NIKE, Inc. — Q2 FY2022 Form 10-Q
Reporting period: Quarter and six months ended November 30, 2021. NIKE designs, markets and sells athletic footwear, apparel, equipment and accessories through wholesale and NIKE Direct channels. Financial statements are unaudited.
Financial performance
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Revenue | $11.357B (+1%; flat currency-neutral) | $11.243B | $23.605B (+8%; +6% currency-neutral) | $21.837B |
| Gross margin | 45.9% (+280 bps) | 43.1% | 46.2% (+230 bps) | 43.9% |
| Selling and administrative expense | $3.759B (+15%) | $3.267B | $7.331B (+17%) | $6.242B |
| Net income | $1.337B (+7%) | $1.251B | $3.211B (+16%) | $2.769B |
| Diluted EPS | $0.83 (+6%) | $0.78 | $1.98 (+14%) | $1.73 |
| Operating cash flow | Quarterly figure not provided in this filing text | $3.868B | $3.355B |
Q2 income before taxes increased 3% to $1.501B; six-month income before taxes rose 14% to $3.607B. Q2 non-GAAP EBIT margin was 13.7%, versus 13.6%; for the six months it was 15.8%, versus 15.1%. The six-month effective tax rate was 11.0%, compared with 12.7%.
At November 30, cash and equivalents were $10.751B and short-term investments were $4.352B, totaling $15.103B. Long-term debt was $9.417B; notes payable were $9M, with no current portion of long-term debt. Current assets were $27.177B and current liabilities $8.857B. Inventory was $6.506B, down from $6.854B at May 31, 2021.
Six-month investing cash outflow was $1.105B and financing cash outflow was $1.846B. Financing included $1.723B of share repurchases and $873M of dividends paid. NIKE repurchased 10.8 million shares for approximately $1.7B during the six months.
Changes and business drivers
- NIKE Direct revenue grew 8% currency-neutral in Q2 and 16% for the six months; NIKE Brand digital revenue grew 11% and 17%, respectively. Wholesale revenue declined 5% reported in Q2, while Converse revenue increased 17% reported.
- Regional performance diverged in Q2: North America revenue rose 12% currency-neutral and EMEA rose 6%, while Greater China fell 24% and Asia Pacific & Latin America fell 6%. Greater China EBIT declined 36% reported.
- Gross-margin expansion reflected stronger NIKE Direct margins, fewer promotions and a higher full-price sales mix. Higher freight and logistics costs and lower product margins partially offset those gains.
- Selling and administrative expense increased as NIKE raised advertising and marketing investment and continued strategic technology spending; expenses were also higher year over year because prior-year restructuring and COVID-related comparisons differed.
Outlook, risks and unusual items
- Management said factory shutdowns in Vietnam and Indonesia caused approximately three months of lost production. Factories had reopened by October, but recovery to pre-closure volumes was expected to take several months. Supply constraints and extended transit times were expected to continue affecting product availability for the remainder of FY2022.
- Management expected transportation, logistics and fulfillment costs to remain elevated, with product costs increasing in the second half of FY2022. It described maintaining multi-year investments and continuing the Consumer Direct Acceleration strategy; this filing text does not provide clear numerical near-term revenue or earnings guidance.
- Management cited COVID-19 variants, further factory or store disruptions, port congestion, labor and container shortages, inventory shortages, inflationary input costs, consumer and marketplace dynamics, foreign-exchange movements and potential tax-rate volatility as risks. Greater China also faced reduced inventory availability, store closures and weaker digital and comparable-store sales.
- New Chinese data and personal-information laws could affect operations and expose NIKE to fines, legal proceedings, regulatory orders or reputational harm if interpreted adversely or not complied with.
- NIKE recorded a cumulative expected net loss of $344M related to the planned sale of its Argentina, Chile and Uruguay entities and transfer of distribution rights; associated assets and liabilities remained classified as held for sale. The company also reported $926M of gross unrecognized tax benefits, including $651M that would affect the effective tax rate if recognized, and disclosed an ongoing IRS audit for fiscal 2017–2019 and a European Commission investigation concerning Dutch tax rulings.
- The company reported no material change in previously disclosed risk factors, no material developments in previously reported legal proceedings, and no material off-balance-sheet arrangements. It stated that it was in compliance with credit-facility covenants and believed available liquidity and operating cash flows would meet foreseeable capital needs.
Most important facts for investors to verify
- Whether factory production and shipping capacity recovered as expected, and how supply constraints affected sales, inventory and costs after the reporting date.
- Whether Greater China’s revenue and profitability trends improved, and whether NIKE Direct growth continued to offset wholesale weakness.
- Whether margin gains from pricing, channel mix and lower promotions persisted as freight, logistics and product costs rose.
- Progress and final financial impact of the Argentina, Chile and Uruguay divestiture, and developments in the disclosed tax audits and investigations.
- Capital allocation: share repurchases, dividends, liquidity and debt levels; the filing notes the four-year $15B repurchase authorization approved in 2018.