NIKE, Inc. Reports Fiscal 2023 First Quarter Results

Rhea-AI Summary

NIKE, Inc. (NYSE:NKE) reported fiscal 2023 first-quarter results with revenues of $12.7 billion, a 4% increase year-over-year, and a 10% rise on a currency-neutral basis. NIKE Direct sales rose by 8% to $5.1 billion, while digital sales surged 16%. However, gross margin declined by 220 basis points to 44.3%, and diluted earnings per share fell 20% to $0.93. Net income decreased by 22% to $1.5 billion. Inventory levels rose significantly, up 44% to $9.7 billion, amid supply chain issues. Shareholder returns included $1.5 billion through dividends and share repurchases.

Positive

• First quarter revenues increased by 10% on a currency-neutral basis.
• NIKE Direct sales grew by 14% on a currency-neutral basis.
• Digital sales increased significantly by 23% on a currency-neutral basis, especially in EMEA.

Negative

• Gross margin decreased by 220 basis points to 44.3%.
• Diluted earnings per share fell 20% year-over-year.
• Net income decreased by 22%, reflecting substantial profit erosion.

BEAVERTON, Ore.--(BUSINESS WIRE)-- NIKE, Inc. (NYSE:NKE) today reported fiscal 2023 financial results for its first quarter ended August 31, 2022.

• First quarter reported revenues were $12.7 billion, up 4 percent compared to the prior year and up 10 percent on a currency-neutral basis*
• NIKE Direct sales were $5.1 billion, up 8 percent on a reported basis and up 14 percent on a currency-neutral basis
• NIKE Brand Digital sales increased 16 percent on a reported basis, or 23 percent on a currency-neutral basis, led by 46 percent growth in EMEA
• Gross margin decreased 220 basis points to 44.3 percent
• Diluted earnings per share for the quarter was $0.93, down 20 percent

"Our strong start to FY23 highlights the depth and breadth of NIKE’s global portfolio, as we continue to manage through volatility,” said John Donahoe, President and CEO, NIKE, Inc. “Our competitive advantages, including the strength of our brand, deep consumer connections and pipeline of innovative product, continue to prove that our strategy is working. We expect our unrelenting focus on better serving the consumer to continue to fuel growth and create value like only NIKE can."**

First Quarter revenues increased 10 percent on a currency-neutral basis, led by NIKE Direct growth of 14 percent. NIKE Brand Digital business fueled growth, increasing by 23 percent, driven by double-digit growth in EMEA, North America and APLA, partially offset by declines in Greater China. Wholesale revenues increased 1 percent on a reported basis and were up 8 percent on a currency-neutral basis, with growth due to improved levels of available supply of inventory for partners.

“NIKE's first quarter results set the foundation for another year of strong growth,” said Matthew Friend, Executive Vice President and Chief Financial Officer, NIKE, Inc. “Our focus continues to be the consumer, as we take action to navigate near-term dynamics while expanding long-term structural benefits through our Consumer Direct Acceleration strategy.”**

First Quarter Income Statement Review

• Revenues for NIKE, Inc. increased 4 percent to $12.7 billion compared to the prior year and were up 10 percent on a currency-neutral basis.
  • Revenues for the NIKE Brand were $12.0 billion, up 4 percent on a reported basis and up 10 percent on a currency-neutral basis, led by double-digit currency-neutral growth in North America, EMEA and APLA, partially offset by declines in Greater China.
  • Revenues for Converse were $643 million, up 2 percent on a reported basis and up 8 percent on a currency-neutral basis, led by double-digit growth in North America and Europe, partially offset by declines in Asia.
• Gross margin decreased 220 basis points to 44.3 percent, primarily driven by elevated freight and logistics costs, lower margins in our NIKE Direct business driven by higher markdowns, and unfavorable changes in net foreign currency exchange rates, including hedges, partially offset by strategic pricing actions. The overall decrease in margins was primarily driven by North America, which took measures to liquidate excess inventory through NIKE Direct markdowns and wholesale marketplace actions.
• Selling and administrative expense increased 10 percent to $3.9 billion.
  • Demand creation expense was $943 million, up 3 percent, primarily due to normalization of spend against sports marketing and brand campaign investments.
  • Operating overhead expense increased 12 percent to $3.0 billion, primarily due to wage-related expenses, strategic technology investments and increased NIKE Direct costs.
• The effective tax rate for the quarter was 19.7 percent compared to 11.0 percent for the same period last year, primarily due to the decreased benefits from stock-based compensation.
• Net income was $1.5 billion, down 22 percent, and Diluted earnings per share was $0.93, decreasing 20 percent.

August 31, 2022 Balance Sheet Review

• Inventories for NIKE, Inc. were $9.7 billion, up 44 percent compared to the prior year period, driven by elevated in-transit inventories from ongoing supply chain volatility, partially offset by strong consumer demand during the quarter.
• Cash and equivalents and short-term investments were $11.9 billion, down approximately $1.8 billion from last year, as free cash flow was offset by share repurchases and cash dividends.

Shareholder Returns

NIKE continues to have a strong track record of investing to fuel growth and consistently increasing returns to shareholders, including 20 consecutive years of increasing dividend payouts. In the first quarter, NIKE returned approximately $1.5 billion to shareholders, including:

• Dividends of $480 million, up 11 percent from the prior year.
• Share repurchases of $1.0 billion, reflecting 9.0 million retired shares. There were purchases of $0.7 billion, reflecting 6.5 million shares retired under the Company’s previous four-year, $15 billion program approved in June 2018 and $0.3 billion, reflecting 2.5 million shares subsequently retired under the Company’s current four-year, $18 billion program approved in June 2022.

Under the $15 billion program, which was terminated in August 2022, a total of 83.8 million shares for $9.4 billion were repurchased.

Conference Call

NIKE, Inc. management will host a conference call beginning at approximately 2:00 p.m. PT on September 29, 2022, to review fiscal first 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 approximately 9:00 p.m. PT, October 20, 2022.

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.

NIKE, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
		THREE MONTHS ENDED								%
(In millions, except per share data)		8/31/2022				8/31/2021				Change
Revenues		$	12,687			$	12,248			4	%
Cost of sales			7,072				6,552			8	%
Gross profit			5,615				5,696			-1	%
Gross margin			44.3	%			46.5	%
Demand creation expense			943				918			3	%
Operating overhead expense			2,977				2,654			12	%
Total selling and administrative expense			3,920				3,572			10	%
% of revenues			30.9	%			29.2	%
Interest expense (income), net			13				57			—
Other (income) expense, net			(146	)			(39	)		—
Income before income taxes			1,828				2,106			-13	%
Income tax expense			360				232			55	%
Effective tax rate			19.7	%			11.0	%
NET INCOME		$	1,468			$	1,874			-22	%
Earnings per common share:
Basic		$	0.94			$	1.18			-20	%
Diluted		$	0.93			$	1.16			-20	%
Weighted average common shares outstanding:
Basic			1,567.1				1,581.9
Diluted			1,585.8				1,619.6
Dividends declared per common share		$	0.305			$	0.275

NIKE, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
		August 31,			August 31,			% Change
(Dollars in millions)		2022			2021
ASSETS
Current assets:
Cash and equivalents		$	7,226		$	10,720		-33	%
Short-term investments			4,650			2,975		56	%
Accounts receivable, net			4,960			4,341		14	%
Inventories			9,662			6,699		44	%
Prepaid expenses and other current assets			2,379			1,655		44	%
Total current assets			28,877			26,390		9	%
Property, plant and equipment, net			4,778			4,869		-2	%
Operating lease right-of-use assets, net			2,880			3,078		-6	%
Identifiable intangible assets, net			283			267		6	%
Goodwill			282			242		17	%
Deferred income taxes and other assets			3,988			3,071		30	%
TOTAL ASSETS		$	41,088		$	37,917		8	%
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	500		$	—		—
Notes payable			9			15		-40	%
Accounts payable			3,371			2,135		58	%
Current portion of operating lease liabilities			424			462		-8	%
Accrued liabilities			6,277			5,296		19	%
Income taxes payable			338			361		-6	%
Total current liabilities			10,919			8,269		32	%
Long-term debt			8,922			9,415		-5	%
Operating lease liabilities			2,736			2,898		-6	%
Deferred income taxes and other liabilities			2,689			2,992		-10	%
Redeemable preferred stock			—			—		—
Shareholders’ equity			15,822			14,343		10	%
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	41,088		$	37,917		8	%

NIKE, Inc.
DIVISIONAL REVENUES
(Unaudited)
													% Change Excluding Currency Changes1
		THREE MONTHS ENDED								%
(Dollars in millions)		8/31/2022				8/31/2021				Change
North America
Footwear		$	3,805			$	3,264			17	%		17	%
Apparel			1,494				1,430			4	%		5	%
Equipment			211				185			14	%		14	%
Total			5,510				4,879			13	%		13	%
Europe, Middle East & Africa
Footwear			2,012				1,983			1	%		18	%
Apparel			1,153				1,159			-1	%		15	%
Equipment			168				165			2	%		18	%
Total			3,333				3,307			1	%		17	%
Greater China
Footwear			1,233				1,449			-15	%		-11	%
Apparel			374				476			-21	%		-18	%
Equipment			49				57			-14	%		-10	%
Total			1,656				1,982			-16	%		-13	%
Asia Pacific & Latin America
Footwear			1,064				1,022			4	%		15	%
Apparel			413				385			7	%		19	%
Equipment			58				58			0	%		12	%
Total			1,535				1,465			5	%		16	%
Global Brand Divisions2			14				7			100	%		96	%
TOTAL NIKE BRAND			12,048				11,640			4	%		10	%
Converse			643				629			2	%		8	%
Corporate3			(4	)			(21	)		—			—
TOTAL NIKE, INC. REVENUES		$	12,687			$	12,248			4	%		10	%
TOTAL NIKE BRAND
Footwear		$	8,114			$	7,718			5	%		12	%
Apparel			3,434				3,450			0	%		7	%
Equipment			486				465			5	%		12	%
Global Brand Divisions2			14				7			100	%		96	%
TOTAL NIKE BRAND REVENUES		$	12,048			$	11,640			4	%		10	%

1 The percent change has been calculated using actual exchange rates in use during the comparative prior year period and is provided 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. Management uses this non-GAAP financial measure when evaluating the Company's performance, including when making financial and operating decisions. Additionally, management believes this non-GAAP financial measure provides investors with additional financial information that should be considered when assessing the Company’s underlying business performance and trends. References to this measure 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 revenues include NIKE Brand licensing and 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 the Company’s central foreign exchange risk management program.

NIKE, Inc.
EARNINGS BEFORE INTEREST AND TAXES1
(Unaudited)
		THREE MONTHS ENDED								%
(Dollars in millions)		8/31/2022				8/31/2021				Change
North America		$	1,377			$	1,434			-4	%
Europe, Middle East & Africa			975				875			11	%
Greater China			541				701			-23	%
Asia Pacific & Latin America			500				481			4	%
Global Brand Divisions2			(1,187	)			(987	)		-20	%
TOTAL NIKE BRAND1			2,206				2,504			-12	%
Converse			209				204			2	%
Corporate3			(574	)			(545	)		-5	%
TOTAL NIKE, INC. EARNINGS BEFORE INTEREST AND TAXES1			1,841				2,163			-15	%
EBIT margin1			14.5	%			17.7	%
Interest expense (income), net			13				57			—
TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES		$	1,828			$	2,106			-13	%

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. EBIT margin is calculated as EBIT divided by total NIKE, Inc. Revenues. Total NIKE Brand EBIT, Total NIKE, Inc. EBIT and EBIT margin are considered non-GAAP financial measures. Management uses these non-GAAP financial measures when evaluating the Company's performance, including when making financial and operating decisions. Additionally, management believes these non-GAAP financial measures provide investors with additional information that should be considered when assessing the Company’s underlying business performance and trends. References to EBIT and EBIT margin 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 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.

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.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20220929005854/en/

Investor Contact:

Paul Trussell

investor.relations@nike.com

Media Contact:

KeJuan Wilkins

media.relations@nike.com

Source: NIKE, Inc.

FAQ

What was NIKE's revenue for the first quarter of fiscal 2023?

NIKE's revenue for the first quarter of fiscal 2023 was $12.7 billion.

How much did NIKE's diluted earnings per share decrease in Q1 FY2023?

NIKE's diluted earnings per share decreased by 20% to $0.93.

What are the primary reasons for NIKE's gross margin decline?

The gross margin decline was primarily due to elevated freight costs, markdowns, and unfavorable currency exchange rates.

What was the inventory level for NIKE at the end of Q1 FY2023?

NIKE's inventory level at the end of Q1 FY2023 was $9.7 billion, up 44% year-over-year.