NIKE, Inc. — Form 10-Q Summary
Business context and reporting period
NIKE designs, markets and sells athletic footwear, apparel, equipment and accessories worldwide through wholesale partners and NIKE Direct, including owned stores and digital platforms. This filing reports the quarter ended February 28, 2021, and the first nine months of fiscal 2021, compared with the corresponding prior-year periods. Although the request identifies “2020 Q3,” the filing itself is for fiscal 2021 Q3.
Financial performance and liquidity
| Metric | Three months ended February 28, 2021 | Nine months ended February 28, 2021 |
|---|---|---|
| Revenue | $10.357 billion, up 3% reported; down 1% currency-neutral | $32.194 billion, up 4% reported; up 2% currency-neutral |
| Gross profit / margin | $4.719 billion / 45.6%, up 130 basis points | $14.307 billion / 44.4%, down 30 basis points |
| Net income | $1.449 billion, up 71% | $4.218 billion, up 27% |
| Diluted EPS | $0.90, up 70% | $2.62, up 25% |
| Operating cash flow | Not separately presented for the quarter | $4.645 billion, compared with $2.486 billion |
Quarterly selling and administrative expense declined 7% to $3.041 billion, or 29.4% of revenue versus 32.5%. For nine months, it declined 7% to $9.283 billion, or 28.8% of revenue versus 32.0%. The effective tax rate was 11.4% for the quarter and 12.3% for nine months, compared with 3.9% and 9.8%, respectively.
At February 28, 2021, cash and equivalents were $8.516 billion and short-term investments were $4.012 billion. Long-term debt was $9.412 billion; no commercial paper was outstanding. Current assets were $24.700 billion and current liabilities were $8.894 billion. Inventory was $6.693 billion, down from $7.367 billion at May 31, 2020. Nine-month investing cash outflow was $3.987 billion, primarily reflecting net purchases of short-term investments; capital expenditures were $521 million. Dividends paid were $1.203 billion. Share repurchases were suspended during the period.
Material changes and operating trends
- NIKE Direct continued to gain share: NIKE Brand Direct revenue rose 20% reported for the quarter and 22% for nine months. Digital sales grew 54% and 71%, respectively, on a currency-neutral basis. Digital revenue was $2.2 billion for the quarter and $6.6 billion for nine months.
- Quarterly NIKE Brand currency-neutral revenue declined 2%. Greater China grew 42%, while North America declined 11%, EMEA declined 9% and APLA declined 8%. Converse revenue increased 8% currency-neutral.
- For nine months, Greater China and EMEA grew 22% and 2% currency-neutral, respectively; North America declined 4% and APLA declined 5%. Converse grew 2% currency-neutral.
- Quarterly gross-margin expansion reflected stronger full-price pricing and a favorable NIKE Direct mix, partly offset by product costs and foreign exchange. For nine months, promotions to clear excess inventory, lower full-price mix and currency effects contributed to the margin decline.
- Quarterly net income growth substantially reflects comparison with the prior-year $400 million impairment charge related to planned distributor transitions in Brazil, Argentina, Chile and Uruguay. Other income/expense was $22 million of income in the quarter versus $297 million of expense in the prior-year quarter.
Outlook, commentary, risks and unusual items
- No specific revenue or EPS guidance is provided. Management expected most North American wholesale shipments delayed by supply-chain disruption in Q3 to occur in Q4 fiscal 2021, and expected demand-creation spending to rise in future periods as it moves back toward pre-pandemic levels.
- Management said it expected to resume share repurchases in Q4 fiscal 2021. The existing authorization remained in place; no repurchases occurred in the first nine months.
- COVID-19 continued to disrupt supply chains, including container shortages, transportation delays and U.S. port congestion. Management cited store closures and reduced traffic; approximately 85% of NIKE-owned stores were open as of April 2, 2021, some with reduced hours.
- Management warned that COVID-19 could adversely affect growth and profitability, inventory levels, supply chains, wholesale customer payment terms, sales reserves and the effective tax rate.
- Consumer Direct Acceleration includes changes to product and operating structures, digital investment and workforce reductions. NIKE expected approximately $315 million of pre-tax restructuring charges; $248 million had been incurred in the first nine months, with related actions expected to be substantially complete by fiscal year-end.
- The Brazil distributor transaction closed during the quarter, with a $53 million recognized loss (including $47 million recorded in Q2). The agreement to sell the Argentina, Chile and Uruguay businesses was terminated; those assets and liabilities remained classified as held for sale. A $373 million expected loss allowance remained recorded for the three-country transaction.
- Tax uncertainties include the Altera matter, IRS audits for fiscal 2017–2019, and a European Commission investigation into Dutch tax rulings. Gross unrecognized tax benefits were $877 million, of which $622 million would affect the effective tax rate if recognized.
Investor verification priorities
- Confirm that delayed wholesale shipments were delivered and assess whether supply-chain constraints persist.
- Track digital and NIKE Direct growth against wholesale declines, including regional trends and the sustainability of Greater China growth.
- Assess the durability of gross-margin improvement amid promotions, product costs and foreign-exchange movements.
- Monitor restructuring charges and savings, the remaining disposition of Argentina, Chile and Uruguay, and the associated loss allowance.
- Review cash generation, investment portfolio liquidity, debt and any resumption of share repurchases.
- Follow COVID-19 effects, tax audits and disputes, and the resolution of the Dutch tax investigation.