NIKE, Inc. Form 10-K Summary
Reporting period: The supplied filing is NIKE’s annual report for the fiscal year ended May 31, 2022—not a 2021 Q4 filing. Unless stated otherwise, amounts are U.S. dollars.
Business context
NIKE designs, markets and sells athletic footwear, apparel, equipment, accessories and services worldwide through wholesale customers and its direct-to-consumer stores and digital platforms. Nearly all footwear and apparel is made by independent contractors. NIKE Direct represented about 42% of NIKE Brand revenue in fiscal 2022.
Key financial results
| Metric | Fiscal 2022 | Fiscal 2021 |
|---|---|---|
| Revenue | $46.71 billion | $44.54 billion |
| Gross profit / gross margin | $21.48 billion / 46.0% | $19.96 billion / 44.8% |
| Net income | $6.05 billion | $5.73 billion |
| Diluted earnings per share | $3.75 | $3.56 |
| Operating cash flow | $5.19 billion | $6.66 billion |
| Cash and short-term investments | $13.00 billion | $13.48 billion |
| Inventory | $8.42 billion | $6.85 billion |
Revenue rose 5% reported and 6% currency-neutral. Cost of sales increased 3%; selling and administrative expense rose 14% to $14.80 billion, or 31.7% of revenue versus 29.2%. Income before tax was essentially unchanged at $6.65 billion. The effective tax rate fell to 9.1% from 14.0%, supporting net income growth. NIKE’s non-GAAP EBIT margin was 14.7%, down from 15.5%; non-GAAP return on invested capital was 46.5%, versus 48.8%.
Footwear revenue increased 4% currency-neutral, apparel 6%, and equipment 18%. NIKE Direct revenue increased 14% reported (15% currency-neutral); NIKE Brand Digital sales were $10.7 billion, up from $9.1 billion. Wholesale revenue declined 1%. Converse revenue increased 6% reported (7% currency-neutral).
Segments and changes versus prior year
Currency-neutral revenue grew in North America (+7%), EMEA (+12%) and APLA (+16%), but declined in Greater China (-13%). Greater China’s reported revenue fell 9% to $7.55 billion and segment EBIT fell 27% to $2.37 billion. EMEA revenue rose 9% reported and EBIT rose 35%; APLA revenue rose 11% reported and EBIT rose 24%. Fiscal 2022 growth and margin improvements were offset in part by China weakness, higher operating expenses and supply-chain costs.
Gross margin expanded 120 basis points, mainly from stronger NIKE Direct margins, a higher full-price sales mix and favorable currency effects. Elevated freight and logistics costs and increased inventory obsolescence reserves—primarily in Greater China—partly offset those gains. Operating cash flow declined as working capital absorbed cash, notably from inventory growth.
Liquidity, debt and capital allocation
At May 31, 2022, cash and short-term investments totaled $13.0 billion. Debt was approximately $9.43 billion, including $9.42 billion of long-term debt and its current portion; the company also reported $10 million of notes payable. Operating lease liabilities totaled $3.20 billion. NIKE reported no commercial paper or committed credit-facility borrowings at year-end and said available liquidity and operating cash flow should meet foreseeable capital needs. Long-term debt was rated AA- by S&P and A1 by Moody’s.
Fiscal 2022 investing cash outflow was $1.52 billion, including $758 million of property and equipment additions. Financing cash outflow was $4.84 billion, including $4.01 billion of share repurchases and $1.84 billion of dividends. The Board authorized a new four-year, $18 billion repurchase program in June 2022.
Outlook, risks and unusual items
NIKE did not provide specific full-year fiscal 2023 revenue or earnings guidance in the supplied filing text. Management expected a volatile operating environment, with COVID-19 disruption risks, elevated inventory transit times, logistics and fulfillment costs, and higher product input costs. It warned that first-quarter fiscal 2023 gross margin could be pressured by promotions on seasonal products arriving late. Management expected transportation costs to remain elevated and planned continued investment in digital transformation and brand campaigns.
- COVID-19 shutdowns in Vietnam and Indonesia caused about three months of lost production early in fiscal 2022; extended transit times left elevated inventory in transit. Inventory at year-end increased 23% year over year.
- NIKE recognized a $96 million pretax charge after deconsolidating its Russian entities following sanctions; after fiscal year-end it decided to leave the Russian marketplace. Russian revenue had been less than 1% of fiscal 2021 consolidated revenue.
- A non-cash, one-time tax benefit related to onshoring certain non-U.S. intangible property contributed to the lower fiscal 2022 tax rate.
- NIKE had entered agreements to transfer its Argentina, Uruguay and Chile entities to distributors, with closings expected by the end of fiscal 2023’s third quarter. Management expected lower reported revenue growth but potential longer-term profitability benefits from reduced selling and administrative costs and foreign-exchange exposure.
- Four footwear manufacturers collectively produced about 58% of NIKE Brand footwear. Factory concentration, trade restrictions, freight disruption and raw-material costs remain supply risks.
- NIKE reported no material pending legal proceedings other than routine matters, but disclosed a disputed Belgian customs claim for alleged underpaid duties dating from fiscal 2018. The company could not estimate the loss range or predict the outcome.
PricewaterhouseCoopers LLP issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. The filing also disclosed non-material prior-period revisions to sales-return reserve schedule amounts; the company said they did not affect the balance sheets, income statements or cash-flow statements.
Important facts for investors to verify
- Whether inventory normalization, late product arrivals and freight costs pressure fiscal 2023 gross margin and cash flow.
- Whether Greater China sales, discounting, inventory reserves and segment profitability recover.
- Whether NIKE Direct growth and digital investment translate into sustainable operating margins as expenses rise.
- The final outcomes and cash effects of the Russia exit, distributor transitions in APLA and Belgian customs dispute.
- How the one-time tax benefit and ongoing tax exposures—including $848 million of gross unrecognized tax benefits—affect comparisons of future earnings.
- Whether the $18 billion repurchase authorization is executed and how buybacks compare with investment needs and operating cash generation.