filings.toolsNIKE 10-Q 2021-11-30
Filed 2022-01-06. 7 sections, 217K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
Commission File No. 1-10635
NIKE, Inc.
(Exact name of Registrant as specified in its charter)
| Oregon | 93-0584541 | ||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
One Bowerman Drive, Beaverton, Oregon 97005-6453
(Address of principal executive offices and zip code)
(503) 671-6453
(Registrant's telephone number, including area code)
| SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: | |||||||||||
| Class B Common Stock | NKE | New York Stock Exchange | |||||||||
| (Title of each class) | (Trading symbol) | (Name of each exchange on which registered) |
| Indicate by check mark: | YES | NO | ||||||||||||||||||||||||||||||||||||
| • | whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | þ | ☐ | |||||||||||||||||||||||||||||||||||
| • | whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). | þ | ☐ | |||||||||||||||||||||||||||||||||||
| • | whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. | |||||||||||||||||||||||||||||||||||||
| Large accelerated filer | þ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ | |||||||||||||||||||||||||||||
| • | if an emerging growth company, if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ | ||||||||||||||||||||||||||||||||||||
| • | whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). | ☐ | þ |
| As of December 27, 2021, the number of shares of the Registrant's Common Stock outstanding were: | |||||
| Class A | 305,007,252 | ||||
| Class B | 1,276,288,021 | ||||
| 1,581,295,273 |
NIKE, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NIKE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
| THREE MONTHS ENDED NOVEMBER 30, | SIX MONTHS ENDED NOVEMBER 30, | ||||||||||||||||||||||
| (In millions, except per share data) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Revenues | $ | 11,357 | $ | 11,243 | $ | 23,605 | $ | 21,837 | |||||||||||||||
| Cost of sales | 6,144 | 6,396 | 12,696 | 12,249 | |||||||||||||||||||
| Gross profit | 5,213 | 4,847 | 10,909 | 9,588 | |||||||||||||||||||
| Demand creation expense | 1,017 | 729 | 1,935 | 1,406 | |||||||||||||||||||
| Operating overhead expense | 2,742 | 2,538 | 5,396 | 4,836 | |||||||||||||||||||
| Total selling and administrative expense | 3,759 | 3,267 | 7,331 | 6,242 | |||||||||||||||||||
| Interest expense (income), net | 55 | 70 | 112 | 135 | |||||||||||||||||||
| Other (income) expense, net | (102) | 54 | (141) | 40 | |||||||||||||||||||
| Income before income taxes | 1,501 | 1,456 | 3,607 | 3,171 | |||||||||||||||||||
| Income tax expense | 164 | 205 | 396 | 402 | |||||||||||||||||||
| NET INCOME | $ | 1,337 | $ | 1,251 | $ | 3,211 | $ | 2,769 | |||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||
| Basic | $ | 0.84 | $ | 0.80 | $ | 2.03 | $ | 1.77 | |||||||||||||||
| Diluted | $ | 0.83 | $ | 0.78 | $ | 1.98 | $ | 1.73 | |||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | 1,582.4 | 1,573.0 | 1,582.2 | 1,567.4 | |||||||||||||||||||
| Diluted | 1,617.4 | 1,609.5 | 1,618.5 | 1,601.9 |
The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.
NIKE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| THREE MONTHS ENDED NOVEMBER 30, | SIX MONTHS ENDED NOVEMBER 30, | ||||||||||||||||
| (Dollars in millions) | 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net income | $ | 1,337 | $ | 1,251 | $ | 3,211 | $ | 2,769 | |||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||
| Change in net foreign currency translation adjustment | (155) | 78 | (283) | 396 | |||||||||||||
| Change in net gains (losses) on cash flow hedges | 366 | (103) | 804 | (761) | |||||||||||||
| Change in net gains (losses) on other | 1 | (3) | 4 | (8) | |||||||||||||
| Total other comprehensive income (loss), net of tax | 212 | (28) | 525 | (373) | |||||||||||||
| TOTAL COMPREHENSIVE INCOME | $ | 1,549 | $ | 1,223 | $ | 3,736 | $ | 2,396 |
The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.
NIKE, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| NOVEMBER 30, | MAY 31, | ||||||||||
| (In millions) | 2021 | 2021 | |||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and equivalents | $ | 10,751 | $ | 9,889 | |||||||
| Short-term investments | 4,352 | 3,587 | |||||||||
| Accounts receivable, net | 3,746 | 4,463 | |||||||||
| Inventories | 6,506 | 6,854 | |||||||||
| Prepaid expenses and other current assets | 1,822 | 1,498 | |||||||||
| Total current assets | 27,177 | 26,291 | |||||||||
| Property, plant and equipment, net | 4,812 | 4,904 | |||||||||
| Operating lease right-of-use assets, net | 3,017 | 3,113 | |||||||||
| Identifiable intangible assets, net | 265 | 269 | |||||||||
| Goodwill | 242 | 242 | |||||||||
| Deferred income taxes and other assets | 3,404 | 2,921 | |||||||||
| TOTAL ASSETS | $ | 38,917 | $ | 37,740 | |||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term debt | $ | — | $ | — | |||||||
| Notes payable | 9 | 2 | |||||||||
| Accounts payable | 2,795 | 2,836 | |||||||||
| Current portion of operating lease liabilities | 462 | 467 | |||||||||
| Accrued liabilities | 5,431 | 6,063 | |||||||||
| Income taxes payable | 160 | 306 | |||||||||
| Total current liabilities | 8,857 | 9,674 | |||||||||
| Long-term debt | 9,417 | 9,413 | |||||||||
| Operating lease liabilities | 2,835 | 2,931 | |||||||||
| Deferred income taxes and other liabilities | 2,884 | 2,955 | |||||||||
| Redeemable preferred stock | — | — | |||||||||
| Shareholders' equity: | |||||||||||
| Common stock at stated value: | |||||||||||
| Class A convertible — 305 and 305 shares outstanding | — | — | |||||||||
| Class B — 1,278 and 1,273 shares outstanding | 3 | 3 | |||||||||
| Capital in excess of stated value | 10,990 | 9,965 | |||||||||
| Accumulated other comprehensive income (loss) | 145 | (380) | |||||||||
| Retained earnings (deficit) | 3,786 | 3,179 | |||||||||
| Total shareholders' equity | 14,924 | 12,767 | |||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 38,917 | $ | 37,740 |
The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.
NIKE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| SIX MONTHS ENDED NOVEMBER 30, | ||||||||
| (Dollars in millions) | 2021 | 2020 | ||||||
| Cash provided (used) by operations: | ||||||||
| Net income | $ | 3,211 | $ | 2,769 | ||||
| Adjustments to reconcile net income to net cash provided (used) by operations: | ||||||||
| Depreciation | 358 | 361 | ||||||
| Deferred income taxes | (222) | (177) | ||||||
| Stock-based compensation | 306 | 325 | ||||||
| Amortization, impairment and other | 3 | 103 | ||||||
| Net foreign currency adjustments | 48 | (98) | ||||||
| Changes in certain work |
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
NIKE designs, develops, markets and sells athletic footwear, apparel, equipment, accessories and services worldwide. We are the largest seller of athletic footwear and apparel in the world. We sell our products through NIKE-owned retail stores and through digital platforms (which we refer to collectively as our “NIKE Direct” operations), to retail accounts and to a mix of independent distributors, licensees and sales representatives in virtually all countries around the world. Our goal is to deliver value to our shareholders by building a profitable global portfolio of branded footwear, apparel, equipment and accessories businesses. Our strategy is to achieve long-term revenue growth by creating innovative, “must-have” products, building deep personal consumer connections with our brands and delivering compelling consumer experiences through digital platforms and at retail.
Through the Consumer Direct Acceleration we are focusing on creating the marketplace of the future through more premium, consistent and seamless consumer experiences, leading with NIKE Digital and our owned stores, as well as select strategic partners who share our marketplace vision. We have aligned our product creation and category organizations around a new consumer construct focused on Men’s, Women's, Kids' and the Jordan Brand and continue to invest in data and analytics, demand sensing, insight gathering, inventory management and other areas to create an end-to-end technology foundation, which will further accelerate our digital transformation.
During fiscal 2021, we substantially completed a series of leadership and operating model changes to streamline and speed up strategic execution of the Consumer Direct Acceleration. For the three and six months ended November 30, 2021, we recognized an immaterial amount of related employee termination costs and, to a lesser extent, stock-based compensation expense. During the three months ended November 30, 2020, we recognized employee termination costs of $107 million and $30 million within Operating overhead expense and Cost of sales, respectively, and made cash payments of $67 million. For the six months ended November 30, 2020, we recognized employee termination costs of $145 million and $30 million within Operating overhead expense and Cost of sales, respectively, and made cash payments of $71 million. For all periods presented these costs were classified within Corporate. Additionally, the related stock-based compensation expense recorded within Operating overhead expense and Cost of sales was $30 million and $4 million, respectively, for the three months ended November 30, 2020, and $39 million and $4 million, respectively, for the six months ended November 30, 2020.
For more information, see Note 13 — Restructuring within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
COVID-19 UPDATE
The COVID-19 pandemic continues to create volatility in our business results and operations globally, causing us to transform the way we operate in order to better serve our consumers. Our second quarter and first six months of fiscal 2022 Revenues grew 1% and 8%, respectively, as we continued to manage the ongoing impacts of supply chain challenges across each of our geographies and Converse.
During the first quarter of fiscal 2022, the majority of NIKE Brand and Converse contract manufacturers in Vietnam and Indonesia were subject to government mandated shutdowns due to COVID-19. These closures have significantly impacted, and are expected to continue to significantly impact, our previously planned inventory production. As a result of these closures, we have lost approximately three months of production, impacting available product supply for this fiscal year. All impacted factories began re-opening in October and are currently operational. We expect it will take several months from re-opening for the factories to return to pre-closure production volumes, and there could be further impacts, including additional closures or employee absences, as a result of the emergence and spread of COVID-19 variants, as well as other factors outside of our control that could continue to cause further disruption to our planned inventory production. For fiscal 2021, 51% of NIKE Brand footwear and 30% of NIKE Brand apparel was manufactured in Vietnam, and 24% of NIKE Brand footwear and less than 12% of NIKE Brand apparel was manufactured in Indonesia.
In addition, our product availability was also impacted by extended inventory transit times in the second quarter and first six months of fiscal 2022, due primarily to port congestion, transportation delays as well as labor and container shortages. Our product availability was impacted most significantly in our wholesale channel. We also experienced higher transportation, logistics and fulfillment costs as a result of this dynamic environment, which partially offset gross margin expansion in the second quarter and first six months of fiscal 2022.
The combined impact of factory closures and extended inventory transit times disproportionately impacted our geographies during the second quarter of fiscal 2022. North America and EMEA, located further away from our sourcing base with longer transit times, entered the second quarter with elevated levels of inventory available to meet consumer demand as revenues grew 12% and 6% on a currency-neutral basis, respectively. By contrast, Greater China and APLA, located closer to our sourcing base
with shorter transit times, entered the second quarter with a lower supply of available inventory, negatively impacting revenues during the second quarter of fiscal 2022 with revenues declining by 24% and 6% on a currency-neutral basis, respectively.
We expect the combination of factory closures and elevated transit times will continue to impact product availability, leading to inventory supply significantly lagging consumer demand for the remainder of the fiscal year. In addition, we expect transportation, logistics and fulfillment costs will continue to increase as we navigate these supply chain constraints. We also expect product costs to increase in the second half of fiscal 2022 due to higher input costs. To mitigate the impact across our business, our teams are continuing to leverage our operational playbook and taking actions where we can, including shifting production capacity to other countries, strategic use of air freight and employing a seasonless approach to products. Despite these short-term dynamics, our Consumer Direct Acceleration strategy continues to drive our business towards our long-term fiscal 2025 financial goals shared in our Annual Report on Form 10-K for the fiscal year ended May 31, 2021.
Our NIKE Direct business has continued its momentum in the second quarter, fueling our growth as we continue to navigate through the pandemic by leveraging our digital platforms with our store footprint to connect directly with our consumers. Despite continued inventory constraints and supply chain challenges, NIKE Direct grew 8% and 16% on a currency-neutral basis, for the second quarter and first six months of fiscal 2022, respectively. NIKE Brand Digital revenues grew 11% and 17% on a currency-neutral basis for the second quarter and first six months of fiscal 2022, respectively. During the second quarter of fiscal 2022, we experienced an increase in comparable store sales in North America and EMEA, partially offset by declines in Greater China and APLA due to supply chain challenges as well as ongoing marketplace dynamics and a COVID-19 resurgence in Greater China. As of January 3, 2022, approximately 98% of our owned stores were open with some operating on reduced hours.
During the quarter, we continued to invest in our digital transformation and brand campaigns as the world continues its return to sport. For the remainder of fiscal 2022, we will maintain our multi-year investment plans in order to tr
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the information previously reported under Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended May 31, 2021.
Item 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our Securities Exchange Act of 1934, as amended ("the Exchange Act") reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
We carry out a variety of ongoing procedures, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of November 30, 2021.
We are continuing several transformation initiatives to centralize and simplify our business processes and systems. These are long-term initiatives, which we believe will enhance our internal control over financial reporting due to increased automation and further integration of related processes. We will continue to monitor our internal control over financial reporting for effectiveness throughout these transformation initiatives.
There have not been any changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND ANALYST REPORTS
Certain written and oral statements, other than purely historic information, including estimates, projections, statements relating to NIKE’s business plans, objectives and expected operating results and the assumptions upon which those statements are based, made or incorporated by reference from time to time by NIKE or its representatives in this report, other reports, filings with the SEC, press releases, conferences or otherwise, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “will be,” “will continue,” “will likely result” or words or phrases of similar meaning. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. The risks and uncertainties are detailed from time to time in reports filed by NIKE with the SEC, including reports filed on Forms 8-K, 10-Q and 10-K, and include, among others, the following: health epidemics, pandemics and similar outbreaks, including the COVID-19 pandemic; international, national and local political, civil, economic and market conditions; the size and growth of the overall athletic footwear, apparel and equipment markets; intense competition among designers, marketers, distributors and sellers of athletic footwear, apparel and equipment for consumers and endorsers; demographic changes; changes in consumer preferences; popularity of particular designs, categories of products and sports; seasonal and geographic demand for NIKE products; difficulties in anticipating or forecasting changes in consumer preferences, consumer demand for NIKE products and the various market factors described above; difficulties in implementing, operating and maintaining NIKE’s increasingly complex information technology systems and controls, including, without limitation, the systems related to demand and supply planning and inventory control; interruptions in data and information technology systems; consumer data security; fluctuations and difficulty in forecasting operating results, including, without limitation, the fact that advance orders may not be indicative of future revenues due to changes in shipment timing, the changing mix of orders with shorter lead times, and discounts, order cancellations and returns; the ability of NIKE to sustain, manage or forecast its growth and inventories; the size, timing and mix of purchases of NIKE’s products; increases in the cost of materials, labor and energy used to manufacture products; new product development and introduction; the ability to secure and protect trademarks, patents and other intellectual property; product performance and quality; customer service; adverse publicity, including without limitation, through social media or in connection with brand damaging events; the loss of significant customers or suppliers; dependence on distributors and licensees; business disruptions; increased costs of freight and transportation to meet delivery deadlines; increases in borrowing costs due to any decline in NIKE’s debt ratings; changes in business strategy or development plans; general risks associated with doing business outside of the United States, including, without limitation, exchange rate fluctuations, inflation, import duties, tariffs, quotas, political and economic instability and terrorism; the potential impact of new laws, regulations or policy, including, without limitation, tariffs, import/export, trade and immigration regulations or policies; changes in government regulations; the impact of, including business and legal developments relating to, climate change and natural disasters; our ability to execute on our sustainability strategy and achieve our sustainability-related goals and targets, including sustainable product offerings; litigation, regulatory proceedings, sanctions or any other claims asserted against NIKE; the ability to attract and retain qualified employees, and any negative public perception with respect to key personnel or our corporate culture, values or purpose; the effects of NIKE’s decision to invest in or divest of businesses and other factors referenced or incorporated by reference in this report and other reports.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments with respect to the information previously reported under Part I, Item 3 of our Annual Report on Form 10-K for the fiscal year ended May 31, 2021.
Item 1A. RISK FACTORS
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended May 31, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In June 2018, the Board of Directors approved a four-year, $15 billion share repurchase program. As of November 30, 2021, the Company had repurchased 60.8 million shares at an average price of $104.89 per share for a total approximate cost of $6.4 billion under this program.
All share repurchases were made under NIKE's publicly announced program, and there are no other programs under which the Company repurchases shares. The following table presents a summary of share repurchases made during the quarter ended November 30, 2021:
| PERIOD | TOTAL NUMBER OF SHARES PURCHASED | AVERAGE PRICE PAID PER SHARE | APPROXIMATE DOLLAR VALUE OF SHARES THAT MAY YET BE PURCHASED UNDER THE PLANS OR PROGRAMS (IN MILLIONS) | ||||||||
| September 1 — September 30, 2021 | 2,145,173 | $ | 156.78 | $ | 9,252 | ||||||
| October 1 — October 31, 2021 | 2,054,002 | $ | 156.20 | $ | 8,932 | ||||||
| November 1 — November 30, 2021 | 1,814,713 | $ | 171.26 | $ | 8,621 | ||||||
| 6,013,888 | $ | 160.95 |
Item 6. EXHIBITS
(a) EXHIBITS:
† Furnished herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| NIKE, INC. an Oregon Corporation | ||||||||
| By: | /s/ MATTHEW FRIEND Matthew Friend Chief Financial Officer and Authorized Officer | |||||||
| Date: | January 6, 2022 |