGN CURRENCY EXPOSURES AND HEDGING PRACTICES
OVERVIEW
As a global company with significant operations outside the United States, in the normal course of business we are exposed to risk arising from changes in currency exchange rates. Our primary foreign currency exposures arise from the recording of transactions denominated in non-functional currencies and the translation of foreign currency denominated results of operations, financial position and cash flows into U.S. Dollars.
Our foreign exchange risk management program is intended to lessen both the positive and negative effects of currency fluctuations on our consolidated results of operations, financial position and cash flows. We manage global foreign exchange risk centrally on a portfolio basis to address those risks material to NIKE, Inc. Our hedging policy is designed to partially or entirely offset the impact of exchange rate changes on the underlying net exposures being hedged. Where exposures are hedged, our program has the effect of delaying the impact of exchange rate movements on our Unaudited Condensed Consolidated Financial Statements; the length of the delay is dependent upon hedge horizons. We do not hold or issue derivative instruments for trading or speculative purposes. As of and for the six months ended November 30, 2020, there have been no material changes to the Company's hedging program or strategy from what was disclosed within the Annual Report on Form 10-K.
Refer to Note 4 — Fair Value Measurements and Note 9 — Risk Management and Derivatives in the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements for additional description of outstanding derivatives at each reported period end. For additional information about our Foreign Currency Exposures and Hedging Practices refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended May 31, 2020.
TRANSACTIONAL EXPOSURES
We conduct business in various currencies and have transactions which subject us to foreign currency risk. Our most significant transactional foreign currency exposures are:
•Product Costs — Product purchases denominated in currencies other than the functional currency of the transacting entity and factory input costs from the foreign currency adjustments program with certain factories.
•Non-Functional Currency Denominated External Sales — A portion of our NIKE Brand and Converse revenues associated with European operations are earned in currencies other than the Euro (e.g., the British Pound) but are recognized at a subsidiary that uses the Euro as its functional currency. These sales generate a foreign currency exposure.
•Other Costs — Non-functional currency denominated costs, such as endorsement contracts, also generate foreign currency risk, though to a lesser extent.
•Non-Functional Currency Denominated Monetary Assets and Liabilities — Our global subsidiaries have various assets and liabilities, primarily receivables and payables, including intercompany receivables and payables, denominated in currencies other than their functional currencies. These balance sheet items are subject to re-measurement which may create fluctuations in Other (income) expense, net within our consolidated results of operations.
MANAGING TRANSACTIONAL EXPOSURES
Transactional exposures are managed on a portfolio basis within our foreign currency risk management program. We manage these exposures by taking advantage of natural offsets and currency correlations that exist within the portfolio and may also elect to use currency forward and option contracts to hedge the remaining effect of exchange rate fluctuations on probable forecasted future cash flows, including certain product cost exposures, non-functional currency denominated external sales and other costs described above.
Certain currency forward contracts used to manage the foreign exchange exposure of non-functional currency denominated monetary assets and liabilities subject to re-measurement and embedded derivative contracts are not formally designated as hedging instruments and are recognized in Other (income) expense, net.
TRANSLATIONAL EXPOSURES
Many of our foreign subsidiaries operate in functional currencies other than the U.S. Dollar. Fluctuations in currency exchange rates create volatility in our reported results as we are required to translate the balance sheets, operational results and cash flows of these subsidiaries into U.S. Dollars for consolidated reporting. The translation of foreign subsidiaries' non-U.S. Dollar denominated balance sheets into U.S. Dollars for consolidated reporting results in a cumulative translation adjustment to Accumulated other comprehensive income (loss) within Shareholders' equity. The impact of foreign exchange rate fluctuations on the translation of our consolidated Revenues was a benefit of approximately $184 million and $73 million for the three and six months ended November 30, 2020, respectively, and a detriment of approximately $233 million and $546 million for the three and six months ended November 30, 2019, respectively. The impact of foreign exchange rate fluctuations on the translation of our Income before income taxes was a benefit of approximately $63 million and $34 million for the three and six months ended November 30, 2020, respectively, and a detriment of approximately $66 million and $152 million for the three and six months ended November 30, 2019, respectively.
Management generally identifies hyper-inflationary markets as those markets whose cumulative inflation rate over a three-year period exceeds 100%. Management has concluded our Argentina subsidiary within our APLA operating segment is operating in a hyper-inflationary market. As a result, beginning in the second quarter of fiscal 2019, the functional currency of our Argentina subsidiary changed from the local currency to the U.S. Dollar. As of and for the three and six months ended November 30, 2020, this change did not have a material impact on our results of operations or financial condition and we do not anticipate it will have a material impact in future periods based on current rates.
MANAGING TRANSLATIONAL EXPOSURES
To minimize the impact of translating foreign currency denominated revenues and expenses into U.S. Dollars for consolidated reporting, certain foreign subsidiaries use excess cash to purchase U.S. Dollar denominated available-for-sale investments. The variable future cash flows associated with the purchase and subsequent sale of these U.S. Dollar denominated investments at non-U.S. Dollar functional currency subsidiaries creates a foreign currency exposure that qualifies for hedge accounting under U.S. GAAP. We utilize forward contracts and/or options to mitigate the variability of the forecasted future purchases and sales of these U.S. Dollar investments. The combination of the purchase and sale of the U.S. Dollar investment and the hedging instrument has the effect of partially offsetting the year-over-year foreign currency translation impact on net earnings in the period the investments are sold. Hedges of the purchase of U.S. Dollar denominated available-for-sale investments are accounted for as cash flow hedges.
We estimate the combination of translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency related gains and losses included in Other (income) expense, net had a favorable impact of approximately $10 million and an unfavorable impact of approximately $28 million on our Income before income taxes for the three months and six months ended November 30, 2020, respectively.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW ACTIVITY
Cash provided (used) by operations was an inflow of $3,355 million for the first six months of fiscal 2021, compared to $1,306 million for the first six months of fiscal 2020. Net income, adjusted for non-cash items, generated $3,283 million of operating cash inflow for the first six months of fiscal 2021, compared to $2,906 million for the first six months of fiscal 2020. The net change in working capital and other assets and liabilities resulted in an increase to Cash provided (used) by operations of $72 million for the first six months of fiscal 2021 compared to a decrease of $1,600 million for the first six months of fiscal 2020. This favorable impact on Cash provided (used) by operations was primarily the result of a $1,929 million decrease in Inventories driven by our intentional supply and demand management, as well as strong digital sales growth.
Cash provided (used) by investing activities was an outflow of $2,877 million for the first six months of fiscal 2021, compared to $788 million for the first six months of fiscal 2020, driven by the net change in short-term investments. For the first six months of fiscal 2021, the net change in short-term investments (including sales, maturities and purchases) resulted in a cash outflow of $2,789 million compared to $157 million for the first six months of fiscal 2020.
Cash provided (used) by financing activities was an outflow of $292 million for the first six months of fiscal 2021 compared to $1,868 million for the first six months of fiscal 2020, with the decrease from the prior period driven by our election to temporarily suspend share repurchases, resulting in no share repurchases for the first six months of fiscal 2021 compared to $1,921 million in the first six months of fiscal 2020.
As of November 30, 2020, we had repurchased 45.2 million shares at a cost of approximately $4.0 billion (an average price of $89.00 per share) under the four-year, $15 billion share repurchase program approved by the Board of Directors in June 2018. To enhance our liquidity position in response to COVID-19, during the fourth quarter of fiscal 2020, we elected to temporarily suspend share repurchases under our existing share repurchase program. As such, there were no share repurchases made during the quarter ended November 30, 2020. The existing program remains authorized by the Board of Directors and we may resume share repurchases in the future at any time, depending upon market conditions, our capital needs and other factors. We continue to expect funding of share repurchases will come from operating cash flows, excess cash and/or proceeds from debt.
CAPITAL RESOURCES
On July 23, 2019, we filed a shelf registration statement (the “Shelf”) with the U.S. Securities and Exchange Commission (SEC) which permits us to issue an unlimited amount of debt securities from time to time. The Shelf expires on July 23, 2022.
Our committed credit facilities remain unchanged from the information previously reported on Form 10-K for the fiscal year ended May 31, 2020. As of November 30, 2020 and May 31, 2020, no amounts were outstanding under our committed credit facilities. We currently have long-term debt ratings of AA- and A1 from Standard and Poor's Corporation and Moody's Investor Services, respectively. Any changes to these ratings could result in interest rate and facility fee changes. As of November 30, 2020, we were in full compliance of the covenants under our committed credit facilities and believe it is unlikely we will fail to meet any of the covenants in the foreseeable future.
Liquidity is also provided by our $4 billion commercial paper program. During the three months ended November 30, 2020, the maximum amount of commercial paper borrowings outstanding at any point was $112 million. As of November 30, 2020 and May 31, 2020, the Company had $23 million and $248 million of borrowings outstanding at a weighted average interest rate of 1.76% and 1.65%, respectively. We may continue to issue commercial paper or other debt securities depending on general corporate needs. We currently have short-term debt ratings of A1+ and P1 from Standard and Poor's Corporation and Moody's Investor Services, respectively.
To date, in fiscal 2021, we have not experienced difficulty accessing the credit markets; however, future volatility in the capital markets may increase costs associated with issuing commercial paper or other debt instruments or affect our ability to access those markets.
As of November 30, 2020, we had cash, cash equivalents and short-term investments totaling $11.8 billion, primarily consisting of commercial paper, corporate notes, deposits held at major banks, money market funds, U.S. government sponsored enterprise obligations, U.S. Treasury obligations and other investment grade fixed-income securities. Our fixed-income investments are exposed to both credit and interest rate risk. All of our investments are investment grade to minimize our credit risk. While individual securities have varying durations, as of November 30, 2020, the weighted-average days to maturity of our cash equivalents and short-term investments portfolio was 33 days.
We believe that existing cash, cash equivalents, short-term investments and cash generated by operations, together with access to external sources of funds as described above, will be sufficient to meet our domestic and foreign capital needs in the foreseeable future.
We utilize a variety of tax planning and financing strategies to manage our worldwide cash and deploy funds to locations where they are needed. We indefinitely reinvest a significant portion of our foreign earnings, and our current plans do not demonstrate a need to repatriate these earnings. Should we require additional capital in the United States, we may determine to repatriate indefinitely reinvested foreign funds or raise capital in the United States through debt. Given our existing structure, if we were to repatriate indefinitely reinvested foreign earnings, we would be required to accrue and pay withholding taxes in certain foreign jurisdictions.
OFF-BALANCE SHEET ARRANGEMENTS
As of November 30, 2020, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
CONTRACTUAL OBLIGATIONS
There have been no significant changes to the contractual obligations reported in our Annual Report on Form 10-K for the fiscal year ended May 31, 2020.
NEW ACCOUNTING PRONOUNCEMENTS
There have been no material changes in recently issued or adopted accounting standards from those disclosed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2020.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based upon our Unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.
We believe that the estimates, assumptions and judgments involved in the accounting policies described in the “Management's Discussion and Analysis of Financial Condition and Results of Operations” section of our most recent Annual Report on Form 10-K have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Actual results could differ from the estimates we use in applying our critical accounting policies. We are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.