NIKE(NKE) - 2024 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements, highlighting a 19% increase in quarterly net income to $1.6 billion, driven by revenue growth and improved gross margins, alongside a slight decrease in total assets and improved operating cash flow Unaudited Condensed Consolidated Statements of Income For the three months ended November 30, 2023, revenues increased 1% to $13.39 billion, with net income rising 19% to $1.58 billion and diluted EPS up 21% to $1.03 Consolidated Statement of Income Highlights (Q2 FY24 vs Q2 FY23) | Financial Metric | Three Months Ended Nov 30, 2023 ($M) | Three Months Ended Nov 30, 2022 ($M) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $13,388 M | $13,315 M | +1% | | Gross Profit | $5,971 M | $5,711 M | +5% | | Net Income | $1,578 M | $1,331 M | +19% | | Diluted EPS | $1.03 | $0.85 | +21% | Consolidated Statement of Income Highlights (Six Months FY24 vs FY23) | Financial Metric | Six Months Ended Nov 30, 2023 ($M) | Six Months Ended Nov 30, 2022 ($M) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $26,327 M | $26,002 M | +1% | | Gross Profit | $11,691 M | $11,326 M | +3% | | Net Income | $3,028 M | $2,799 M | +8% | | Diluted EPS | $1.97 | $1.77 | +11% | Unaudited Condensed Consolidated Balance Sheets As of November 30, 2023, total assets were $37.20 billion, a slight decrease from $37.53 billion at May 31, 2023, with inventories decreasing by 6% and total shareholders' equity increasing slightly to $14.15 billion Balance Sheet Summary | Balance Sheet Item | Nov 30, 2023 ($M) | May 31, 2023 ($M) | Change ($M) | | :--- | :--- | :--- | :--- | | Cash and equivalents | $7,919 M | $7,441 M | +$478 M | | Inventories | $7,979 M | $8,454 M | -$475 M | | Total Assets | $37,203 M | $37,531 M | -$328 M | | Long-term debt | $8,930 M | $8,927 M | +$3 M | | Total Liabilities | $23,057 M | $23,527 M | -$470 M | | Total Shareholders' Equity | $14,146 M | $14,004 M | +$142 M | Unaudited Condensed Consolidated Statements of Cash Flows For the first six months of fiscal 2024, cash provided by operations significantly improved to $2.75 billion, while cash used in financing activities was $3.15 billion, primarily for share repurchases and dividends Cash Flow Summary (Six Months Ended) | Cash Flow Activity | Nov 30, 2023 ($M) | Nov 30, 2022 ($M) | | :--- | :--- | :--- | | Cash provided by operations | $2,751 M | $1,358 M | | Cash provided (used) by investing activities | $875 M | ($23 M) | | Cash provided (used) by financing activities | ($3,151 M) | ($3,321 M) | | Net increase (decrease) in cash | $478 M | ($2,084 M) | | Cash and equivalents, end of period | $7,919 M | $6,490 M | Notes to the Unaudited Condensed Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, revenue disaggregation, segment performance, and contingencies, including a subsequent event regarding a $400-$450 million restructuring charge - The company adopted new guidance on disclosing supplier finance program obligations, reporting $819 million outstanding under these programs as of Nov 30, 2023[22] - The effective tax rate for the first six months of FY24 decreased to 15.2% from 19.5% in the prior year, primarily due to one-time benefits related to U.S. foreign tax credit regulations[32] - In December 2023, the company announced a restructuring initiative expected to result in pre-tax charges of approximately $400 million to $450 million, primarily from employee severance costs to be recognized in Q3 FY24[70] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, highlighting a 1% revenue increase to $13.4 billion for Q2 FY24, improved gross margin, mixed segment performance, and a significant restructuring initiative - Q2 FY24 revenues were $13.4 billion, up 1% reported but down 1% on a currency-neutral basis[73] - NIKE Direct revenues grew 6% to $5.7 billion, representing 45% of total NIKE Brand revenues[73] - Gross margin increased 170 basis points to 44.6%, driven by strategic pricing and lower freight rates[73] - The company announced a restructuring initiative in December 2023, expecting $400 million to $450 million in pre-tax charges, mainly for severance[74] Results of Operations Consolidated revenues for Q2 FY24 increased 1% to $13.4 billion, with gross margin expanding to 44.6% due to strategic pricing, leading to a 19% rise in net income to $1.58 billion Q2 FY24 Revenue Breakdown by Channel (NIKE Brand) | Channel | Q2 FY24 Revenue ($M) | Q2 FY23 Revenue ($M) | Change (%) | Currency-Neutral Change (%) | | :--- | :--- | :--- | :--- | :--- | | Sales to Wholesale Customers | $7,118 M | $7,287 M | -2% | -3% | | NIKE Direct | $5,742 M | $5,419 M | +6% | +4% | - Q2 Gross Margin increased by 170 basis points, primarily driven by a 320 basis point increase from higher full-price ASP and strategic pricing, partially offset by unfavorable FX changes and higher product costs[85] Operating Segments Segment performance in Q2 FY24 was varied, with North America revenues declining 4% while Greater China and APLA showed growth, and Converse revenues fell 11% Q2 FY24 Revenue by Operating Segment | Segment | Q2 FY24 Revenue ($M) | Q2 FY23 Revenue ($M) | Change (%) | Currency-Neutral Change (%) | | :--- | :--- | :--- | :--- | :--- | | North America | $5,625 M | $5,830 M | -4% | -3% | | EMEA | $3,567 M | $3,489 M | +2% | -3% | | Greater China | $1,863 M | $1,788 M | +4% | +8% | | Asia Pacific & Latin America | $1,805 M | $1,599 M | +13% | +10% | | Converse | $519 M | $586 M | -11% | -13% | Q2 FY24 EBIT by Operating Segment | Segment | Q2 FY24 EBIT ($M) | Q2 FY23 EBIT ($M) | Change (%) | | :--- | :--- | :--- | :--- | | North America | $1,526 M | $1,497 M | +2% | | EMEA | $927 M | $990 M | -6% | | Greater China | $514 M | $511 M | +1% | | Asia Pacific & Latin America | $521 M | $485 M | +7% | | Converse | $115 M | $153 M | -25% | Liquidity and Capital Resources The company maintains strong liquidity with $9.9 billion in cash, provided $2.75 billion in operating cash flow, and returned $3.4 billion to shareholders through dividends and share repurchases - Cash and equivalents plus short-term investments totaled $9.9 billion as of November 30, 2023[127] - In the first six months of FY24, the company repurchased 22.4 million shares for $2.34 billion[126] - As of November 30, 2023, approximately $10.9 billion remains available under the $18 billion share repurchase program[126][140] - Obligations under endorsement contracts totaled $9.1 billion as of November 30, 2023, with $1.4 billion payable within 12 months[128] Quantitative and Qualitative Disclosures about Market Risk The company reports no material changes in its market risk disclosures from the previous fiscal year's Annual Report on Form 10-K - There have been no material changes from the information previously reported under Part II, Item 7A within the Annual Report on Form 10-K for the fiscal year ended May 31, 2023[133] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of November 30, 2023, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective at the reasonable assurance level as of November 30, 2023[134] - 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[134] PART II - OTHER INFORMATION Legal Proceedings The company is subject to various legal proceedings, including an ongoing claim from Belgian Customs for alleged underpaid duties since fiscal 2018, with an uncertain material outcome - The company is contesting claims from Belgian Customs and other authorities for alleged underpaid duties on products imported since fiscal 2018, with the final outcome uncertain and potentially materially adverse[68][137] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended May 31, 2023 - No material changes in risk factors from those disclosed in the Annual Report on Form 10-K for the fiscal year ended May 31, 2023[138] Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended November 30, 2023, the company repurchased approximately 11.9 million shares for about $1.2 billion under its $18 billion share repurchase program Share Repurchases (Quarter Ended Nov 30, 2023) | Period | Total Shares Purchased | Average Price Paid Per Share ($) | | :--- | :--- | :--- | | Sep 2023 | 4,042,731 | $95.52 | | Oct 2023 | 4,179,244 | $100.79 | | Nov 2023 | 3,724,655 | $107.83 | | Total | 11,946,630 | $101.20 | - As of November 30, 2023, the company has repurchased a total of 65.9 million shares for approximately $7.1 billion under the current $18 billion program[139] Other Information This section discloses Executive Chairman Mark Parker's Rule 10b5-1 trading plan and Andrew Campion's separation from the company with a $2.75 million cash payment - On November 7, 2023, Executive Chairman Mark Parker adopted a Rule 10b5-1 trading plan to sell 617,941 shares of Class B Common Stock[142] - Andrew Campion, Managing Director, Strategic Business Ventures, will separate from the company on April 5, 2024, and receive a one-time cash compensation of $2.75 million[142] Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, compensatory plans, and CEO/CFO certifications - Key exhibits filed include the Separation and Release Agreement with Andrew Campion, CEO and CFO certifications (Rule 13a-14(a)/15d-14(a) and Section 1350), and Inline XBRL documents[143]