Digital Transformation Drives NIKE

December 21, 2018

NIKE reported fiscal 2019 financial results for its second quarter ended November 30, 2018. For the quarter, double-digit revenue growth was driven by strategic execution of the Consumer Direct Offense across all dimensions of the portfolio globally.

“NIKE’s ambitious digital transformation is driving strong results and momentum in North America and in our international geographies,” said Mark Parker, Chairman, President and CEO, NIKE, Inc. “We’re incredibly energized about 2019 – with a full innovation pipeline; the most personal, responsive retail experiences in the industry; and a supply chain that’s delivering speed at scale.”

Diluted earnings per share for the quarter were $0.52, an increase of 13 percent driven by double-digit revenue growth, gross margin expansion and a lower average share count, partially offset by higher selling and administrative expenses and a higher effective tax rate.

Investors sought earnings per share of 46 cents. Revenue came in at $9.37 billion with $9.18 billion expected.

“Amidst an increasingly dynamic macro environment, what is certain is that NIKE’s execution of the Consumer Direct Offense is driving consistently strong growth across our diverse, global portfolio,” said Andy Campion, Executive Vice President and Chief Financial Officer, NIKE, Inc. “As we continue to invest in digital transformation, we are driving consumer-centric disruption in our industry and unlocking new opportunities for growth.”*

Second Quarter Income Statement Review

  • Revenues for NIKE, Inc. increased 10 percent to $9.4 billion, up 14 percent on a currency- neutral basis.**
    • Revenues for the NIKE Brand were $8.9 billion, up 14 percent on a currency-neutral basis driven by accelerated growth across all geographies and in NIKE Direct, led by digital. Revenue grew in nearly every key category led by Sportswear with well-balanced double-digit growth across footwear and apparel globally.
    • Revenues for Converse were $425 million, up 6 percent on a currency-neutral basis, mainly driven by growth in Asia and digital.
  • Gross margin increased 80 basis points to 43.8 percent primarily driven by higher average selling prices and margin expansion in NIKE Direct, partially offset by higher product costs.
  • Selling and administrative expense increased 14 percent to $3.1 billion. Demand creation expense was $910 million, up 4 percent primarily driven by higher advertising and marketing expenses. Operating overhead expense increased 18 percent to $2.2 billion driven primarily by wage-related expenses, which reflect critical investments to drive key transformational initiatives for the Consumer Direct Offense.
  • The effective tax rate was 15 percent, which reflects the new U.S. statutory rate and implemented provisions of the U.S. Tax Cuts and Jobs Act.
  • Net income increased 10 percent to $847 million driven primarily by strong revenue growth and gross margin expansion while diluted earnings per share increased 13 percent from the prior year to $0.52 reflecting a 2 percent decline in the weighted average diluted common shares outstanding.

November 30, 2018 Balance Sheet Review

  • Inventories for NIKE, Inc. were $5.4 billion, up 1 percent compared to the prior year period, primarily driven by strong demand for key franchises and effective inventory management, resulting in healthy inventories across all geographies.
  • Cash and equivalents and short-term investments were $4.0 billion, $2.3 billion lower than last year as share repurchases, dividends, repayment of notes and investments in infrastructure more than offset net income.

Share Repurchases

During the second quarter, NIKE, Inc. repurchased a total of 16.1 million shares for approximately $1.3 billion as part of the four-year, $12 billion program approved by the Board of Directors in November 2015. As of November 30, 2018, a total of 183.3 million shares had been repurchased under this program for approximately $11.3 billion. In June 2018, the Board of Directors authorized a new four-year $15 billion share repurchase program that will commence upon the completion of the current program.

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