Nike’s fourth quarter beats Wall Street targets


Nike Inc. said profits for its fiscal fourth quarter ended May 31 were down 5% year over year, but exceeded Wall Street estimates. Sales fell 1 percent as a 7 percent decline in the wholesale segment was offset by a 7 percent gain in ddirectly Sales.

Highlights of the quarter include:

  • Fourth quarter reported revenue was $12.2 billion, down 1% from a year ago and up 3% on a currency-neutral basis*
  • NIKE Direct’s reported revenue for the fourth quarter was $4.8 billion, up 7% from a year ago and 11% on a currency-neutral basis.
  • Reported wholesale revenue for the fourth quarter was $6.8 billion, down 7% from a year earlier and down 3% on a currency-neutral basis.
  • Gross margin for the fourth quarter decreased by 80 basis points to 45%.
  • Diluted earnings per share were $0.90 for the fourth quarter
  • The company announced that its board has authorized a new four-year, $18 billion program to repurchase NIKE Class B common stock.

Earnings of 90 cents per share beat Wall Street’s consensus target of 82 cents. Income from $12.2 billion exceeded Wall Street’s consensus estimate of $12.1 billion.

“NIKE’s results this fiscal year are a testament to the unparalleled strength of our brands and our deep connection to consumers,” said John Donahoe, President and Chief Executive Officer of NIKE, Inc. “Our competitive advantages, including including our innovative product pipeline and expanding digital leadership, proving that our strategy is working as we create value through our relentless drive to serve the future of sport.

Fourth-quarter NIKE Direct revenue increased 7% on a reported basis and 11% on a currency-neutral basis, driven by 25% growth in EMEA, 43% growth in APLA and 5% growth in North America, partially offset by a decline in Great Britain. China. NIKE Brand Digital grew 15% on a reported basis and 18% on a currency-neutral basis, driven by double-digit growth in APLA, North America and EMEA. NIKE-owned stores decreased 2% on a reported basis and increased 1% on a currency-neutral basis.

“In this dynamic environment, NIKE’s unparalleled strengths continue to fuel our momentum,” said Matt Friend, Executive Vice President and Chief Financial Officer of NIKE, Inc. “Two years after executing our Consumer Direct Acceleration, we we are better positioned than ever for long-term growth while serving consumers directly at scale.”**

One-time items affecting comparability in the fourth quarter

Fourth quarter results contain several non-comparable items, including one-time charges recorded in other (income) expense, net, totaling approximately $150 million, associated with the deconsolidation of our Russian operations, and transitioning our operations in Argentina, Chile and Uruguay to strategic distribution models.

Review of the fourth quarter income statement

  • NIKE, Inc.’s revenue decreased 1% to $12.2 billion from a year earlier and increased 3% on a currency-neutral basis.
    • NIKE brand revenue was $11.7 billion, down 1% on a reported basis and up 3% on a currency-neutral basis, driven by 20% growth in EMEA .
    • Converse revenue was $593 million, down 1% on a reported basis and up 3% on a currency-neutral basis, due to lower wholesale revenue offset by growth in our direct-to-consumer activities.
  • Gross margin decreased by 80 basis points to 45.0%, mainly due to higher inventory obsolescence reserves in Greater China and high freight and logistics costs, partially offset by strategic pricing actions, favorable changes in net currency exchange rates, including hedging, and margin expansion in our NIKE Direct business.
  • Selling and administrative expenses increased 8% to $4.0 billion.
    • Demand generation spending was $1.1 billion, up 6%, primarily due to higher sports marketing spending and continued investment in digital marketing to support increased digital demand .
    • General operating expenses increased 8% to $3.0 billion, due to higher strategic technology investments and higher NIKE direct variable costs and salary expenses.
  • The effective tax rate was (4.7)%, compared to 18.6% for the same period last year, due to a change in our earnings mix and a one-time non-cash benefit to the relocation of our non-US intangible assets.
  • Net income was $1.4 billion, down 5%, and diluted earnings per share were $0.90, down 3% from a year earlier.

Examination of the income statement for the 2022 financial year

  • NIKE, Inc. revenue increased 5% to $46.7 billion, up 6% on a currency-neutral basis.
    • NIKE brand revenue was $44.4 billion, up 5% on a reported basis and 6% on a currency-neutral basis, driven by double-digit growth in NIKE Direct, partially offset by a slight decline in wholesale revenues.
    • NIKE Direct revenue was $18.7 billion, up 14% on a reported basis and 15% on a currency-neutral basis, driven by NIKE brand digital growth of 18% and NIKE-owned stores grew 10%.
    • Converse revenue was $2.3 billion, up 6% on a reported basis and 7% on a currency-neutral basis, driven by double-digit growth in our direct-to-consumer business , partially offset by lower wholesale revenues.
  • Gross margin increased by 120 basis points to 46.0%, primarily due to margin expansion in our NIKE Direct business, a higher combination of full-price sales and favorable rate changes. net currency exchange, including hedging, partially offset by high transport and logistics costs. and higher inventory obsolescence reserves in Greater China in the fourth quarter.
  • Selling and administrative expenses increased 14% to $14.8 billion.
    • Demand generation spend was $3.9 billion, up 24% from the prior year, primarily due to the normalization of spend against brand campaigns and continued investment in digital marketing to support increased digital demand.
    • General operating expenses increased 11% to $11.0 billion due to higher strategic technology investments and higher payroll expenses and NIKE Direct variable costs.
  • The effective tax rate was 9.1%, compared to 14.0% for the same period last year, due to a change in our earnings mix and a one-time non-cash benefit related to the relocation of our non-US intangibles.
  • Net income was $6.0 billion, up 6%, and diluted earnings per share were $3.75, up 5% from a year earlier.

May 31, 2022 Balance sheet review

  • NIKE, Inc. inventory was $8.4 billion, up 23% from the prior year period, due to high inventory in transit due to extended lead times due to continued disruptions supply chain, partially offset by strong consumer demand.
  • Cash and cash equivalents and short-term investments were $13.0 billion, down $479 million from the prior year, as free cash flow was offset by redemptions of shares and dividends.

Returns to shareholders

NIKE continues to have a strong track record of investing to fuel growth and consistently increasing shareholder returns, including 20 consecutive years of increasing dividend payouts.

In the fourth quarter, the company returned approximately $1.5 billion to shareholders, including:

  • Dividends of $481 million, up 11% from the previous year.
  • Share buybacks of $1.1 billion, reflecting the retirement of 8.5 million shares under the four-year $15 billion program approved by the board in June 2018.

In fiscal 2022, the company returned approximately $5.8 billion to shareholders, including:

  • Dividends of $1.8 billion, up 12% from the previous year.
  • Share buybacks of $4.0 billion, reflecting the withdrawal of 27.3 million shares. As of May 31, 2022, a total of 77.4 million shares for $8.7 billion had been repurchased under the current program.

In June 2022, the Board of Directors authorized a new four-year, $18 billion program to repurchase NIKE Class B common stock. The company’s new program will replace the current $15 billion share buyback program, which will end in fiscal 2023. Buybacks under the company’s new program will be made in the open market or in privately negotiated transactions pursuant to Securities and Exchange Commission Rule 10b-. 18, subject to market conditions, applicable law requestirements and other relevant factors. The new share buyback program does not require the company to acquire a particular amount of common stock, and it can be suspended at any time at the company’s discretion.

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