NIKE, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2024, the three months ended August 31, 2023. Comparisons are with the three months ended August 31, 2022, unless otherwise noted. Amounts are in U.S. dollars.
Business context and results
NIKE designs, markets and sells athletic footwear, apparel, equipment and related products worldwide through wholesale customers and NIKE Direct, including owned stores and digital platforms. Management’s stated strategy emphasizes product innovation, consumer connections, digital and owned retail, and selected wholesale partners.
| Metric | Q1 FY2024 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $12.939 billion | $12.687 billion | +2% |
| Gross profit / gross margin | $5.720 billion / 44.2% | $5.615 billion / 44.3% | Margin down 10 bps |
| Selling and administrative expense | $4.116 billion | $3.920 billion | +5%; 31.8% of revenue vs. 30.9% |
| Income before taxes | $1.648 billion | $1.828 billion | -10% |
| Net income | $1.450 billion | $1.468 billion | -1% |
| Diluted EPS | $0.94 | $0.93 | +1% |
| EBIT margin | 12.5% | 14.5% | Down 200 bps |
The effective tax rate fell to 12.0% from 19.7%, primarily due to a one-time benefit tied to delayed U.S. foreign tax credit regulations and prior-year tax positions. The filing does not quantify the benefit separately. Lower weighted-average diluted shares helped support EPS despite lower net income.
Revenue and segment trends
- NIKE Brand revenue increased 3% to $12.353 billion; footwear rose 4%, apparel declined 1%, and equipment increased 9%. NIKE Direct revenue grew 6% to approximately $5.4 billion; NIKE Brand digital sales were $2.9 billion versus $2.8 billion.
- North America revenue declined 1% on a currency-neutral basis; EMEA grew 6%, Greater China grew 12%, and Asia Pacific & Latin America grew 3%.
- Converse revenue fell 9% to $588 million, and EBIT fell 20% to $167 million, with lower unit sales and average selling price, promotional activity and foreign-exchange pressures cited.
- Footwear revenue growth reflected higher average selling prices, while footwear unit sales fell 1%. Apparel unit sales fell 12%, partially offset by higher average selling prices.
Cash flow, balance sheet and capital allocation
- Operating cash flow was a $66 million outflow, compared with a $357 million inflow a year earlier. The company attributed the decline principally to working-capital movements, including accrued liabilities and receivables; inventory changes were a partial offset.
- Investing cash flow was a $418 million inflow, mainly reflecting net maturities and sales of short-term investments. Financing cash flow was a $1.599 billion outflow.
- Cash and equivalents were $6.178 billion and short-term investments were $2.612 billion at August 31, 2023, totaling $8.790 billion. Current assets were $24.250 billion and current liabilities were $8.461 billion.
- Long-term debt was $8.929 billion, with no current portion reported. No amounts were outstanding under committed credit facilities or the $3 billion commercial paper program. The company reported compliance with facility covenants and said available liquidity and expected operating cash generation should meet foreseeable capital needs.
- Inventories were $8.698 billion, up 3% from May 31, 2023; management described inventory levels and product flow as healthy. Accounts receivable increased to $4.749 billion from $4.131 billion.
- NIKE returned approximately $1.7 billion to shareholders through $1.133 billion of repurchases and $524 million of dividends. It repurchased 10.5 million shares at an average $108.12 per share during the quarter. The $18 billion, four-year repurchase authorization had approximately $12.1 billion remaining at quarter-end.
Material changes, outlook and risks
Gross margin was pressured by higher product costs, unfavorable currency effects and lower off-price margin; these were largely offset by strategic pricing and higher full-price selling prices. Demand creation expense increased 13%, mainly from higher advertising and marketing. Operating overhead increased 2%, including higher wage and NIKE Direct variable costs, partly offset by lower technology spending. Foreign-currency-related results and favorable prior-year legal settlements also contributed to the year-over-year decline in other income.
The filing provides no specific quantitative revenue, earnings or margin guidance. Management cited ongoing demand and confidence in the brand, but warned that a volatile operating environment and deteriorating macroeconomic conditions could materially harm revenue growth and profitability. Risks discussed include inflation and interest rates, consumer demand, competition, inventory and forecasting, supply chains, foreign exchange, tariffs and regulation, technology and data security, intellectual property, and litigation.
NIKE disclosed a Belgian customs dispute over alleged underpaid duties on products imported beginning in fiscal 2018. The company disputes the claims, has provided bank guarantees to appeal, and cannot estimate the possible loss or predict the outcome; an adverse resolution could materially affect results, financial position and cash flows. It also noted an ongoing European Commission investigation into Dutch tax rulings, which it believes is without merit. Management stated that it does not believe currently pending legal matters will materially harm the company, except as described in the filing.
Supplier obligations confirmed under voluntary supplier finance programs were $953 million at August 31, 2023, included in accounts payable, compared with $834 million at May 31, 2023. The company stated that supplier participation does not change its obligations or payment terms.
Important facts for investors to verify
- Whether sales momentum in Greater China and EMEA and NIKE Direct growth can offset declines in North America, apparel units and Converse.
- Whether strategic pricing can continue to offset product-cost and currency pressures without weakening demand or increasing promotions.
- How working capital, especially receivables, accrued liabilities and inventory, affects operating cash generation in subsequent quarters.
- The sustainability of earnings after the one-time tax benefit, and the impact of foreign-exchange movements on margins and reported results.
- Developments and potential financial exposure in the Belgian customs matter and the Netherlands tax investigation.
- Repurchase and dividend levels relative to cash generation, liquidity and other capital requirements.