filings.toolsNIKE 10-Q 2022-02-28
Filed 2022-04-05. 7 sections, 221K 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 FEBRUARY 28, 2022
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 March 28, 2022, the number of shares of the Registrant's Common Stock outstanding were: | |||||
| Class A | 305,007,252 | ||||
| Class B | 1,268,760,217 | ||||
| 1,573,767,469 |
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 FEBRUARY 28, | NINE MONTHS ENDED FEBRUARY 28, | ||||||||||||||||||||||
| (In millions, except per share data) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Revenues | $ | 10,871 | $ | 10,357 | $ | 34,476 | $ | 32,194 | |||||||||||||||
| Cost of sales | 5,804 | 5,638 | 18,500 | 17,887 | |||||||||||||||||||
| Gross profit | 5,067 | 4,719 | 15,976 | 14,307 | |||||||||||||||||||
| Demand creation expense | 854 | 711 | 2,789 | 2,117 | |||||||||||||||||||
| Operating overhead expense | 2,584 | 2,330 | 7,980 | 7,166 | |||||||||||||||||||
| Total selling and administrative expense | 3,438 | 3,041 | 10,769 | 9,283 | |||||||||||||||||||
| Interest expense (income), net | 53 | 64 | 165 | 199 | |||||||||||||||||||
| Other (income) expense, net | (94) | (22) | (235) | 18 | |||||||||||||||||||
| Income before income taxes | 1,670 | 1,636 | 5,277 | 4,807 | |||||||||||||||||||
| Income tax expense | 274 | 187 | 670 | 589 | |||||||||||||||||||
| NET INCOME | $ | 1,396 | $ | 1,449 | $ | 4,607 | $ | 4,218 | |||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||
| Basic | $ | 0.88 | $ | 0.92 | $ | 2.91 | $ | 2.68 | |||||||||||||||
| Diluted | $ | 0.87 | $ | 0.90 | $ | 2.85 | $ | 2.62 | |||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | 1,579.0 | 1,578.0 | 1,581.1 | 1,570.9 | |||||||||||||||||||
| Diluted | 1,610.7 | 1,616.9 | 1,615.8 | 1,607.3 |
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 FEBRUARY 28, | NINE MONTHS ENDED FEBRUARY 28, | ||||||||||||||||
| (Dollars in millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net income | $ | 1,396 | $ | 1,449 | $ | 4,607 | $ | 4,218 | |||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||
| Change in net foreign currency translation adjustment | (6) | 98 | (289) | 494 | |||||||||||||
| Change in net gains (losses) on cash flow hedges | (29) | (117) | 775 | (878) | |||||||||||||
| Change in net gains (losses) on other | (11) | 2 | (7) | (6) | |||||||||||||
| Total other comprehensive income (loss), net of tax | (46) | (17) | 479 | (390) | |||||||||||||
| TOTAL COMPREHENSIVE INCOME | $ | 1,350 | $ | 1,432 | $ | 5,086 | $ | 3,828 |
The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.
NIKE, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| FEBRUARY 28, | MAY 31, | ||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and equivalents | $ | 8,704 | $ | 9,889 | |||||||
| Short-term investments | 4,763 | 3,587 | |||||||||
| Accounts receivable, net | 3,827 | 4,463 | |||||||||
| Inventories | 7,700 | 6,854 | |||||||||
| Prepaid expenses and other current assets | 1,968 | 1,498 | |||||||||
| Total current assets | 26,962 | 26,291 | |||||||||
| Property, plant and equipment, net | 4,806 | 4,904 | |||||||||
| Operating lease right-of-use assets, net | 2,959 | 3,113 | |||||||||
| Identifiable intangible assets, net | 291 | 269 | |||||||||
| Goodwill | 284 | 242 | |||||||||
| Deferred income taxes and other assets | 3,275 | 2,921 | |||||||||
| TOTAL ASSETS | $ | 38,577 | $ | 37,740 | |||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term debt | $ | — | $ | — | |||||||
| Notes payable | — | 2 | |||||||||
| Accounts payable | 2,770 | 2,836 | |||||||||
| Current portion of operating lease liabilities | 455 | 467 | |||||||||
| Accrued liabilities | 5,391 | 6,063 | |||||||||
| Income taxes payable | 202 | 306 | |||||||||
| Total current liabilities | 8,818 | 9,674 | |||||||||
| Long-term debt | 9,418 | 9,413 | |||||||||
| Operating lease liabilities | 2,784 | 2,931 | |||||||||
| Deferred income taxes and other liabilities | 2,748 | 2,955 | |||||||||
| Redeemable preferred stock | — | — | |||||||||
| Shareholders' equity: | |||||||||||
| Common stock at stated value: | |||||||||||
| Class A convertible — 305 and 305 shares outstanding | — | — | |||||||||
| Class B — 1,271 and 1,273 shares outstanding | 3 | 3 | |||||||||
| Capital in excess of stated value | 11,186 | 9,965 | |||||||||
| Accumulated other comprehensive income (loss) | 99 | (380) | |||||||||
| Retained earnings (deficit) | 3,521 | 3,179 | |||||||||
| Total shareholders' equity | 14,809 | 12,767 | |||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 38,577 | $ | 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
| NINE MONTHS ENDED FEBRUARY 28, | ||||||||
| (Dollars in millions) | 2022 | 2021 | ||||||
| Cash provided (used) by operations: | ||||||||
| Net income | $ | 4,607 | $ | 4,218 | ||||
| Adjustments to reconcile net income to net cash provided (used) by operations: | ||||||||
| Depreciation | 538 | 543 | ||||||
| Deferred income taxes | (234) | (291) | ||||||
| Stock-based compensation | 467 | 467 | ||||||
| Amortization, impairment and other | 6 | 33 | ||||||
| Net foreign currency adjustments | 3 | (130) | ||||||
| Changes in certain |
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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 digital and our owned stores, as well as select wholesale partners that share our marketplace vision. Over the last several years, as we have executed against the Consumer Direct Acceleration, we have grown our NIKE Direct business to be approximately 43% of total NIKE Brand revenues for the first nine months of fiscal 2022, and we have reduced the number of wholesale accounts globally. Additionally, 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 we expect 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 the strategic execution of the Consumer Direct Acceleration. For the three and nine months ended February 28, 2022, we recognized an immaterial amount of related employee termination costs and, to a lesser extent, stock-based compensation expense. During the three months ended February 28, 2021, we recognized employee termination costs of $23 million and $6 million within Operating overhead expense and Cost of sales, respectively, and made cash payments of $99 million. For the nine months ended February 28, 2021, we recognized employee termination costs of $168 million and $36 million within Operating overhead expense and Cost of sales, respectively, and made cash payments of $170 million. Additionally, the related stock-based compensation expense recorded within Operating overhead expense and Cost of sales was immaterial for the three months ended February 28, 2021, and was $40 million and $4 million, respectively, for the nine months ended February 28, 2021. For all periods presented these costs were classified within Corporate.
For more information, see Note 14 — Restructuring within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
COVID-19 UPDATE
The COVID-19 pandemic and its impacts on the global supply chain continue 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. Revenues grew 5% for the third quarter of fiscal 2022, as we continued to manage the ongoing impacts of supply chain challenges across each of our geographies and Converse. Our NIKE Direct business continued its momentum, growing 15% and 17% on a reported and currency-neutral basis, respectively, for the third quarter of fiscal 2022, led by North America, APLA and EMEA, partially offset by declines in Greater China due to a COVID-19 resurgence and ongoing marketplace dynamics. As of April 4, 2022, nearly all of our owned stores were open across North America, EMEA and APLA. In Greater China however, due to a COVID-19 resurgence, we continue to experience a higher level of temporary store closures, with some operating on reduced hours, as well as lower physical traffic versus pre-pandemic periods.
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 significantly impacted our previously planned inventory production. As a result of these closures, we lost approximately three months of production, impacting available product supply for this fiscal year. All impacted factories began re-opening in the second quarter of fiscal 2022 and globally, nearly all of our supplier base is currently operational without restrictions. While factory production is currently in line with pre-closure production levels and our future demand plans, 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 continued to be impacted by extended inventory transit times in the third quarter and first nine 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 elevated transportation, logistics and fulfillment costs as a result of this dynamic environment, which partially offset gross margin expansion in the third quarter and first nine months of fiscal 2022.
We expect elevated transit times will continue to impact product availability, leading to inventory supply significantly lagging consumer demand for at least the remainder of the fiscal year. In addition, we expect transportation, logistics and fulfillment costs will continue to remain elevated as we navigate these supply chain constraints. We also expect product costs to remain elevated 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, pricing actions 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.
During the quarter, we continued to invest in our digital transformation and brand campaigns as the world returns to sport. For the remainder of fiscal 2022, we will maintain our multi-year investment plans in order to transform our business for the future.
We continue to monitor the ongoing and dynamic impacts of COVID-19, as well as guidance from international and domestic authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. There have been and may continue to be developments outside of our control, including new COVID-19 variants, that require us to make adjustments to our operating plan, such as store operating hours and the timeline to return to normal production volumes in factories impacted by COVID-19. Such developments and other potential impacts of COVID-19, such as new or prolonged factory closures, higher inventory levels or inventory shortages in various markets, other adverse impacts on the global supply chain, revised payment terms with certain of
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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 February 28, 2022.
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 February 28, 2022, the Company had repurchased 68.9 million shares at an average price of $110.31 per share for a total approximate cost of $7.6 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 February 28, 2022:
| 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) | ||||||||
| December 1 — December 31, 2021 | 2,016,185 | $ | 167.00 | $ | 8,284 | ||||||
| January 1 — January 31, 2022 | 2,619,600 | $ | 149.40 | $ | 7,893 | ||||||
| February 1 — February 28, 2022 | 3,455,583 | $ | 143.00 | $ | 7,399 | ||||||
| 8,091,368 | $ | 151.05 |
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: | April 5, 2022 |