30 Sep Nike’s Q1 Tops Wall Street Targets
Nike, Inc. reported sales grew 4 percent on a reported basis and 10 percent on a currency-neutral basis in the first quarter ending August 31.
Nike Direct sales grew 14 percent on a currency-neutral basis, with digital gaining 23 percent.
Earnings were down 22 percent on gross margin pressures. Earnings and sales were slightly ahead of Wall Street’s consensus estimate. Highlights of the first quarter include:
- 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 the EMEA region.
- Gross margin decreased 220 basis points to 44.3 percent.
- Diluted earnings per share for the quarter were $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. “Our competitive advantages, including the strength of our brand, deep consumer connections and pipeline of innovative products, 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 the EMEA region, 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 the 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, 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 was up 10 percent on a currency-neutral basis.
- Revenues for the Nike Brand was $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, the 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 its 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 margin decrease was primarily driven by North America, which took measures to liquidate excess inventory through Nike Direct markdowns and wholesale marketplace actions.
- Selling and administrative expenses increased 10 percent to $3.9 billion.
- Demand creation expense was $943 million, up 3 percent, primarily due to the normalization of spend against sports marketing and brand campaign investments.
- Operating overhead expenses increased 12 percent to $3.0 billion 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 were $0.93, decreasing 20 percent.
- Earnings of 93 cents a share were just ahead of Wall Street’s consensus estimate of 92 cents. Sales of $12.7 billion were ahead of Wall Street’s consensus estimate of $12.29 billion.
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 inventory from ongoing supply chain volatility, partially offset by 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.
Nike continues to have a strong record of investing to fuel growth and consistently increasing shareholder returns, 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 its previous four-year, $15 billion program approved in June 2018 and $0.3 billion, reflecting 2.5 million shares subsequently withdrawn under the company’s current four-year and $18 billion program approved in June 2022.
Under the $15 billion program, which terminated in August 2022, the company repurchased 83.8 million shares for $9.4 billion.