NIKE(NKE) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements NIKE's six-month financials show revenue and net income declines, with operating cash flow significantly reduced by inventory increases Consolidated Statements of Income Consolidated Income Statement Highlights (in millions, except per share data) | Metric | Three Months Ended Nov 30, 2024 | Three Months Ended Nov 30, 2023 | % Change | Six Months Ended Nov 30, 2024 | Six Months Ended Nov 30, 2023 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $12,354 | $13,388 | -7.7% | $23,943 | $26,327 | -9.1% | | Gross Profit | $5,389 | $5,971 | -9.7% | $10,646 | $11,691 | -8.9% | | Net Income | $1,163 | $1,578 | -26.3% | $2,214 | $3,028 | -26.9% | | Diluted EPS | $0.78 | $1.03 | -24.3% | $1.48 | $1.97 | -24.9% | Consolidated Balance Sheets Key Balance Sheet Items (in millions) | Account | Nov 30, 2024 | May 31, 2024 | | :--- | :--- | :--- | | Cash and equivalents | $7,979 | $9,860 | | Inventories | $7,981 | $7,519 | | Total Current Assets | $24,980 | $25,382 | | Total Assets | $37,959 | $38,110 | | Total Current Liabilities | $11,246 | $10,593 | | Long-term debt | $7,973 | $7,903 | | Total Liabilities | $23,922 | $23,680 | | Total Shareholders' Equity | $14,037 | $14,430 | Consolidated Statements of Cash Flows Cash Flow Summary for Six Months Ended Nov 30 (in millions) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Cash provided by operations | $1,443 | $2,751 | | Cash provided (used) by investing | ($240) | $875 | | Cash provided (used) by financing | ($3,070) | ($3,151) | | Net (decrease) increase in cash | ($1,881) | $478 | - The decrease in operating cash flow was primarily driven by an increase in inventories and accounts receivable, which used $547 million and $943 million of cash, respectively, compared to the prior year period where inventories provided $493 million in cash[9] Note 9: Revenues Revenues by Product & Channel (Q2 FY25, in millions) | Category | NIKE Brand | Converse | Total NIKE, Inc. | | :--- | :--- | :--- | :--- | | By Product | | | | | Footwear | $7,655 | $364 | $8,019 | | Apparel | $3,738 | $26 | $3,764 | | Equipment | $544 | $6 | $550 | | By Channel | | | | | Wholesale | $6,920 | $212 | $7,132 | | Direct to Consumer | $5,017 | $184 | $5,201 | Revenues by Product & Channel (Six Months FY25, in millions) | Category | NIKE Brand | Converse | Total NIKE, Inc. | | :--- | :--- | :--- | :--- | | By Product | | | | | Footwear | $15,117 | $800 | $15,917 | | Apparel | $6,770 | $43 | $6,813 | | Equipment | $1,147 | $18 | $1,165 | | By Channel | | | | | Wholesale | $13,330 | $488 | $13,818 | | Direct to Consumer | $9,704 | $373 | $10,077 | Note 10: Operating Segments Revenues by Segment (Q2 FY25 vs Q2 FY24, in millions) | Segment | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | North America | $5,179 | $5,625 | -8.0% | | EMEA | $3,303 | $3,567 | -7.4% | | Greater China | $1,711 | $1,863 | -8.2% | | APLA | $1,744 | $1,805 | -3.4% | | Converse | $429 | $519 | -17.3% | EBIT by Segment (Q2 FY25 vs Q2 FY24, in millions) | Segment | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | North America | $1,371 | $1,526 | -10.2% | | EMEA | $831 | $927 | -10.4% | | Greater China | $375 | $514 | -27.0% | | APLA | $460 | $521 | -11.7% | | Converse | $53 | $115 | -53.9% | Note 12: Restructuring - The company initiated a multi-year enterprise initiative in Q3 FY24 to streamline the organization and reduce its global workforce, with $239 million in cash payments for employee severance substantially complete in the six months ended November 30, 2024[74] Management's Discussion and Analysis (MD&A) Management attributes Q2 FY25 revenue decline to lower wholesale and NIKE Direct traffic, outlining strategic repositioning expected to impact near-term financials but drive long-term value across all segments Consolidated Operating Results - Q2 FY25 revenues fell 8% (9% currency-neutral) to $12.4 billion, driven by declines in North America, EMEA, and Greater China, with NIKE Direct revenues dropping 13% (14% currency-neutral) and NIKE Brand Digital sales down 21% currency-neutral[84][86] - Q2 FY25 gross margin decreased by 100 basis points to 43.6%, primarily due to lower Average Selling Price (ASP) from higher discounts and unfavorable channel mix, partially offset by lower product input and logistics costs[83][89] - Total selling and administrative expenses decreased 3% in Q2, but increased as a percentage of revenue to 32.4% from 31.0% in the prior year, with demand creation expense up 1% and operating overhead expense falling 5% due to lower wage-related costs[90][92][93] Operating Segments Analysis - North America: Q2 revenues fell 8% and EBIT fell 10%, driven by lower Jordan Brand and Women's sales, with NIKE Direct revenues down 15% due to a 22% drop in digital sales[109][110] - EMEA: Q2 revenues fell 7% (10% currency-neutral) and EBIT fell 10%, with NIKE Direct revenues seeing a significant 20% currency-neutral decline driven by a 32% drop in digital sales[113][115] - Greater China: Q2 revenues fell 8% (11% currency-neutral) and EBIT plummeted 27%, experiencing a significant gross margin contraction of 490 basis points due to unfavorable currency rates and higher discounts[118][121] - APLA: Q2 revenues decreased 3% (2% currency-neutral) and EBIT fell 12%, driven by a 120 basis point gross margin contraction from lower ASP and higher logistics costs[123][124] - Converse: Q2 revenues dropped 17% (18% currency-neutral) and EBIT fell 54%, driven by reduced traffic and higher discounts in all territories, leading to a 380 basis point gross margin contraction[128][129] Liquidity and Capital Resources - Cash from operations for the first six months of FY25 was $1.44 billion, down from $2.75 billion in the prior year, mainly due to unfavorable changes in inventories[144] - The company repurchased 27.9 million shares for $2.25 billion in the first six months of FY25 under its $18 billion share repurchase program, with approximately $6.7 billion remaining available as of November 30, 2024[147][169] - As of November 30, 2024, cash and short-term investments totaled $9.8 billion, and the company maintains long-term debt ratings of AA- (S&P) and A1 (Moody's)[149][152] - Commitments under endorsement contracts have increased to $15.9 billion as of November 30, 2024, with $1.9 billion payable within 12 months[154] Market Risk Disclosures The company reports no material changes to its market risk exposures, including foreign currency and interest rate risks, from the information previously disclosed in its Annual Report on Form 10-K for the fiscal year ended May 31, 2024 - There have been no material changes in quantitative and qualitative disclosures about market risk since the last Annual Report on Form 10-K[160] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective at a reasonable assurance level as of November 30, 2024, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of November 30, 2024[162] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[163] PART II - OTHER INFORMATION Legal Proceedings The company faces various legal proceedings, including a significant inestimable claim from Belgian Customs regarding alleged underpaid duties, which could have a material adverse impact - The company is facing claims from Belgian Customs for alleged underpaid duties on products imported since fiscal 2018, disputing the claims and unable to estimate the range of loss, but noting it could have a material adverse effect if resolved against them[73][166] Risk Factors There have been no material changes to the company's risk factors from those disclosed in its Annual Report on Form 10-K for the fiscal year ended May 31, 2024 - No material changes in risk factors have been identified since the fiscal year-end 2024 Annual Report[167] Share Repurchases NIKE repurchased 13.1 million shares for $1.06 billion in Q2 FY25 under its $18 billion program, with $6.7 billion remaining available as of November 30, 2024 Share Repurchases for Q2 FY25 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Sep 2024 | 4,649,833 | $83.02 | | Oct 2024 | 4,761,207 | $82.11 | | Nov 2024 | 3,667,095 | $77.30 | | Total | 13,078,135 | $81.09 | - As of November 30, 2024, approximately $6.7 billion remained available for repurchase under the current program[169] Other Information During the quarter, two executives adopted Rule 10b5-1 trading plans for the sale of company shares - On October 26, 2024, Monique Matheson (EVP, Chief Human Resources Officer) adopted a Rule 10b5-1 trading plan to sell up to 40,000 shares[170] - On November 7, 2024, Mark Parker (Executive Chairman) adopted a Rule 10b5-1 trading plan to sell up to 650,044 shares[171]