NIKE, Inc. (NKE) on Q4 2021 Results - Earnings Call Transcript
Operator: Good afternoon, everyone. Welcome to NIKE, Inc.’s Fiscal 2021 Fourth Quarter Conference Call. For those who want to reference today’s press release, you will find it at http://investors.nike.com. Leading today’s call is Andy Muir, VP, Investor Relations. Before I turn the call over to Ms. Muir, let me remind you that participants on this call will make forward-looking statements based on current expectations and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in the reports filed with the SEC, including the annual report filed on Form 10-K. Some forward-looking statements may concern expectations of future revenue growth or gross margin. Andy Muir: Thank you, operator. Hello, everyone and thank you for joining us today to discuss NIKE, Inc.’s fiscal 2021 fourth quarter results. As the operator indicated, participants on today’s call may discuss non-GAAP financial measures. You will find the appropriate reconciliations in our press release, which was issued about an hour ago or at our website, investors.nike.com. Joining us on today’s call will be NIKE Inc.’s President and CEO, John Donahoe; and our Chief Financial Officer, Matt Friend. Following their prepared remarks, we will take your questions. We would like to allow as many of you to ask questions if possible in our allotted time. So we would appreciate you limiting your initial questions to one. In the event, you have additional questions that are not covered by others, please feel free to re-queue and we will do our best to come back to you Thanks for your cooperation on this. I will now turn the call over to NIKE, Inc.’s President and CEO, John Donahoe. John Donahoe: Thanks Andy, and hello to everyone on today’s call. Looking at Q4 and the full fiscal year we just concluded, our strong business results proved yet again NIKE’s unique competitive advantage. Our relentless focus on our objectives is clear and our strategy is working. We are excited by the momentum we continue to see. In Q4, we saw growth of over 95%, which translates to 19% growth for the fiscal year. This full-year growth was led by our own digital business, which has now more than doubled versus fiscal ‘19 prior to the pandemic. I’ve said before that these are times when strong brands can get stronger. And each quarter, this reality becomes even more clear. Today, we are better positioned to drive sustainable long-term growth than we were before the pandemic. Our team has proven their ability to be unrelenting and executing against the macro complexities while also building the future. We saw broad-based growth this quarter led by North America at over 140%. Greater China’s currency-neutral growth of 9% was impacted amidst marketplace dynamics with improving trends as we exited the quarter. One of NIKE’s strengths is our diverse global portfolio. And through the power of that portfolio, we once again over delivered on our expectations for the quarter. Matt Friend: Thank you, John, and hello to everyone on the call today. Before I begin my prepared remarks, I too want to take a moment to thank our incredible team. They have delivered extraordinary results over the past year. I also want to take a moment and recognize Andy Muir. This will be her last earnings call as Vice President of Investor Relations after recently becoming CFO of our Jordan Brand. Thank you, Andy, for your leadership and specifically for your support in my transition to CFO last year. I wish you the best of luck in your new role. I know you’ll do great. And backfilling Andy in this role is Paul Trussell, who many of you already know. Paul joins us from Deutsche Bank, and we’re excited to welcome him to the NIKE team. Now I’d like to begin today’s call with a baseline on where we are in our recovery. Just as we anticipated, NIKE is emerging from the pandemic stronger and better positioned to serve the consumer. And the reason for this is clear, NIKE’s Consumer Direct Acceleration is fueling a deeper consumer connection with our brands and driving business results, all while highlighting greater strategic and financial opportunity ahead. Over the past 15 months, we have navigated through this challenging environment with outstanding execution of our operational playbook. We have faced every challenge head-on, focused on what we could control, all while keeping the consumer at the center. These actions have helped set a strong foundation for sustainable growth and profitability, with business performance now exceeding pre-pandemic levels. In the fourth quarter, we delivered over $12 billion of reported revenue, our largest quarter ever. Our NIKE Direct business is now approaching 40% of total NIKE Brand revenue. NIKE Digital represents 21% of total NIKE Brand revenue, a milestone we’ve reached several years ahead of our prior plan. And finally, our fiscal ‘21 EBIT margin reached 15.5%, reflecting more than 300 basis points of expansion when compared to fiscal ‘19. These metrics now become the new baseline from which we expect to grow. As we recover from the global pandemic, it is clear that our Consumer Direct Acceleration strategy is transforming NIKE’s financial model. So later on the call, I will share our financial outlook through fiscal year ‘25, reflecting a more direct, member-centric business model. However, first, I would like to provide additional detail on our extraordinary fourth quarter results and operating segment performance. NIKE, Inc.’s revenue increased 96% and 88% on a currency-neutral basis. This was driven by strong wholesale shipments and NIKE owned store performance as we anniversary pandemic-related store closures. Even as physical retail reopened, we continued to see strong growth in NIKE Digital of 37% versus the prior year. Gross margin increased 850 basis points versus the prior year driven by favorable NIKE Direct margins and the anniversary of higher costs, including actions taken to manage supply and demand in the face of the COVID-19 pandemic. SG&A grew 17% versus the prior year due to higher levels of brand activity connected to return of sport, digital marketing to drive digital demand, technology investments to support our digital transformation and higher wage-related expenses. Our effective tax rate for the quarter was 18.6% compared to 1.7% for the same period last year due to decreased benefits from discrete items in the prior year and a shift in earnings mix, primarily related to pandemic recovery. Fourth quarter diluted earnings per share was $0.93 and full year diluted earnings per share was $3.56, up 123% versus the prior year. Now let’s move to our operating segments. In North America, Q4 revenue grew 141%. This also marked the first-ever $5 billion quarter for North America driven by notable improvement in full price sell-through as the marketplace reopened and sport activity returned. Demand for NIKE remained incredibly strong. And as we expected, delayed revenue from the global supply chain disruption in the third quarter was recaptured during the fourth quarter. NIKE Direct grew over 120% as NIKE owned stores returned to positive sales growth versus pre-pandemic levels. More importantly, NIKE Digital grew over 50%, while physical traffic continued to improve across the marketplace. NIKE Direct performance was propelled by our members across both digital and physical retail. Member demand nearly doubled versus the prior year, and the number of buying members grew roughly 80%. Across the total marketplace, we continue to see strong retail sales growth and consumer demand for our brands exceeding marketplace supply with marketplace inventory down double digits versus the prior year. NIKE owned inventory declined 7% with double-digit declines in closeout inventory. In-transit full price inventory remains elevated as we continue to experience longer end-to-end lead times for supply. We expect supply chain delays and higher logistics costs to persist throughout much of fiscal ‘22. In EMEA, Q4 revenue grew 107% on a currency-neutral basis with strong growth across the region, including the UK and Ireland, France, Germany and Italy. NIKE Direct grew 57% despite government restrictions requiring nearly half of our NIKE owned stores to remain closed for the first 2 months of the quarter. In May, as restrictions eased, we saw a strong consumer response with incredible pent-up demand, and this momentum has continued into June. NIKE Digital grew nearly 30% versus the prior year. Through our member days, we saw strong engagement with member demand outpacing total NIKE Direct revenue growth with all-time highs for female active members during Air Max week. In the fourth quarter, we also expanded the NIKE mobile app to more than 10 new countries across the region. During our last earnings call, I shared our expectation that inventory in EMEA would normalize in the first quarter of fiscal ‘22. We have exceeded that goal due to stronger-than-anticipated consumer demand, ending fiscal ‘21 in a healthy and normalized inventory position. In Greater China, Q4 revenue grew 9% on a currency-neutral basis. For the full year, Greater China delivered its 7th consecutive year of double-digit growth, demonstrating our consistent brand strength and commitment to serving the consumer. NIKE Direct grew 2% in Q4, with strong growth in NIKE owned stores, partially offset by declines in NIKE Digital. As John mentioned earlier, Q4 business results were impacted by marketplace dynamics. After a strong March, our business in Greater China was impacted in April, and we adjusted our operations by suspending marketing activities and product launches. We then began to see a recovery trend, improving to a single-digit decline in May and sequentially improving into June, with month-to-date retail sales trends approaching prior year levels. And for the 6/18 consumer moment, our flagship store on Tmall ranked number one, driving the highest demand across the sports industry. Building on our 40-year history in Greater China, we continue to invest in serving consumers with the best products Nike has to offer in locally relevant ways. We also continue to invest in the creation of a premium, seamless consumer digital experience and supply chain capabilities. And we plan to open a new digital technology center in Shenzhen to better serve Chinese consumers. We have an experienced local team in Greater China who helped create our operational playbook at the beginning of the pandemic. They have proactively managed marketplace supply and demand in order to navigate through these dynamics, and we expect inventory to be normalized by the end of Q2. Now moving to APLA, Q4 revenue grew 76% on a currency-neutral basis, with growth across all territories led by Japan, SOCO and Mexico. And Korea grew double digits this quarter on top of the 8% growth they delivered in the fourth quarter of last year. NIKE Digital grew more than 50%, enabled and amplified by our membership offense. This was highlighted by member days, which drove all-time highs for member demand. This momentum also extended to our marketplace partners in APLA as they return to growth versus pre-pandemic levels and achieved their highest level of full price realization since the beginning of the pandemic. During Golden Week in Japan, the Express Lane assortment was heavily influenced by member insights and delivered a sell-through rate that was 2x the rate of the rest of NIKE Digital in Japan, showcasing the power of blending art and science that John referenced earlier. APLA was the last geography to launch our Express Lane offense, and we see significant opportunity to leverage these capabilities to drive deeper, authentic consumer connections across the region. Now as we look ahead to fiscal ‘22 and beyond, I want to provide a new financial outlook through fiscal ‘25. As we emerge from the pandemic, accelerate our consumer direct strategy and transform the operating model of the company. First of all, NIKE is a growth company, and we expect to sustain strong revenue growth going forward. This is based on the significant market opportunity that we see for our brands across the portfolio as well as our accelerated shift to a more direct member-centric business model. As a result, we expect revenue growth to inflect upwards to a range of high single-digit to low double-digit growth on average with outsized marketplace opportunities in women’s, apparel, Jordan, digital and international. Growth will be led by NIKE Direct and our strategic marketplace partners. Earlier, I mentioned NIKE Direct is approaching 40% of our brand business today, and we expect it to represent approximately 60% of the business in fiscal ‘25, led by growth in digital. And as John said earlier, we expect owned and partnered digital to achieve 50% business mix in fiscal ‘25 with NIKE owned digital to represent 40% of the business. We will continue reshaping our wholesale business portfolio, which includes divesting from undifferentiated retail while investing in our strategic wholesale partners for healthy growth. Overall, we expect wholesale revenue to remain roughly flat versus fiscal ‘21. We will support partners who continue to authenticate our brand as well as those who have the scale to create a consistent, premium, digitally connected experience for consumers across the marketplace. Our longer term revenue outlook reflects higher growth expectations across several operating segments. We will continue to leverage the power of our diverse global portfolio. And we expect, on average, North America to grow mid-single to high single digits, EMEA to grow high single digits and APLA to grow low double digits. And with respect to Greater China, while marketplace dynamics still exist, we are optimistic that we can continue to grow low to mid-teens over the long-term. We remain committed to investing in the local consumer experience and inspiring the next generation of athletes in China. We will continue to serve consumers with NIKE’s performance innovation and sports style product franchises, while also increasing local customization of style and fit for consumers. For several quarters now, I’ve highlighted that the strategic and financial benefit of shifting to a higher mix of business through NIKE Direct led by digital and leveraging enhanced data and analytics capabilities to optimize inventory, drive higher full price realization and lower digital fulfillment costs. We now see gross margin rate reaching the high 40s by fiscal ‘25. We will continue to reallocate resources and invest to enable our digital transformation and fuel the long-term growth and profitability opportunities that we see. Having said that, we expect to invest in SG&A at a rate that drives leverage versus pre-pandemic levels, which averaged roughly 32% to 33% of revenue. As a result of all of these, we see our EBIT margin reaching high teens by fiscal ‘25 with earnings per share growth of mid- to high teens on average over this period. As we drive towards a more direct business model, we remain committed to create long-term value for our shareholders through serving consumers and sustaining our disciplined financial management. We expect to deliver strong growth in free cash flow, maintain annual capital expenditures at roughly 3% of revenue, drive returns on invested capital above prior guidance of the low 30% range and deliver consistent returns to shareholders through dividends and share repurchases. Now that I’ve discussed our updated financial outlook through fiscal ‘25, I will provide guidance for fiscal ‘22. As I’ve already said, we entered the fiscal year strong, confident that our deep consumer connections and brand momentum will continue despite being in a dynamic operating environment. Our confidence is rooted in the fact that consumers in key cities rate NIKE as their favorite brand, that retail sales continue to grow strongly on lean marketplace inventory and our organization is aligned against our new consumer construct, which will help us accelerate even faster against our largest growth opportunities. In fiscal ‘22, we expect revenue to grow low double digits and surpass $50 billion, reflecting strong consumer demand across our operating segments as we lead with digital, scale NIKE owned physical retail concepts and grow with our strategic partners. It’s important to note, as we normalize our post-pandemic business and continue to reshape the marketplace we do not expect quarter-by-quarter growth to be linear. Therefore, we expect first half growth to be slightly higher than second half growth. We expect gross margin to expand 125 to 150 basis points, reflecting our continued shift to a more profitable NIKE Direct business and sustained strong full price realization, partially offset by higher product costs, supply chain investments and the annualization of certain one-time benefits in fiscal ‘21. Foreign exchange is estimated to be a tailwind of roughly 70 basis points. We expect SG&A growth to slightly outpace revenue growth as we normalize spend with return to sport and more consistent store operating schedules as well as investments focused against our largest growth opportunities, which I have shared previously. However, we do expect leverage relative to pre-pandemic rates of investment. And last, we expect the fiscal ‘22 effective tax rate to be mid-teens. As we begin our next fiscal year, NIKE continues to navigate through a dynamic and rapidly changing environment. At the same time, we are on the offense and accelerating our strategy to serve more consumers personally and at scale. Our unmatched innovation continues to enable world-class athletes to reach new levels of performance as sport returns to the main stage. Our product pipeline is strong, and we are even more deeply connected to consumers than before the pandemic. We are building upon the strong foundation we set in fiscal ‘21 and accelerating our pace for the next leg of the race. We have a clear vision for our brand’s long-term future, and we are focused on what it will take to get there. With that, we will now open up the call for questions. Operator: Your first question comes from the line of Bob Drbul with Guggenheim Securities. Bob Drbul: Yes. Good afternoon, and Paul Trussell, congratulations. And Andy, best of luck, and thanks for all the information today. I guess the first question that I have, can you spend a little more time on China? Exactly – I mean you gave us a lot of detail around how it’s progressing. I guess I would be curious just to hear, when you think about the inventories and you think about how you are planning the next few quarters from a flow perspective, if you could give us a little more color just how you would plan China on the revenues, I guess either quarterly or just for the year based on the trends? Thanks. Matt Friend: Sure, Bob. And hello, and thanks for the question. As we think about the dynamics that we are managing through in China right now, we are optimistic as we continue to see improvement sequentially each month. As we think about fiscal ‘22 and the guidance we provided, we are planning for continued recovery throughout fiscal year ‘22, but we don’t expect it to be linear. And what I would say is, longer term, we are optimistic given our history of operating in China and our connections and relationship with consumers that over the long term we will be able to deliver low-to-mid teens growth. Bob Drbul: Great. And I just have a question sort of – I guess it will be a North American question as a follow-up. But with LeBron out and KD out, you still have Giannis, and I just wondered if you think this is his year and you think he can bring the trophy home. John Donahoe: Well, we certainly hope so. If not LeBron, Devin Booker and if not Devin Booker, Paul George or many of the other NIKE athletes, and what’s been one of the – just one of the great NBA Playoffs, I know we have all enjoyed the game. It’s so great the sport is back. It’s so great that the stands are full. So, the excitement that we feel with the entire NBA and frankly, all the great sport going on right now is palpable. Bob Drbul: Great. Thank you very much. John Donahoe: Thanks Bob. Operator: Your next question comes from the line of Kimberly Greenberger with Morgan Stanley. Kimberly Greenberger: Great. Thanks so much, and thanks so much for the outlook here through 2025. There is a noticeable sort of inflection in the business that you are calling for here, and I can just hear the enthusiasm. So, I wanted to just ask about what are the sort of key underpinnings that’s giving you confidence in the acceleration in the growth rate. And where do you see basically the support for this level of acceleration? What’s driving that? Matt Friend: Sure, Kimberly. Well, as we have talked about throughout this year, we have continued to see the way that we have gotten closer to the consumer creating deeper connections, and as we look at how our brand is positioned around the world, we continue to be very optimistic with what we see. That’s translated into very strong retail sales growth throughout the year. And in many circumstances, we have seen demand outstripping supply. As we think about the future, especially as we exit ‘21 and we move forward to ‘22, there are definitely specific things that give us optimism and confidence. John just mentioned one of them, which is the return to sport, and we are already starting to see an acceleration in our sport performance business. We are excited about the connections that we are driving from a digital perspective, especially as physical retail reopens. We believe that is a sticky shift that will continue, and that’s embedded in our guidance for ‘22 and also the longer-term outlook that I provided for you. And that shift of – a 20-point mix shift in direct is definitely an inflection from a revenue – it creates an inflection from a revenue perspective. And then lastly, I would say that we continue to talk about the significant opportunities that we see more broadly in the marketplace. And while we have had momentum, and we continue to see those dimensions of business outstrip the growth of the rest of the business, the opportunity is still significant relative to our share in those specific areas. And so, what I am referring to there is our women’s business and the opportunity we see in front of us, the apparel business and the opportunities that we see there, and then the momentum that we have with the Jordan Brand, in particular, and the opportunities that we see for that brand both in North America, but in international markets as well. Kimberly Greenberger: Very clear and so exciting. Thank you. Operator: Your next question comes from the line of Matthew Boss with JPMorgan. Matthew Boss: Great. Thanks. Congrats on a really nice quarter and a really great hire. So John, maybe on the digital transformation, could you help outline what you think most differentiates your digital strategy to continue to build the marketplace leadership? And Matt, maybe with that, could you just help walk through the profitability of the digital channel as it relates to the algorithm that you outlined and maybe which line items it’s most impacting? John Donahoe: Well, sure, Matthew. The first thing, never look a wonderful tailwind in the eye or look away from one. So, we have got a – there is a fundamental shift in consumer behavior toward digital. And that’s been happening, but the pandemic has simply accelerated that. And that provides the opportunity for us to have a direct connection with consumers, which is increasingly important in a digital world where consumers, while they are going more digital are focusing on fewer and fewer apps. And we are going to be one of the very few apps that have a direct connection with consumers, and that’s unlocking great growth. That’s unlocking growth in our ability to serve them with more personalized shopping experiences, with recommendations across our vast product portfolio with services and other ways to engage them like NIKE Run Club, NIKE Training Club. So, we think we are one of the very few in our industry that will be able to establish that direct connection with consumers both around commerce, but also engage them on a weekly, monthly, quarterly basis. And then that produces great consumer insight, and that consumer insight has a bit of a virtuous cycle. The more you have of it, the more you can use it. You can use that consumer insight as I said earlier on, personalizing a recommendation or anticipating a need on replenishing a product when you know they are going to need it. It also drives efficiency in our operations, right. We talk about building a digital supply chain. What that’s all about is having the intelligence to know, having the right product in the right place at the right time, so that we can deliver that product at a low-cost, convenient, and speedy and a climate-friendly way. And last, but not least, that insight – consumer insight helps fuel product creation. I mean the more we know about our consumers, the more we can build the kind of compelling product that they want and need. And so, we feel like – as Matt said, there is a virtuous cycle by embracing our digital transformation as aggressive as we are. We think we can create competitive separation. And so – and we still – we think it’s going to be a journey that has continuous improvement and continuous ROI and benefits along the way. Matt Friend: Yes. And I would just add that the NIKE App or our app ecosystem continues to have a significant impact, and we are continuing to invest in the consumer experience in order to take advantage of the consumers’ interest and appetite in engaging with our brand in that way. The app actually represents about 40% of our digital business at this point in time, and we are planning to launch the NIKE App in 10 more countries in fiscal year ‘22. As I think about the financial model, Matt as you asked, I sort of answered in my question to Kimberly, which is this shift to digital and that direct sale to the consumer is definitely causing us confidence to inflect our revenue outlook upwards as a first point. The second point I would say is that as we have continued to see over the past several quarters and really, if you sort of look through the pandemic, it’s really over the last 3 years as we have been seeing more and more business being done through direct and digital. We have been talking about how that shift in mix has enabled us to drive and increase our gross margin expansion versus historical levels of gross margin expansion. And so that’s what’s embedded in that high-40s guidance outlook. It’s continuing to shift to more direct business. And then within that direct business, we continue to see opportunities like I referenced, leveraging data and analytical capabilities, so digital transformation-type capabilities to know where to place our inventory, how to fulfill demand closer to the consumer, whether it’s through our stores or through our regional service centers, how to think about pricing based on the way inventory is flowing and then continued demand and supply management. And then I guess the last thing I would say is that the way that we framed our SG&A guidance is that we feel confident that as we look at the transformation that’s taking place in our business over the next 4 years that at that level of SG&A investment, which is better than where we were in the pandemic, we can fund the investments that we need to fuel this growth and sustain the opportunity that we have in front of us. Matthew Boss: Congrats on the momentum and the new multiyear model. Matt Friend: Thanks. Operator: Your next question comes from the line of Erinn Murphy with Piper Sandler. Erinn Murphy: Great. Thanks. Good afternoon. I guess a follow-up question for the team on the China marketplace. Bigger picture, just with the accelerating growth of late and some of the national athletic brands, can you just share how you are thinking about NIKE’s market share potential as you work through the 2025 plan within China specifically? And then secondly, if I could just ask on the women’s business, it hit over $8.5 billion in this fiscal year. Could you just share kind of what your expectation is in the plan by 2025 and just the role you see some of the smaller footprint stores and the suite of apps you have developed playing in the progression there? Thank you so much. John Donahoe: Sure. Matt, why don’t I take the first part and then maybe you take the second part of Erinn’s question? Matt Friend: Sure. John Donahoe: So Erinn, bottom line, we are confident about what we are seeing in China as we drive long-term growth. And we have a long-term view about China. And we have always taken a long-term view. We have been in China for over 40 years. Phil invested significant time and energy in China in the early days. And today, we are the largest sport brand there, and we are a brand of China and for China. And the biggest asset we have in China is the consumer equity. Consumers feel a strong, deep connection to the NIKE, Jordan and Converse brands in China. And it’s real. I saw that in my first week here, can’t wait to get back there. And it’s strong. And that’s brought to life on streets all over China through the over 7,000 mono-brand stores we have in China. So, we have a strong consumer franchise in China, and they feel very connected to our brand. And so we are going to continue to invest. We will continue our long-term investment in China whether it’s through the Express Lane, which allows us to have local product insights, so design and deliver with speed and agility or we are localizing our tech stack. Matt mentioned we are opening a new digital technology center in Shenzhen. And we are going to invest for the long-term, and we are encouraged by the momentum and we have confidence in the future. It’s interesting. We have been the #1 sports brand in Tmall for a decade, and we are still #1 today once we open back up on it. Over the last month, we have added 1 million new members on Tmall through the 6/18 shopping holiday. And so we are focusing on what we can control. We are confident of our momentum and our position. And we will – as Matt outlined, we feel confident about our long-term growth in China. Matt Friend: Yes. And I will just jump in, Erinn, on women’s. We – this might sound interesting, but we are the largest women’s athletic brand in the world today at $8.5 billion. And we are very bullish on the opportunity for women’s. We have been talking about it for several years. And it starts by what John said on the call, which is that the main purpose of our realigning our organizational structure was to try to amplify the investment at multiples of where we were previously investing against our women’s business. And those investments are end-to-end, from specific innovation and the way we invest in innovation to the way we are investing in product creation, to the way that we are now investing in the marketplace through our NIKE Live concepts. And our NIKE Live stores are almost 50% women’s sales, which are more than 15 points ahead of our other stores in terms of women’s proportion of the revenue. And so it’s definitely embedded and underlying our revenue outlook. And I would tell you that we expect to see women’s outpace other elements of our business as we invest and drive against the long-term opportunity. Erinn Murphy: Great. That’s super helpful, and congratulations to all. Operator: Our next question comes from the line of Omar Saad with Evercore. Omar Saad: Thanks for taking my question. Great quarter. Congrats to everyone. High-teens operating margin target really is a huge breakout from historical trend and a lot of the long-term guidance that you guys have given over the years. Clearly, technology and NIKE’s digital excellence is really the root of this kind of transformation we have all been talking about. I would love to hear – I saw that Converse continues to improve. I would love to hear you talk about how you are using that digital advantage and applying it at Converse. Is Converse starting to generate some of the benefits of these incredible technologies that you have developed under the Jordan and NIKE halo? I would love to hear more on those lines. Thanks. John Donahoe: Well, the short answer, Omar, is yes. I mean we are blessed with this wonderful portfolio of brands; Nike, Jordan and Converse. And they are additive. That’s what’s so striking is, while there is some consumer overlap, the role that each plays is additive in the eyes of the consumer. And so Scott and the Converse team are doing a great job of connecting with a distinct consumer and expanding – it’s much like the Jordan playbook – expanding beyond just historical icons like the Chuck and bringing new design, new dimension to the product there. In fact, it’s the fastest-growing part of their portfolio. We just had an operating review a couple of weeks ago and was really striking to see how they are extending that brand into both performance product into new ways to leverage that Converse brand and the product line as well as getting into apparel and going global. And so their digital capabilities are growing to have their own, as you know, in addition to being able to get to them on the NIKE website, and get to them on their own website. And their digital business is growing at very comparable levels as NIKEs are and Jordans are around the world. And so we see a lot of upside in the Converse opportunity and the Converse brand. Matt Friend: Yes. And we think that digital is going to play a really important role for Converse as they reshape the composition of their own marketplace. And so that’s what’s been driving growth for the last couple of quarters or for the last eight quarters, and it’s continued to help us as they create that direct connection with consumers as well. Omar Saad: Got it. Thanks. Andy Muir: Operator we have time for one more question. Operator: Thank you. Your last question comes from the line of Adrienne Yih with Barclays. Adrienne Yih: Good afternoon. Thank you very much. Congratulations on the quarter and congratulations to Andy and Paul. My question is, Matt, on the $50 billion or greater than $50 billion for the out-year for fiscal ‘22, what is the expectation for China in that number? And I guess more specifically, in what quarter can we – or half of the year perhaps – can we expect to see China return to perhaps pre-pandemic trend rate? And which channel is going to be the most predictive: wholesale or direct/digital? Thank you very much. Matt Friend: Well, Adrienne, the – our FY ‘22 guidance reflects the optimism and the momentum that we are seeing across our full portfolio, brands and different geographies. As I mentioned on China, we are optimistic and encouraged based on the sequential improvements that we are seeing, so our business was impacted in April. It was down single digits in May, but improving, and approaching prior year levels in these first 3 weeks of June. Obviously, the 6/18 consumer moment gives us optimism as we continue this recovery. And we are planning for recovery throughout fiscal year ‘22, but we don’t expect it to be linear. Adrienne Yih: Okay. Thank you very much. Andy Muir: Thank you, Adrienne. Thanks, everyone, for joining us today. We look forward to speaking to you next quarter. Take care and stay safe. Operator: Ladies and gentlemen, this concludes today’s conference call. We thank you for your participation. You may now disconnect.
Nike Inc. Earnings Report Analysis
- Nike Inc. (NYSE:NKE) exceeded EPS expectations with $1.01 against the forecasted $0.83, showcasing strong profitability.
- Revenue fell short at $12.61 billion versus the expected $12.86 billion, indicating a sales performance and market expectation mismatch.
- Analysts highlight challenges in market position and strategy, necessitating a strategic overhaul amidst tough competition and consumer preference shifts.
Nike Inc. (NYSE:NKE), a global leader in athletic footwear and apparel, recently reported its earnings, revealing a mixed picture of its financial health and market position. With an earnings per share (EPS) of $1.01, Nike exceeded analysts' expectations, which had been set at $0.83. This performance indicates a strong profitability on a per-share basis, showcasing the company's ability to generate earnings above what was anticipated by the market. However, the company's revenue of $12.61 billion, falling short of the estimated $12.86 billion, suggests a slight disconnect between sales performance and market expectations.
The backdrop of Nike's recent earnings report is a broader narrative of challenges and competition within the athletic wear sector. As highlighted by Travis Hoium in a video analysis for The Motley Fool, Nike has faced significant headwinds, including weak earnings and guidance, and a concerning lack of momentum in its core shoes and apparel sectors. This downturn is particularly alarming as competitors strengthen, challenging Nike's dominance in the market. The analysis underscores a potentially difficult path ahead for Nike, emphasizing the need for strategic adjustments to regain its footing.
Further complicating Nike's situation, RBC Capital analyst Piral Dadhania has adjusted his outlook on the company, maintaining a Sector Perform rating but lowering the price target from $100 to $75. This revision reflects concerns over Nike's market and product transition risks, suggesting a period of adjustment and potential vulnerability. Dadhania's analysis points to a "Fragmentation Hypothesis," indicating a shift in consumer preferences away from Nike's traditional strengths. This, combined with tougher competition, creates a challenging environment for Nike, necessitating a significant overhaul of its product lines and market strategy.
The financial metrics of Nike also paint a detailed picture of its valuation and financial health. With a price-to-earnings (P/E) ratio of 19.91, Nike is seen by investors as a company worth investing in, despite the challenges it faces. The price-to-sales (P/S) ratio of 2.21 and the enterprise value to sales (EV/Sales) ratio of 2.25 further highlight the company's market valuation in relation to its sales. Additionally, the enterprise value to operating cash flow (EV/OCF) ratio of 16.38 indicates how the market values the company's cash flow from operations. These financial ratios, combined with a debt-to-equity (D/E) ratio of 0.65 and a current ratio of 2.40, suggest that Nike, while facing significant challenges, maintains a solid financial foundation with the potential for strategic recovery and growth.
In summary, Nike's recent earnings report and the subsequent analysis by industry experts and financial analysts reveal a company at a crossroads. Despite outperforming earnings expectations, revenue shortfalls and broader market challenges highlight the need for strategic reassessment and adaptation. Nike's financial health, as indicated by its valuation ratios and debt management, provides a foundation for potential recovery. However, the company must navigate the complexities of market and product transitions carefully to maintain its leadership position in the competitive athletic wear industry.
Nike Shares Fall 14% After Q2 Earnings Report, Prompting Number of Downgrades
Nike (NYSE:NKE) announced its second-quarter earnings on Thursday, surpassing earnings estimates but falling short on revenue and margins, signaling potential challenges for the sportswear company. Following the announcement, Nike shares dropped more than 14% in pre-market today.
The company reported an EPS of $1.01 on revenue of $12.61 billion. Analysts had expected EPS of $0.84 on revenue of $12.86 billion. Inventory levels decreased by 11% to $7.52 billion from the previous year, which was below the projected $7.99 billion.
Nike's gross margin rose by 130 basis points to 44.7%, but still fell short of the expected 45.3%.
Looking forward, Nike acknowledged that its Q4 performance highlighted challenges, prompting an update to its fiscal 2025 outlook. Following the announcement, several Wall Street analysts downgraded their rating on Nike, including Raymond James, JPMorgan, UBS, Stifel, and Morgan Stanley.
Nike Inc. Receives New Price Target from Oppenheimer
- Brian Nagel from Oppenheimer upgrades Nike Inc.to Outperform with a new price target of $120, indicating a potential increase of about 25.56%.
- Nike is set to provide a significant investor update on June 27, which is highly anticipated by the market for insights into the company's strategic directions.
- The stock has shown volatility over the past year, with prices ranging from a low of $88.66 to a high of $123.39, reflecting the dynamic market conditions.
On June 21, 2024, Brian Nagel from Oppenheimer set a new price target for Nike Inc. (NYSE:NKE) at $120, suggesting a potential increase of about 25.56% from its current price of $95.57. This optimistic forecast was upgraded to Outperform from Perform, as reported by TheFly, indicating strong confidence in Nike's future performance. Nike, a leading global brand in athletic footwear and apparel, is closely watched by investors for its market movements and strategic decisions.
The anticipation for Nike's performance is further heightened by the announcement of a significant investor update scheduled for June 27. This event is expected to provide valuable insights into Nike's strategic directions and could be a pivotal moment for the company's stock. According to a contributor on The Motley Fool, this update comes at a crucial time when the market's eyes are fixed on Nike, especially considering the stock's recent movements. On June 18, 2024, Nike's stock price saw an increase of 0.79, a change of approximately 0.83%, trading within a daily range of $93.52 to $96.09.
Nike's stock has experienced fluctuations over the past year, with prices ranging from a low of $88.66 to a high of $123.39. This volatility reflects the dynamic nature of the market and the various factors influencing Nike's valuation. With a market capitalization of approximately $144.21 billion and a trading volume of about 9.26 million shares, Nike stands as a significant player in the industry. The upcoming investor update is likely to shed light on the company's future plans and could influence investor sentiment towards the stock.
Given the current market position of Nike and the optimistic outlook provided by Oppenheimer, investors are keenly awaiting the June 27 update. This event could potentially validate the positive projections and offer a clearer picture of Nike's trajectory. As the market anticipates this update, the recent stock price movements and the overall performance of Nike will be crucial factors for investors to consider.
Nike Resumed With Buy Rating at Deutsche Bank
Deutsche Bank analysts resumed coverage on Nike (NYSE:NKE) stock with a Buy rating and a price target of $115, noting they believe Nike is making significant strides to transform its business, embarking on a multi-year innovation cycle expected to boost top-line trends and gain market share.
The analyst sees a compelling risk/reward profile at current levels, with Nike's relative P/E near a 10-year low. Although the turnaround will take time, with a guided low single-digit sales decline in the first half of 2025.
The analysts remain optimistic about Nike's innovation ramp-up ahead of the Paris Olympics, a strategic shift back to wholesale to better scale new products and regain shelf space, and strong relationships with key partners.
Expectations have been reset in anticipation of Nike's first Investor Day in seven years this fall, with consensus modeling a mid-single-digit sales growth CAGR versus the long-term plan of high single-digit to low double-digit growth.
The analysts also see further potential for gross margin improvement from factors such as recaptured freight costs, limited recaptured promotions, and lower product costs. Additionally, there is potential upside from margin recovery in China, which currently lags pre-COVID levels by 670 basis points and accounts for 15% of sales.
Nike Beat Q3 Results, But Shares Plunge on Expected Revenue Drop
NIKE (NYSE:NKE) announced third-quarter earnings that surpassed expectations, with enhanced margins and robust performance in its North America business contributing to its success.
In the quarter ending February 29, Nike achieved adjusted earnings of $0.98 per share and generated $12.43 billion in revenue, exceeding the expectations of analysts who had predicted earnings of $0.76 per share and $12.27 billion in revenue.
Sales in North America experienced an 18% increase compared to the same quarter last year, while sales in China, a crucial market for Nike, rose by 3%. This growth helped balance a 6% sales decrease in the Europe, Middle East, and Africa region.
The company's gross margin saw a 150 basis point improvement, reaching 44.8%, attributed to increased prices and reduced costs for ocean freight and logistics.
Despite the positive results, shares dropped nearly 7% on Friday as the company warned of a revenue decline in the first half of 2025. The sportswear giant is reducing its franchise operations as part of a cost-saving measure. The company also recognized that its direct-to-consumer approach has not been as effective in driving growth as anticipated, and it is facing challenges in the running category, with emerging brands capturing a larger market share.
Nike Slashed to Sell at Williams Trading
Williams Trading analysts downgraded Nike (NYSE:NKE) to Sell from Hold, reducing the price target from $92 to $85.
The analysts explained the downgrade by highlighting a shift in Nike's operational approach, noting the company's move away from its previously self-critical nature. They criticized the company's leadership for being overly rigid and not open to diverse opinions.
Additionally, the analysts observe that financial objectives are overshadowing merchandising strategies, diverging from the innovative spirit that propelled Nike's growth.
With Nike set to announce its Q3/24 earnings on March 21, the analysts anticipate a shortfall in performance and a potential reduction in the fiscal 2024 outlook. The analysts argue that Nike's valuation no longer justifies its historic premium due to declining franchise vitality.
The analysts identify several factors contributing to Nike's challenges, including underperforming new releases, prioritization of sales over brand integrity, insufficiently compelling product innovations, and an overestimation of market reception for new styles like the upcoming AirMax DN.
Nike Slashed to Sell at Williams Trading
Williams Trading analysts downgraded Nike (NYSE:NKE) to Sell from Hold, reducing the price target from $92 to $85.
The analysts explained the downgrade by highlighting a shift in Nike's operational approach, noting the company's move away from its previously self-critical nature. They criticized the company's leadership for being overly rigid and not open to diverse opinions.
Additionally, the analysts observe that financial objectives are overshadowing merchandising strategies, diverging from the innovative spirit that propelled Nike's growth.
With Nike set to announce its Q3/24 earnings on March 21, the analysts anticipate a shortfall in performance and a potential reduction in the fiscal 2024 outlook. The analysts argue that Nike's valuation no longer justifies its historic premium due to declining franchise vitality.
The analysts identify several factors contributing to Nike's challenges, including underperforming new releases, prioritization of sales over brand integrity, insufficiently compelling product innovations, and an overestimation of market reception for new styles like the upcoming AirMax DN.
