GROSS MARGIN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
|
|
|
(Dollars in millions)
|
2021
|
2020
|
% CHANGE
|
|
2021
|
2020
|
% CHANGE
|
|
|
|
|
|
Gross profit
|
$
|
5,213
|
|
$
|
4,847
|
|
8
|
%
|
|
$
|
10,909
|
|
$
|
9,588
|
|
14
|
%
|
|
|
|
|
|
Gross margin
|
45.9
|
%
|
43.1
|
%
|
280 bps
|
|
46.2
|
%
|
43.9
|
%
|
230 bps
|
|
|
|
|
For the second quarter of fiscal 2022, our consolidated gross margin was 280 basis points higher than the prior year period and primarily reflected the following factors:
•Higher margin in our NIKE Direct business, primarily driven by low promotional activity in the current period reflecting limited available for sale inventory due to supply chain constraints compared to higher promotional activity in the prior year as we managed the impacts from COVID-19 (increasing gross margin approximately 170 basis points);
•Higher mix of full-price sales, on a wholesale equivalent basis, (increasing gross margin approximately 110 basis points);
•Lower other costs, in part due to higher restructuring-related costs related to our organizational realignment in the prior year, among other factors, (increasing gross margin approximately 50 basis points);
•Favorable changes in net foreign currency exchange rates, including hedges, (increasing gross margin approximately 40 basis points); and
•Lower NIKE Brand full-price product margins, on a wholesale equivalent basis. Specifically, higher product costs (decreasing gross margin approximately 60 basis points) largely due to increased freight and logistics costs as well as lower full-price ASP, net of discounts, (decreasing gross margin approximately 40 basis points) primarily due to a lower mix of Greater China sales.
For the first six months of fiscal 2022, our consolidated gross margin was 230 basis points higher than the prior year period and primarily reflected the following factors:
•Higher margin in our NIKE Direct business, primarily driven by low promotional activity in the current period reflecting limited available for sale inventory due to supply chain constraints compared to higher promotional activity in the prior year as we managed the impacts from COVID-19 (increasing gross margin approximately 170 basis points);
•Higher mix of full-price sales, on a wholesale equivalent basis, (increasing gross margin approximately 90 basis points);
•Lower other costs, in part due to higher restructuring-related costs related to our organizational realignment in the prior year, (increasing gross margin approximately 40 basis points); and
•Higher NIKE Brand product costs, on a wholesale equivalent basis, primarily due to increased freight and logistics costs (decreasing gross margin approximately 80 basis points).
TOTAL SELLING AND ADMINISTRATIVE EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
|
|
|
(Dollars in millions)
|
2021
|
2020
|
% CHANGE
|
|
2021
|
2020
|
% CHANGE
|
|
|
|
|
|
Demand creation expense(1)
|
$
|
1,017
|
|
$
|
729
|
|
40
|
%
|
|
$
|
1,935
|
|
$
|
1,406
|
|
38
|
%
|
|
|
|
|
|
Operating overhead expense
|
2,742
|
|
2,538
|
|
8
|
%
|
|
5,396
|
|
4,836
|
|
12
|
%
|
|
|
|
|
|
Total selling and administrative expense
|
$
|
3,759
|
|
$
|
3,267
|
|
15
|
%
|
|
$
|
7,331
|
|
$
|
6,242
|
|
17
|
%
|
|
|
|
|
|
% of revenues
|
33.1
|
%
|
29.1
|
%
|
400 bps
|
|
31.1
|
%
|
28.6
|
%
|
250 bps
|
|
|
|
|
(1)Demand creation expense consists of advertising and promotion costs, including costs of endorsement contracts, complimentary products, television, digital and print advertising and media costs, brand events and retail brand presentation.
SECOND QUARTER OF FISCAL 2022 COMPARED TO SECOND QUARTER OF FISCAL 2021
Demand creation expense increased 40% for the second quarter of fiscal 2022 primarily due to higher advertising and marketing spend against brand campaigns as we experienced marketplace closures in the prior year due to COVID-19, as well as continued investments in digital marketing to support heightened digital demand. Changes in foreign currency exchange rates increased Demand creation expense by approximately 1 percentage point.
Operating overhead expense increased 8% primarily due to higher strategic technology investments and an increase in wage-related expenses. Changes in foreign currency exchange rates had an insignificant impact on Operating overhead expense.
FIRST SIX MONTHS OF FISCAL 2022 COMPARED TO FIRST SIX MONTHS OF FISCAL 2021
Demand creation expense increased 38% for the first six months of fiscal 2022 primarily due to higher advertising and marketing spend against brand campaigns as we experienced marketplace closures in the prior year due to COVID-19, as well as continued investments in digital marketing to support heightened digital demand. Changes in foreign currency exchange rates increased Demand creation expense by approximately 2 percentage points.
Operating overhead expense increased 12% primarily due to an increase in wage-related expenses and higher strategic technology investments. Changes in foreign currency exchange rates increased Operating overhead expense by approximately 1 percentage point.
OTHER (INCOME) EXPENSE, NET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
|
|
(Dollars in millions)
|
2021
|
2020
|
|
2021
|
2020
|
|
|
|
|
Other (income) expense, net
|
$
|
(102)
|
|
$
|
54
|
|
|
$
|
(141)
|
|
$
|
40
|
|
|
|
|
Other (income) expense, net comprises foreign currency conversion gains and losses from the remeasurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments, as well as unusual or non-operating transactions that are outside the normal course of business.
For the second quarter of fiscal 2022, Other (income) expense, net changed from $54 million of other expense to $102 million of other income in the current year, primarily due to a favorable change in foreign currency conversion gains and losses, including hedges, as well as incremental charges, in the prior year, related to our planned, strategic distributor partnership transition within APLA.
For the first six months of fiscal 2022, Other (income) expense, net changed from $40 million of other expense to $141 million of other income in the current year, primarily due to incremental charges, in the prior year, related to our planned, strategic distributor partnership transition within APLA, coupled with a net favorable change in foreign currency conversion gains and losses, including hedges.
For more information related to our distributor partnership transition within APLA, see Note 12 — Acquisitions and Divestitures within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
We estimate the combination of the translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency-related gains and losses included in Other (income) expense, net had favorable impacts of approximately $63 million and $167 million on our Income before income taxes for the second quarter and first six months of fiscal 2022, respectively.
INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
|
|
|
|
2021
|
2020
|
% CHANGE
|
|
2021
|
2020
|
% CHANGE
|
|
|
|
|
|
Effective tax rate
|
10.9
|
%
|
14.1
|
%
|
(320) bps
|
|
11.0
|
%
|
12.7
|
%
|
(170) bps
|
|
|
|
|
Our effective tax rate was 10.9% for the second quarter of fiscal 2022, compared to 14.1% for the second quarter of fiscal 2021, primarily due to a change in our earnings mix, partially offset by a less favorable impact from stock-based compensation.
Our effective tax rate was 11.0% for the first six months of fiscal 2022, compared to 12.7% for the first six months of fiscal 2021, primarily due to a more favorable impact from stock-based compensation and discrete items, such as the recognition of a reserve in the first quarter of fiscal 2021 related to Altera Corp. v. Commissioner, partially offset by a change in our earnings mix.
Refer to Note 5 — Income Taxes within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.
OPERATING SEGMENTS
Our operating segments are evidence of the structure of the Company's internal organization. The NIKE Brand segments are defined by geographic regions for operations participating in NIKE Brand sales activity.
Each NIKE Brand geographic segment operates predominantly in one industry: the design, development, marketing and selling of athletic footwear, apparel and equipment. The Company's reportable operating segments for the NIKE Brand are: North America; Europe, Middle East & Africa (EMEA); Greater China; and Asia Pacific & Latin America (APLA), and include results for the NIKE and Jordan brands. The Company's NIKE Direct operations are managed within each geographic operating segment. Converse is also a reportable operating segment for the Company, and operates predominately in one industry: the design, marketing, licensing and selling of athletic lifestyle sneakers, apparel and accessories.
As part of our centrally managed foreign exchange risk management program, standard foreign currency exchange rates are assigned twice per year to each NIKE Brand entity in our geographic operating segments and Converse. These rates are set approximately nine and twelve months in advance of the future selling seasons to which they relate (specifically, for each currency, one standard rate applies to the fall and holiday selling seasons and one standard rate applies to the spring and summer selling seasons) based on average market spot rates in the calendar month preceding the date they are established. Inventories and Cost of sales for geographic operating segments and Converse reflect the use of these standard rates to record non-functional currency product purchases into the entity's functional currency. Differences between assigned standard foreign currency exchange rates and actual market rates are included in Corporate, together with foreign currency hedge gains and losses generated from our centrally managed foreign exchange risk management program and other conversion gains and losses.
The breakdown of Revenues is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
|
|
|
(Dollars in millions)
|
2021
|
2020
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES(1)
|
|
2021
|
2020
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES(1)
|
|
|
|
|
|
|
North America
|
$
|
4,477
|
|
$
|
4,006
|
|
12
|
%
|
12
|
%
|
|
$
|
9,356
|
|
$
|
8,231
|
|
14
|
%
|
13
|
%
|
|
|
|
|
|
|
Europe, Middle East & Africa
|
3,142
|
|
2,958
|
|
6
|
%
|
6
|
%
|
|
6,449
|
|
5,868
|
|
10
|
%
|
7
|
%
|
|
|
|
|
|
|
Greater China
|
1,844
|
|
2,298
|
|
-20
|
%
|
-24
|
%
|
|
3,826
|
|
4,078
|
|
-6
|
%
|
-13
|
%
|
|
|
|
|
|
|
Asia Pacific & Latin America
|
1,347
|
|
1,471
|
|
-8
|
%
|
-6
|
%
|
|
2,812
|
|
2,570
|
|
9
|
%
|
10
|
%
|
|
|
|
|
|
|
Global Brand Divisions(2)
|
6
|
|
8
|
|
-25
|
%
|
-5
|
%
|
|
13
|
|
12
|
|
8
|
%
|
13
|
%
|
|
|
|
|
|
|
TOTAL NIKE BRAND
|
10,816
|
|
10,741
|
|
1
|
%
|
0
|
%
|
|
22,456
|
|
20,759
|
|
8
|
%
|
6
|
%
|
|
|
|
|
|
|
Converse
|
557
|
|
476
|
|
17
|
%
|
16
|
%
|
|
1,186
|
|
1,039
|
|
14
|
%
|
11
|
%
|
|
|
|
|
|
|
Corporate(3)
|
(16)
|
|
26
|
|
—
|
|
—
|
|
|
(37)
|
|
39
|
|
—
|
|
—
|
|
|
|
|
|
|
|
TOTAL NIKE, INC. REVENUES
|
$
|
11,357
|
|
$
|
11,243
|
|
1
|
%
|
0
|
%
|
|
$
|
23,605
|
|
$
|
21,837
|
|
8
|
%
|
6
|
%
|
|
|
|
|
|
(1) The percent change excluding currency changes represents a non-GAAP financial measure. See "Use of Non-GAAP Financial Measures" for further information.
(2) Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment.
(3) Corporate revenues primarily consist of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse, but managed through our central foreign exchange risk management program.
The primary financial measure used by the Company to evaluate performance of individual operating segments is EBIT, which represents Net income before Interest expense (income), net and Income tax expense in the Unaudited Condensed Consolidated Statements of Income. As discussed in Note 11 — Operating Segments in the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements, certain corporate costs are not included in EBIT of our operating segments.
The breakdown of earnings before interest and taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
|
|
(Dollars in millions)
|
2021
|
2020
|
% CHANGE
|
|
2021
|
2020
|
% CHANGE
|
|
|
|
|
|
North America
|
$
|
1,235
|
|
$
|
1,023
|
|
21
|
%
|
|
$
|
2,669
|
|
$
|
2,325
|
|
15
|
%
|
|
|
|
|
|
Europe, Middle East & Africa
|
806
|
|
660
|
|
22
|
%
|
|
1,681
|
|
1,352
|
|
24
|
%
|
|
|
|
|
|
Greater China
|
569
|
|
891
|
|
-36
|
%
|
|
1,270
|
|
1,579
|
|
-20
|
%
|
|
|
|
|
|
Asia Pacific & Latin America
|
388
|
|
424
|
|
-8
|
%
|
|
869
|
|
704
|
|
23
|
%
|
|
|
|
|
|
Global Brand Divisions
|
(1,071)
|
|
(841)
|
|
-27
|
%
|
|
(2,058)
|
|
(1,694)
|
|
-21
|
%
|
|
|
|
|
|
TOTAL NIKE BRAND(1)
|
1,927
|
|
2,157
|
|
-11
|
%
|
|
4,431
|
|
4,266
|
|
4
|
%
|
|
|
|
|
|
Converse
|
132
|
|
87
|
|
52
|
%
|
|
336
|
|
255
|
|
32
|
%
|
|
|
|
|
|
Corporate
|
(503)
|
|
(718)
|
|
30
|
%
|
|
(1,048)
|
|
(1,215)
|
|
14
|
%
|
|
|
|
|
|
TOTAL NIKE, INC. EARNINGS BEFORE INTEREST AND TAXES(1)
|
1,556
|
|
1,526
|
|
2
|
%
|
|
3,719
|
|
3,306
|
|
12
|
%
|
|
|
|
|
|
EBIT margin(1)
|
13.7
|
%
|
13.6
|
%
|
|
|
15.8
|
%
|
15.1
|
%
|
|
|
|
|
|
|
Interest expense (income), net
|
55
|
|
70
|
|
—
|
|
|
112
|
|
135
|
|
—
|
|
|
|
|
|
|
TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES
|
$
|
1,501
|
|
$
|
1,456
|
|
3
|
%
|
|
$
|
3,607
|
|
$
|
3,171
|
|
14
|
%
|
|
|
|
|
(1) Total NIKE Brand EBIT, Total NIKE, Inc. EBIT and EBIT margin represent non-GAAP financial measures. See "Use of Non-GAAP Financial Measures" for further information.
NORTH AMERICA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
|
|
|
(Dollars in millions)
|
2021
|
2020
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
|
2021
|
2020
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
|
|
|
|
|
|
Revenues by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Footwear
|
$
|
2,852
|
|
$
|
2,512
|
|
14
|
%
|
13
|
%
|
|
$
|
6,116
|
|
$
|
5,469
|
|
12
|
%
|
12
|
%
|
|
|
|
|
|
|
Apparel
|
1,480
|
|
1,368
|
|
8
|
%
|
8
|
%
|
|
2,910
|
|
2,493
|
|
17
|
%
|
16
|
%
|
|
|
|
|
|
|
Equipment
|
145
|
|
126
|
|
15
|
%
|
16
|
%
|
|
330
|
|
269
|
|
23
|
%
|
23
|
%
|
|
|
|
|
|
|
TOTAL REVENUES
|
$
|
4,477
|
|
$
|
4,006
|
|
12
|
%
|
12
|
%
|
|
$
|
9,356
|
|
$
|
8,231
|
|
14
|
%
|
13
|
%
|
|
|
|
|
|
|
Revenues by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to Wholesale Customers
|
$
|
2,327
|
|
$
|
2,354
|
|
-1
|
%
|
-1
|
%
|
|
$
|
5,005
|
|
$
|
5,073
|
|
-1
|
%
|
-2
|
%
|
|
|
|
|
|
|
Sales through NIKE Direct
|
2,150
|
|
1,652
|
|
30
|
%
|
30
|
%
|
|
4,351
|
|
3,158
|
|
38
|
%
|
38
|
%
|
|
|
|
|
|
|
TOTAL REVENUES
|
$
|
4,477
|
|
$
|
4,006
|
|
12
|
%
|
12
|
%
|
|
$
|
9,356
|
|
$
|
8,231
|
|
14
|
%
|
13
|
%
|
|
|
|
|
|
|
EARNINGS BEFORE INTEREST AND TAXES
|
$
|
1,235
|
|
$
|
1,023
|
|
21
|
%
|
|
|
$
|
2,669
|
|
$
|
2,325
|
|
15
|
%
|
|
|
|
|
|
|
We believe there continues to be a meaningful shift in the way consumers shop for product and make purchasing decisions across each of our geographies. Consumers are demanding a constant flow of fresh and innovative product, and have an expectation for superior service and rapid delivery, all fueled by the shift toward digital and mono-brand experiences in NIKE Direct. We anticipate continued evolution within the retail landscape, driven by shifting consumer traffic patterns across digital and physical channels. Specifically in North America, we remain focused on building long-term momentum with our strategic wholesale customers, which offer a differentiated retail experience. Additionally, over the last three years we have significantly reduced the number of undifferentiated wholesale accounts. During fiscal 2021 and the first six months of fiscal 2022, we took further steps towards account and channel consolidation by reprioritizing product allocation to benefit NIKE Direct and our differentiated strategic wholesale customers. We expect we will continue to aggressively accelerate these changes over the next several fiscal years as we work to reprofile the shape of the marketplace and recapture wholesale revenue declines over time.
SECOND QUARTER OF FISCAL 2022 COMPARED TO SECOND QUARTER OF FISCAL 2021
On a currency-neutral basis, North America revenues for the second quarter of fiscal 2022 increased 12%, due primarily to higher revenues in Women's and the Jordan Brand, partially offset by a decline in Men's. NIKE Direct revenues increased 30%, driven by strong digital sales growth of 40%, comparable store sales growth of 16%, in part due to improved physical retail traffic, and the addition of new stores.
Footwear revenues increased 13% on a currency-neutral basis, largely driven by higher revenues in Women's, partially offset by a decline in Men's. Unit sales of footwear increased 7%, while higher ASP per pair contributed approximately 6 percentage points of footwear revenue growth. Higher ASP per pair was primarily due to higher NIKE Direct ASP, the favorable impact of growth in our NIKE Direct business and a higher mix of full-price sales, partially offset by lower full-price ASP.
On a currency-neutral basis, apparel revenues increased 8%, driven primarily by growth in NIKE Direct. Unit sales of apparel decreased 5%, while higher ASP per unit contributed approximately 13 percentage points of apparel revenue growth. The increase in ASP per unit was primarily driven by higher NIKE Direct ASP, as well as higher full-price ASP, primarily due to lower discounts, and a higher mix of full-price sales.
Reported EBIT increased 21% as higher revenues and gross margin expansion more than offset higher selling and administrative expense. Gross margin increased approximately 280 basis points primarily due to higher margins and the favorable impact of growth in our NIKE Direct business, as well as a higher mix of full-price sales and higher full-price ASP, net of discounts. This activity was partially offset by higher product costs primarily due to increased freight and logistics costs. Selling and administrative expense increased due to higher demand creation and operating overhead expense. Demand creation expense increased primarily as a result of higher advertising and marketing expense as well as digital marketing investments, partially offset by lower sports marketing costs. The increase in operating overhead expense reflected higher wage-related costs as well as an increase in strategic technology investments.
FIRST SIX MONTHS OF FISCAL 2022 COMPARED TO FIRST SIX MONTHS OF FISCAL 2021
On a currency-neutral basis, North America revenues for the first six months of fiscal 2022 increased 13%, due primarily to higher revenues in Women's. NIKE Direct revenues increased 38%, driven by strong digital sales growth of 41%, comparable store sales growth of 31%, in part due to improved physical retail traffic, and the addition of new stores.
Footwear revenues increased 12% on a currency-neutral basis, largely driven by higher revenues in Women's and the Jordan Brand, partially offset by a decline in Men's. Unit sales of footwear increased 5%, while higher ASP per pair contributed approximately 7 percentage points of footwear revenue growth. Higher ASP per pair was primarily due to higher NIKE Direct ASP, the favorable impact of growth in our NIKE Direct business and a higher mix of full-prices sales, partially offset by lower full-price ASP.
On a currency-neutral basis, apparel revenues increased 16%, driven primarily by higher revenues in Men's. Unit sales of apparel increased 4%, while higher ASP per unit contributed approximately 12 percentage points of apparel revenue growth. The increase in ASP per unit was primarily driven by higher NIKE Direct ASP, the favorable impact of growth in our NIKE Direct business and higher full-price ASP, as well as a higher mix of full-price sales.
Reported EBIT increased 15% as higher revenues and gross margin expansion more than offset higher selling and administrative expense. Gross margin increased approximately 170 basis points primarily due to higher margins and the favorable impact of growth in our NIKE Direct business, as well as a higher mix of full-price sales. This activity was partially offset by higher product costs primarily due to increased freight and logistics costs. Selling and administrative expense increased due to higher demand creation and operating overhead expense. Demand creation expense increased primarily as a result of higher advertising and marketing expense, as well as higher digital marketing investments. The increase in operating overhead expense reflected higher wage-related costs as well as an increase in NIKE Direct strategic technology investments.
EUROPE, MIDDLE EAST & AFRICA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
|
|
|
(Dollars in millions)
|
2021
|
2020
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
|
2021
|
2020
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
|
|
|
|
|
|
Revenues by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Footwear
|
$
|
1,806
|
|
$
|
1,731
|
|
4
|
%
|
4
|
%
|
|
$
|
3,789
|
|
$
|
3,533
|
|
7
|
%
|
4
|
%
|
|
|
|
|
|
|
Apparel
|
1,202
|
|
1,104
|
|
9
|
%
|
8
|
%
|
|
2,361
|
|
2,075
|
|
14
|
%
|
11
|
%
|
|
|
|
|
|
|
Equipment
|
134
|
|
123
|
|
9
|
%
|
7
|
%
|
|
299
|
|
260
|
|
15
|
%
|
11
|
%
|
|
|
|
|
|
|
TOTAL REVENUES
|
$
|
3,142
|
|
$
|
2,958
|
|
6
|
%
|
6
|
%
|
|
$
|
6,449
|
|
$
|
5,868
|
|
10
|
%
|
7
|
%
|
|
|
|
|
|
|
Revenues by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to Wholesale Customers
|
$
|
2,112
|
|
$
|
1,985
|
|
6
|
%
|
6
|
%
|
|
$
|
4,336
|
|
$
|
3,958
|
|
10
|
%
|
6
|
%
|
|
|
|
|
|
|
Sales through NIKE Direct
|
1,030
|
|
973
|
|
6
|
%
|
6
|
%
|
|
2,113
|
|
1,910
|
|
11
|
%
|
8
|
%
|
|
|
|
|
|
|
TOTAL REVENUES
|
$
|
3,142
|
|
$
|
2,958
|
|
6
|
%
|
6
|
%
|
|
$
|
6,449
|
|
$
|
5,868
|
|
10
|
%
|
7
|
%
|
|
|
|
|
|
|
EARNINGS BEFORE INTEREST AND TAXES
|
$
|
806
|
|
$
|
660
|
|
22
|
%
|
|
|
$
|
1,681
|
|
$
|
1,352
|
|
24
|
%
|
|
|
|
|
|
|
SECOND QUARTER OF FISCAL 2022 COMPARED TO SECOND QUARTER OF FISCAL 2021
On a currency-neutral basis, EMEA revenues for the second quarter of fiscal 2022 increased 6%, driven by growth in our wholesale business and NIKE Direct. NIKE Direct revenues increased 6% primarily due to comparable store sales growth of 14%, in part due to improved physical retail traffic, and the addition of new stores, partially offset by a decline in digital sales of 1%.
Currency-neutral footwear revenues increased 4%, driven by growth in wholesale and NIKE Direct. Unit sales of footwear decreased 4%, while higher ASP per pair contributed approximately 8 percentage points of footwear revenue growth. Higher ASP per pair was primarily due to higher NIKE Direct and full-price ASPs, as well as a higher mix of full-price sales.
Currency-neutral apparel revenues increased 8% due primarily to higher revenues in Men's. Unit sales of apparel increased 3%, while higher ASP per unit contributed approximately 5 percentage points of apparel revenue growth, primarily due to higher NIKE Direct ASP, a higher mix of full-price sales and higher full-price ASP.
Reported EBIT increased 22% as gross margin expansion and higher revenues more than offset higher selling and administrative expense. Gross margin increased approximately 670 basis points primarily due to higher NIKE Direct margins, favorable changes in standard foreign currency exchange rates, a higher mix of full-price sales and lower other costs. Selling and administrative expense increased due to higher demand creation and operating overhead expense. Higher demand creation expense was driven by higher advertising and marketing expenses as well as higher sports marketing costs. Higher operating overhead expense was primarily due to higher wage-related expenses.
FIRST SIX MONTHS OF FISCAL 2022 COMPARED TO FIRST SIX MONTHS OF FISCAL 2021
On a currency-neutral basis, EMEA revenues for the first six months of fiscal 2022 increased 7%, due primarily to higher revenues in Men’s. NIKE Direct revenues increased 8% primarily due to comparable store sales growth of 15%, in part due to improved physical retail traffic, and the addition of new stores, while digital sales was relatively flat compared to prior year.
Currency-neutral footwear revenues increased 4%, driven by growth in NIKE Direct and our wholesale business. Unit sales of footwear decreased 1%, while higher ASP per pair contributed approximately 5 percentage points of footwear revenue growth. Higher ASP per pair was primarily due to higher NIKE Direct and full-price ASPs, as well as a higher mix of full-price sales.
Currency-neutral apparel revenues increased 11% due primarily to higher revenues in Men's. Unit sales of apparel increased 5%, while higher ASP per unit contributed approximately 6 percentage points of apparel revenue growth, primarily due to higher full-price and NIKE Direct ASPs, as well as a higher mix of full-price sales.
Reported EBIT increased 24% as higher revenues and gross margin expansion more than offset higher selling and administrative expense. Gross margin increased approximately 460 basis points primarily due to higher NIKE Direct margins, favorable changes in standard foreign currency exchange rates and a higher mix of full-price sales, partially offset by higher product costs primarily due to increased freight and logistics costs. Selling and administrative expense increased due to higher demand creation and operating overhead expense. Higher demand creation expense was driven by higher advertising and marketing expenses. Higher operating overhead expense was primarily due to higher wage-related expenses.
GREATER CHINA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
|
|
|
(Dollars in millions)
|
2021
|
2020
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
|
2021
|
2020
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
|
|
|
|
|
|
Revenues by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Footwear
|
$
|
1,235
|
|
$
|
1,567
|
|
-21
|
%
|
-25
|
%
|
|
$
|
2,684
|
|
$
|
2,818
|
|
-5
|
%
|
-11
|
%
|
|
|
|
|
|
|
Apparel
|
564
|
|
681
|
|
-17
|
%
|
-21
|
%
|
|
1,040
|
|
1,159
|
|
-10
|
%
|
-16
|
%
|
|
|
|
|
|
|
Equipment
|
45
|
|
50
|
|
-10
|
%
|
-15
|
%
|
|
102
|
|
101
|
|
1
|
%
|
-6
|
%
|
|
|
|
|
|
|
TOTAL REVENUES
|
$
|
1,844
|
|
$
|
2,298
|
|
-20
|
%
|
-24
|
%
|
|
$
|
3,826
|
|
$
|
4,078
|
|
-6
|
%
|
-13
|
%
|
|
|
|
|
|
|
Revenues by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to Wholesale Customers
|
$
|
896
|
|
$
|
1,159
|
|
-23
|
%
|
-27
|
%
|
|
$
|
2,010
|
|
$
|
2,123
|
|
-5
|
%
|
-12
|
%
|
|
|
|
|
|
|
Sales through NIKE Direct
|
948
|
|
1,139
|
|
-17
|
%
|
-21
|
%
|
|
1,816
|
|
1,955
|
|
-7
|
%
|
-13
|
%
|
|
|
|
|
|
|
TOTAL REVENUES
|
$
|
1,844
|
|
$
|
2,298
|
|
-20
|
%
|
-24
|
%
|
|
$
|
3,826
|
|
$
|
4,078
|
|
-6
|
%
|
-13
|
%
|
|
|
|
|
|
|
EARNINGS BEFORE INTEREST AND TAXES
|
$
|
569
|
|
$
|
891
|
|
-36
|
%
|
|
|
$
|
1,270
|
|
$
|
1,579
|
|
-20
|
%
|
|
|
|
|
|
|
SECOND QUARTER OF FISCAL 2022 COMPARED TO SECOND QUARTER OF FISCAL 2021
On a currency-neutral basis, Greater China revenues for the second quarter of fiscal 2022 decreased 24%, reflecting impacts from lack of available inventory supply and product launch timing due to factory closures and mandated store closures due to COVID-19, as well as ongoing marketplace dynamics. The decrease in revenues was primarily due to lower revenues in Men’s and Women's. NIKE Direct revenues decreased 21% due to digital sales declines of 27%, comparable store sales declines of 18%, in part due to reduced physical retail traffic and mandated store closures due to COVID-19, partially offset by the addition of new stores.
Currency-neutral footwear revenues decreased 25%, driven primarily by lower revenues in Men's. Unit sales of footwear decreased 20%, while lower ASP per pair reduced footwear revenues by approximately 5 percentage points, driven by lower NIKE Direct and full-price ASPs.
Currency-neutral apparel revenues decreased 21%, due primarily to lower revenues in Men's and Women's. Unit sales of apparel decreased 17%, while lower ASP per unit reduced apparel revenues by approximately 4 percentage points, primarily due to lower NIKE Direct ASP, as well as lower full-price ASPs, primarily due to higher discounts.
Reported EBIT decreased 36% due to lower revenues, gross margin contraction and higher selling and administrative expense. Gross margin decreased approximately 310 basis points reflecting lower full-price ASP, net of discounts, lower NIKE Direct margins, higher other costs and a lower mix of full-price sales, partially offset by lower product costs. Higher other costs were primarily due to higher inventory obsolescence and the unfavorable rate impact of fixed supply chain costs on a lower volume of shipments. Selling and administrative expense increased due to higher demand creation and operating overhead expense. Growth in demand creation expense was primarily due to higher advertising and marketing costs as well as higher digital marketing investments. Operating overhead expense increased largely due to higher wage-related costs, partially offset by lower administrative costs.
FIRST SIX MONTHS OF FISCAL 2022 COMPARED TO FIRST SIX MONTHS OF FISCAL 2021
On a currency-neutral basis, Greater China revenues for the first six months of fiscal 2022 decreased 13%, reflecting impacts from lack of available inventory supply and product launch timing due to factory closures, mandated store closures due to COVID-19 and ongoing marketplace dynamics. The decrease in revenues was primarily due to lower revenues in the Men’s and Women's. NIKE Direct revenues decreased 13% due to digital sales declines of 19%, comparable store sales declines of 12%, in part due to reduced physical retail traffic, partially offset by the addition of new stores.
Currency-neutral footwear revenues decreased 11%, driven primarily by lower revenues in Men's. Unit sales of footwear decreased 8%, while lower ASP per pair reduced footwear revenues by approximately 3 percentage points, driven by lower NIKE Direct and full-price ASPs, primarily due to higher discounts.
Currency-neutral apparel revenues decreased 16%, due primarily to lower revenues in Women's. Unit sales of apparel decreased 10%, while lower ASP per unit reduced apparel revenues by approximately 6 percentage points, primarily due to lower NIKE Direct and full-price ASPs, primarily due to higher discounts.
Reported EBIT decreased 20% due to lower revenues, gross margin contraction and higher selling and administrative expense. Gross margin decreased approximately 220 basis points reflecting lower full-price ASP, primarily due to higher discounts, higher other costs and lower NIKE Direct margins, partially offset by lower product costs. Higher other costs was primarily due to higher inventory obsolescence. Selling and administrative expense increased due to higher demand creation and operating overhead expense. Growth in demand creation expense was primarily due to higher advertising and marketing costs as well as digital marketing investments. Operating overhead expense increased largely due to higher wage-related costs.
ASIA PACIFIC & LATIN AMERICA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
|
|
|
(Dollars in millions)
|
2021
|
2020
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
|
2021
|
2020
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
|
|
|
|
|
|
Revenues by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Footwear
|
$
|
887
|
|
$
|
991
|
|
-10
|
%
|
-8
|
%
|
|
$
|
1,909
|
|
$
|
1,749
|
|
9
|
%
|
9
|
%
|
|
|
|
|
|
|
Apparel
|
402
|
|
432
|
|
-7
|
%
|
-5
|
%
|
|
787
|
|
733
|
|
7
|
%
|
8
|
%
|
|
|
|
|
|
|
Equipment
|
58
|
|
48
|
|
21
|
%
|
22
|
%
|
|
116
|
|
88
|
|
32
|
%
|
32
|
%
|
|
|
|
|
|
|
TOTAL REVENUES
|
$
|
1,347
|
|
$
|
1,471
|
|
-8
|
%
|
-6
|
%
|
|
$
|
2,812
|
|
$
|
2,570
|
|
9
|
%
|
10
|
%
|
|
|
|
|
|
|
Revenues by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to Wholesale Customers
|
$
|
784
|
|
$
|
925
|
|
-15
|
%
|
-13
|
%
|
|
$
|
1,711
|
|
$
|
1,633
|
|
5
|
%
|
5
|
%
|
|
|
|
|
|
|
Sales through NIKE Direct
|
563
|
|
546
|
|
3
|
%
|
6
|
%
|
|
1,101
|
|
937
|
|
18
|
%
|
19
|
%
|
|
|
|
|
|
|
TOTAL REVENUES
|
$
|
1,347
|
|
$
|
1,471
|
|
-8
|
%
|
-6
|
%
|
|
$
|
2,812
|
|
$
|
2,570
|
|
9
|
%
|
10
|
%
|
|
|
|
|
|
|
EARNINGS BEFORE INTEREST AND TAXES
|
$
|
388
|
|
$
|
424
|
|
-8
|
%
|
|
|
$
|
869
|
|
$
|
704
|
|
23
|
%
|
|
|
|
|
|
|
As discussed previously, our NIKE Brand business in Brazil transitioned to a distributor operating model during fiscal 2021 and our NIKE Brand businesses in Argentina, Chile and Uruguay have remained classified as held-for-sale. The impacts of closing the Brazil transaction as well as classifying the Argentina, Chile, and Uruguay entities as held-for-sale in fiscal 2020 are included within Corporate and are not reflected in the APLA operating segment results. For more information see Note 12 — Acquisitions and Divestitures within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
SECOND QUARTER OF FISCAL 2022 COMPARED TO SECOND QUARTER OF FISCAL 2021
On a currency-neutral basis, APLA revenues decreased 6% for the second quarter of fiscal 2022. The decline was due to lower revenues across nearly all territories, led by a decline of 67% due to our business model shift in Brazil to a distributor model in fiscal 2021, partially offset by higher revenues in SOCO (which comprises Argentina, Chile and Uruguay), which increased 33%. Revenues decreased primarily due to lower revenues in Men’s. NIKE Direct revenues increased 6%, primarily due to digital sales growth of 25%, partially offset by store closures and comparable store sales contraction of 1%, in part due to reduced physical retail traffic.
Currency-neutral footwear revenues decreased 8%, due primarily to lower revenues in Men's. Unit sales of footwear decreased 25%, while higher ASP per pair contributed approximately 17 percentage points of footwear revenue growth. Higher ASP per pair was driven by higher NIKE Direct, full-price and off-price ASPs, as well as a higher mix of full-price sales. Higher ASPs, in part, reflect inflationary conditions in our SOCO territory.
Currency-neutral apparel revenues decreased 5%, due primarily to lower revenues in Men's and Women's. Unit sales of apparel decreased 20%, while higher ASP per unit contributed approximately 15 percentage points of apparel revenue growth, driven by higher NIKE Direct, full-price and off-price ASPs, as well as a higher mix of full-price sales. Higher ASPs, in part, reflect inflationary conditions in our SOCO territory.
Reported EBIT decreased 8% for the second quarter of fiscal 2022, as lower revenues and higher selling and administrative expenses more than offset gross margin expansion. Gross margin increased approximately 460 basis points primarily due to lower product costs, higher margins and the favorable impact of growth in our NIKE Direct business, higher full-price ASP, primarily reflecting lower discounts, and a higher mix of full-price sales. Selling and administrative expense increased due to higher demand creation and operating overhead expense. Higher demand creation expense was primarily due to higher digital marketing investments to support heightened digital demand. The increase in operating overhead expense was primarily due to an increase in NIKE Direct strategic technology investments and lower bad debt recoveries.
FIRST SIX MONTHS OF FISCAL 2022 COMPARED TO FIRST SIX MONTHS OF FISCAL 2021
On a currency-neutral basis, APLA revenues increased 10% for the first six months of fiscal 2022. Territory revenue growth was led by a 72% increase in SOCO, an 11% increase in Japan and a 23% increase in Mexico, partially offset by a decline of 56% due to our business model shift in Brazil to a distributor model in fiscal 2021. Revenues increased primarily due to higher revenues in Men’s. NIKE Direct revenues increased 19%, primarily due to digital sales growth of 41% and comparable store sales growth of 7%, partially offset by store closures.
Currency-neutral footwear revenues increased 9%, due primarily to higher revenues in Kids' and the Jordan Brand, partially offset by declines in Men's. Unit sales of footwear decreased 6%, while higher ASP per pair contributed approximately 15 percentage points of footwear revenue growth. Higher ASP per pair was driven by higher NIKE Direct ASP as well as higher full-price ASPs, primarily due to lower discounts, higher off-price ASP and a higher mix of full-price sales. Higher ASPs, in part, reflect inflationary conditions in our SOCO territory.
Currency-neutral apparel revenues increased 8%, due primarily to higher revenues in Men's. Unit sales of apparel decreased 6%, while higher ASP per unit contributed approximately 14 percentage points of apparel revenue growth, driven by higher full-price ASP, reflecting lower discounts, higher NIKE Direct ASP, as well as higher off-price ASP and a higher mix of full-price sales. Higher ASPs, in part, reflect inflationary conditions in our SOCO territory.
Reported EBIT increased 23% for the first six months of fiscal 2022, as higher revenues and gross margin expansion more than offset higher selling and administrative expense. Gross margin increased approximately 510 basis points primarily due to higher margins and the favorable impact of growth in our NIKE Direct business, lower other costs, higher full-price ASP, primarily due to lower discounts as well as lower product costs and a higher mix of full-price sales. The decrease in other costs was primarily due to the favorable rate impact of fixed supply chain costs on a higher volume of wholesale shipments, as well as lower inventory obsolescence. Selling and administrative expense increased due to higher demand creation and operating overhead expense. Higher demand creation expense was primarily due to higher digital marketing investments to support heightened digital demand. The increase in operating overhead expense was primarily due to an increase in NIKE Direct strategic technology investments, and lower bad debt recoveries.
GLOBAL BRAND DIVISIONS
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|
|
|
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|
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|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
|
|
|
(Dollars in millions)
|
2021
|
2020
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
|
2021
|
2020
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
|
|
|
|
|
|
Revenues
|
$
|
6
|
|
$
|
8
|
|
-25
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%
|
-5
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%
|
|
$
|
13
|
|
$
|
12
|
|
8
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%
|
13
|
%
|
|
|
|
|
|
|
Earnings (Loss) Before Interest and Taxes
|
$
|
(1,071)
|
|
$
|
(841)
|
|
-27
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%
|
|
|
$
|
(2,058)
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|
$
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(1,694)
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|
-21
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%
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|
|
|
|
|
|
Global Brand Divisions primarily represent demand creation and operating overhead expense, including product creation and design expenses that are centrally managed for the NIKE Brand, as well as costs associated with NIKE Direct global digital operations and enterprise technology. Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment.
SECOND QUARTER OF FISCAL 2022 COMPARED TO SECOND QUARTER OF FISCAL 2021
Global Brand Divisions' loss before interest and taxes increased 27% for the second quarter of fiscal 2022 driven by higher operating overhead and higher demand creation expense. Higher operating overhead expense was primarily due to an increase in strategic technology investments and higher wage-related costs. Higher demand creation expense was primarily due to higher sports marketing costs as well as higher advertising and marketing expense.
FIRST SIX MONTHS OF FISCAL 2022 COMPARED TO FIRST SIX MONTHS OF FISCAL 2021
Global Brand Divisions' loss before interest and taxes increased 21% for the first six months of fiscal 2022 driven by higher operating overhead and higher demand creation expense. Higher operating overhead expense was primarily due to an increase in strategic technology investments and wage-related costs. Higher demand creation expense was primarily due to higher advertising and marketing expense.
CONVERSE
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THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
|
(Dollars in millions)
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2021
|
2020
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
|
2021
|
2020
|
% CHANGE
|
% CHANGE EXCLUDING CURRENCY CHANGES
|
|
Revenues by:
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|
|
|
|
|
|
|
|
|
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Footwear
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$
|
485
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|
$
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416
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|
17
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%
|
16
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%
|
|
$
|
1,052
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|
$
|
929
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|
13
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%
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11
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%
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Apparel
|
34
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|
32
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|
6
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%
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5
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%
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|
58
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|
54
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|
7
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%
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3
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%
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Equipment
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5
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|
7
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-29
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%
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-30
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%
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|
14
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16
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-13
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%
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-17
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%
|
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Other(1)
|
33
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|
21
|
|
57
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%
|
54
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%
|
|
62
|
|
40
|
|
55
|
%
|
54
|
%
|
|
TOTAL REVENUES
|
$
|
557
|
|
$
|
476
|
|
17
|
%
|
16
|
%
|
|
$
|
1,186
|
|
$
|
1,039
|
|
14
|
%
|
11
|
%
|
|
Revenues by:
|
|
|
|
|
|
|
|
|
|
|
Sales to Wholesale Customers
|
$
|
303
|
|
$
|
259
|
|
17
|
%
|
17
|
%
|
|
$
|
672
|
|
$
|
632
|
|
6
|
%
|
3
|
%
|
|
Sales through Direct to Consumer
|
221
|
|
196
|
|
13
|
%
|
12
|
%
|
|
452
|
|
367
|
|
23
|
%
|
21
|
%
|
|
Other(1)
|
33
|
|
21
|
|
57
|
%
|
53
|
%
|
|
62
|
|
40
|
|
55
|
%
|
54
|
%
|
|
TOTAL REVENUES
|
$
|
557
|
|
$
|
476
|
|
17
|
%
|
16
|
%
|
|
$
|
1,186
|
|
$
|
1,039
|
|
14
|
%
|
11
|
%
|
|
EARNINGS BEFORE INTEREST AND TAXES
|
$
|
132
|
|
$
|
87
|
|
52
|
%
|
|
|
$
|
336
|
|
$
|
255
|
|
32
|
%
|
|
(1)Other revenues consist of territories serviced by third-party licensees who pay royalties to Converse for the use of its registered trademarks and other intellectual property rights. We do not own the Converse trademarks in Japan and accordingly do not earn revenues in Japan.
SECOND QUARTER OF FISCAL 2022 COMPARED TO SECOND QUARTER OF FISCAL 2021
On a currency-neutral basis, Converse revenues increased 16% for the second quarter of fiscal 2022 driven by revenue growth in Western Europe and North America, partially offset by declines in Asia. Wholesale revenues increased 17%, while direct to consumer revenues increased 12%, driven primarily by growth in North America and Western Europe, partially offset by declines in Asia. Combined unit sales within the wholesale and direct to consumer channels increased 5% and ASP increased 9%, primarily due to higher full-price ASP, driven by lower discounts and growth in direct to consumer.
Reported EBIT increased 52%, driven by higher revenues and gross margin expansion partially offset by higher selling and administrative expense. Gross margin increased approximately 250 basis points primarily due to higher margins in our direct to consumer business and a higher mix of full price sales, partially offset by higher product costs primarily due to increased freight charges. Selling and administrative expense increased primarily due to higher demand creation expense driven by higher advertising and marketing expense.
FIRST SIX MONTHS OF FISCAL 2022 COMPARED TO FIRST SIX MONTHS OF FISCAL 2021
On a currency-neutral basis, Converse revenues increased 11% for the first six months of fiscal 2022 driven by revenue growth in North America and Western Europe, partially offset by declines in Asia. Wholesale revenues increased 3%, while direct to consumer revenues increased 21%, driven by growth in North America and Western Europe, partially offset by declines in Asia. Combined unit sales within the wholesale and direct to consumer channels decreased 2%, while ASP increased 12%, primarily due to higher full-price ASP, driven by lower discounts and growth in direct to consumer.
Reported EBIT increased 32%, driven by higher revenues and gross margin expansion partially offset by higher selling and administrative expense. Gross margin increased approximately 290 basis points primarily due to higher margins in our direct to consumer business, growth in licensee revenues and lower other costs, partially offset by higher product costs due to increased freight and duty charges. Selling and administrative expense increased primarily due to higher demand creation expense driven by higher advertising and marketing expense.
CORPORATE
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|
|
THREE MONTHS ENDED NOVEMBER 30,
|
|
SIX MONTHS ENDED NOVEMBER 30,
|
|
|
|
(Dollars in millions)
|
2021
|
2020
|
% CHANGE
|
|
2021
|
2020
|
% CHANGE
|
|
|
|
|
|
Revenues
|
$
|
(16)
|
|
$
|
26
|
|
—
|
|
|
$
|
(37)
|
|
$
|
39
|
|
—
|
|
|
|
|
|
|
Earnings (Loss) Before Interest and Taxes
|
$
|
(503)
|
|
$
|
(718)
|
|
30
|
%
|
|
$
|
(1,048)
|
|
$
|
(1,215)
|
|
14
|
%
|
|
|
|
|
Corporate revenues primarily consist of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse, but managed through our central foreign exchange risk management program.
The Corporate loss before interest and taxes primarily consists of unallocated general and administrative expenses, including expenses associated with centrally managed departments; depreciation and amortization related to our corporate headquarters; unallocated insurance, benefit and compensation programs, including stock-based compensation; and certain foreign currency gains and losses.
In addition to the foreign currency gains and losses recognized in Corporate revenues, foreign currency results in Corporate include gains and losses resulting from the difference between actual foreign currency exchange rates and standard rates used to record non-functional currency denominated product purchases within the NIKE Brand geographic operating segments and Converse; related foreign currency hedge results; conversion gains and losses arising from remeasurement of monetary assets and liabilities in non-functional currencies; and certain other foreign currency derivative instruments.
SECOND QUARTER OF FISCAL 2022 COMPARED TO SECOND QUARTER OF FISCAL 2021
Corporate's loss before interest and taxes decreased $215 million for the second quarter of fiscal 2022, primarily due to the following:
•a favorable change of $198 million, primarily due to higher restructuring-related costs related to our organizational realignment in the prior year;
•a favorable change in net foreign currency gains and losses of $51 million related to the remeasurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments, reported as a component of consolidated Other (income) expense, net; and
•an unfavorable change of $34 million related to the difference between actual foreign currency exchange rates and standard foreign currency exchange rates assigned to the NIKE Brand geographic operating segments and Converse, net of hedge gains and losses; these results are reported as a component of consolidated gross margin.
FIRST SIX MONTHS OF FISCAL 2022 COMPARED TO FIRST SIX MONTHS OF FISCAL 2021
Corporate's loss before interest and taxes decreased $167 million for the first six months of fiscal 2022, primarily due to the following:
•a favorable change of $165 million, primarily due to higher restructuring-related costs related to our organizational realignment, as well as charges related to our planned, strategic distributor partnership transition within APLA, both of which occurred in the prior year;
•a favorable change in net foreign currency gains and losses of $38 million related to the remeasurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments, reported as a component of consolidated Other (income) expense, net; and
•an unfavorable change of $36 million related to the difference between actual foreign currency exchange rates and standard foreign currency exchange rates assigned to the NIKE Brand geographic operating segments and Converse, net of hedge gains and losses; these results are reported as a component of consolidated gross margin.
FOREIGN CURRENCY EXPOSURES AND HEDGING PRACTICES
OVERVIEW
As a global company with significant operations outside the United States, in the normal course of business we are exposed to risk arising from changes in currency exchange rates. Our primary foreign currency exposures arise from the recording of transactions denominated in non-functional currencies and the translation of foreign currency denominated results of operations, financial position and cash flows into U.S. Dollars.
Our foreign exchange risk management program is intended to lessen both the positive and negative effects of currency fluctuations on our consolidated results of operations, financial position and cash flows. We manage global foreign exchange risk
centrally on a portfolio basis to address those risks material to NIKE, Inc. Our hedging policy is designed to partially or entirely offset the impact of exchange rate changes on the underlying net exposures being hedged. Where exposures are hedged, our program has the effect of delaying the impact of exchange rate movements on our Unaudited Condensed Consolidated Financial Statements; the length of the delay is dependent upon hedge horizons. We do not hold or issue derivative instruments for trading or speculative purposes. As of and for the three and six months ended November 30, 2021, there have been no material changes to the Company's hedging program or strategy from what was disclosed within the Annual Report on Form 10-K.
Refer to Note 4 — Fair Value Measurements and Note 8 — Risk Management and Derivatives in the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements for additional description of outstanding derivatives at each reported period end. For additional information about our Foreign Currency Exposures and Hedging Practices refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended May 31, 2021.
TRANSACTIONAL EXPOSURES
We conduct business in various currencies and have transactions which subject us to foreign currency risk. Our most significant transactional foreign currency exposures are:
•Product Costs — Product purchases denominated in currencies other than the functional currency of the transacting entity and factory input costs from the foreign currency adjustments program with certain factories.
•Non-Functional Currency Denominated External Sales — A portion of our NIKE Brand and Converse revenues associated with European operations are earned in currencies other than the Euro (e.g., the British Pound) but are recognized at a subsidiary that uses the Euro as its functional currency. These sales generate a foreign currency exposure.
•Other Costs — Non-functional currency denominated costs, such as endorsement contracts, also generate foreign currency risk, though to a lesser extent.
•Non-Functional Currency Denominated Monetary Assets and Liabilities — Our global subsidiaries have various monetary assets and liabilities, primarily receivables and payables, including intercompany receivables and payables, denominated in currencies other than their functional currencies. These balance sheet items are subject to remeasurement which may create fluctuations in Other (income) expense, net within our consolidated results of operations.
MANAGING TRANSACTIONAL EXPOSURES
Transactional exposures are managed on a portfolio basis within our foreign currency risk management program. We manage these exposures by taking advantage of natural offsets and currency correlations that exist within the portfolio and may also elect to use currency forward and option contracts to hedge the remaining effect of exchange rate fluctuations on probable forecasted future cash flows, including certain product cost exposures, non-functional currency denominated external sales and other costs described above. Generally, these are accounted for as cash flow hedges, except for hedges of the embedded derivative components of the product cost exposures and other contractual agreements.
Certain currency forward contracts used to manage the foreign exchange exposure of non-functional currency denominated monetary assets and liabilities subject to remeasurement and embedded derivative contracts are not formally designated as hedging instruments and are recognized in Other (income) expense, net.
TRANSLATIONAL EXPOSURES
Many of our foreign subsidiaries operate in functional currencies other than the U.S. Dollar. Fluctuations in currency exchange rates create volatility in our reported results as we are required to translate the balance sheets, operational results and cash flows of these subsidiaries into U.S. Dollars for consolidated reporting. The translation of foreign subsidiaries' non-U.S. Dollar denominated balance sheets into U.S. Dollars for consolidated reporting results in a cumulative translation adjustment to Accumulated other comprehensive income (loss) within Shareholders' equity. The impact of foreign exchange rate fluctuations on the translation of our consolidated Revenues was a benefit of approximately $63 million and $445 million for the three and six months ended November 30, 2021, respectively, and a benefit of approximately $184 million and $73 million for the three and six months ended November 30, 2020, respectively. The impact of foreign exchange rate fluctuations on the translation of our Income before income taxes was a benefit of approximately $12 million and $129 million for the three and six months ended November 30, 2021, respectively, and a benefit of approximately $63 million and $34 million for the three and six months ended November 30, 2020, respectively.
Management generally identifies hyper-inflationary markets as those markets whose cumulative inflation rate over a three-year period exceeds 100%. Management has concluded our Argentina subsidiary within our APLA operating segment is operating in a hyper-inflationary market. As a result, beginning in the second quarter of fiscal 2019, the functional currency of our Argentina subsidiary changed from the local currency to the U.S. Dollar. As of and for the three and six months ended November 30, 2021, this change did not have a material impact on our results of operations or financial condition, and we do not anticipate it will have a material impact in future periods based on current rates.
MANAGING TRANSLATIONAL EXPOSURES
To minimize the impact of translating foreign currency denominated revenues and expenses into U.S. Dollars for consolidated reporting, certain foreign subsidiaries use excess cash to purchase U.S. Dollar denominated available-for-sale investments. The variable future cash flows associated with the purchase and subsequent sale of these U.S. Dollar denominated investments at non-U.S. Dollar functional currency subsidiaries creates a foreign currency exposure that qualifies for hedge accounting under U.S. GAAP. We utilize forward contracts and/or options to mitigate the variability of the forecasted future purchases and sales of these U.S. Dollar investments. The combination of the purchase and sale of the U.S. Dollar investment and the hedging instrument has the effect of partially offsetting the year-over-year foreign currency translation impact on net earnings in the period the investments are sold. Hedges of the purchase of U.S. Dollar denominated available-for-sale investments are accounted for as cash flow hedges.
We estimate the combination of translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency related gains and losses included in Other (income) expense, net had a favorable impact of approximately $63 million and $167 million on our Income before income taxes for the three and six months ended November 30, 2021, respectively.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW ACTIVITY
Cash provided (used) by operations was an inflow of $3,868 million for the first six months of fiscal 2022, compared to $3,355 million for the first six months of fiscal 2021. Net income, adjusted for non-cash items, generated $3,704 million of operating cash inflow for the first six months of fiscal 2022, compared to $3,283 million for the first six months of fiscal 2021. The net change in working capital and other assets and liabilities resulted in an increase to Cash provided (used) by operations of $164 million for the first six months of fiscal 2022 compared to an increase of $72 million for the first six months of fiscal 2021. The net change in working capital compared to the prior year was primarily driven by favorable impacts to Cash provided (used) by operations from Accounts receivable of $1,464 million, partially offset by unfavorable impacts from Inventories of $1,053 million for the first six months of fiscal 2022, in part due to supply chain constraints which caused a lower supply of available inventory to meet consumer demand during the first six months of fiscal 2022.
Cash provided (used) by investing activities was an outflow of $1,105 million for the first six months of fiscal 2022, compared to $2,877 million for the first six months of fiscal 2021, primarily driven by the net change in short-term investments. For the first six months of fiscal 2022, the net change in short-term investments (including sales, maturities and purchases) resulted in a cash outflow of $776 million compared to a cash outflow of $2,789 million for the first six months of fiscal 2021.
Cash provided (used) by financing activities was an outflow of $1,846 million for the first six months of fiscal 2022 compared to $292 million for the first six months of fiscal 2021. The increased outflow in the first six months of fiscal 2022 was driven by our resumption of the share repurchase program in the fourth quarter of fiscal 2021, resulting in $1,723 million of share repurchases for the first six months of fiscal 2022 compared to no share repurchases in the first six months of fiscal 2021.
During the first six months of fiscal 2022, we repurchased 10.8 million shares of NIKE's Class B Common Stock for $1.7 billion (an average price of $158.45 per share) under the four-year, $15 billion share repurchase program approved by the Board of Directors in June 2018. As of November 30, 2021, we had repurchased 60.8 million shares at a cost of approximately $6.4 billion (an average price of $104.89 per share) under this program. We continue to expect funding of share repurchases will come from operating cash flows and excess cash. The timing and the amount of share repurchases will be dictated by our capital needs and stock market conditions.
CAPITAL RESOURCES
On July 23, 2019, we filed a shelf registration statement (the “Shelf”) with the U.S. Securities and Exchange Commission (SEC) which permits us to issue an unlimited amount of debt securities from time to time. The Shelf expires on July 23, 2022.
As of November 30, 2021, our committed credit facilities were unchanged from the information previously reported on Form 10-K for the fiscal year ended May 31, 2021. We currently have long-term debt ratings of AA- and A1 from Standard and Poor's Corporation and Moody's Investor Services, respectively. Any changes to these ratings could result in interest rate and facility fee changes. As of November 30, 2021, we were in full compliance with the covenants under our facilities and believe it is unlikely we will fail to meet any of the covenants in the foreseeable future. As of November 30, 2021 and May 31, 2021, no amounts were outstanding under our committed credit facilities.
Liquidity was also provided by our $3 billion commercial paper program. As of and for the three months ended November 30, 2021, we did not have any borrowings outstanding under our $3 billion program. We may continue to issue commercial paper or
other debt securities depending on general corporate needs. We currently have short-term debt ratings of A1+ and P1 from Standard and Poor's Corporation and Moody's Investor Services, respectively.
To date, in fiscal 2022, we have not experienced difficulty accessing the credit markets; however, future volatility in the capital markets may increase costs associated with issuing commercial paper or other debt instruments or affect our ability to access those markets.
As of November 30, 2021, we had cash, cash equivalents and short-term investments totaling $15.1 billion, primarily consisting of commercial paper, corporate notes, deposits held at major banks, money market funds, U.S. government sponsored enterprise obligations, U.S. Treasury obligations and other investment grade fixed-income securities. Our fixed-income investments are exposed to both credit and interest rate risk. All of our investments are investment grade to minimize our credit risk. While individual securities have varying durations, as of November 30, 2021, the weighted average days to maturity of our cash equivalents and short-term investments portfolio was 62 days.
We believe that existing cash, cash equivalents, short-term investments and cash generated by operations, together with access to external sources of funds as described above, will be sufficient to meet our domestic and foreign capital needs in the foreseeable future.
We utilize a variety of tax planning and financing strategies to manage our worldwide cash and deploy funds to locations where they are needed. We indefinitely reinvest a significant portion of our foreign earnings, and our current plans do not demonstrate a need to repatriate these earnings. Should we require additional capital in the United States, we may determine to repatriate indefinitely reinvested foreign funds or raise capital in the United States through debt. Given our existing structure, if we were to repatriate indefinitely reinvested foreign earnings, we would be required to accrue and pay withholding taxes in certain foreign jurisdictions.
OFF-BALANCE SHEET ARRANGEMENTS
As of November 30, 2021, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on our current or future financial condition, results of operations, liquidity, capital expenditures or capital resources.
CONTRACTUAL OBLIGATIONS
There have been no significant changes to the contractual obligations reported in our Annual Report on Form 10-K for the fiscal year ended May 31, 2021.
NEW ACCOUNTING PRONOUNCEMENTS
There have been no material changes in recently issued or adopted accounting standards from those disclosed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2021.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based upon our Unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.
We believe that the estimates, assumptions and judgments involved in the accounting policies described in the “Management's Discussion and Analysis of Financial Condition and Results of Operations” section of our most recent Annual Report on Form 10-K have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Actual results could differ from the estimates we use in applying our critical accounting policies. We are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.