Citing increased macroeconomic headwinds around the globe, particularly in the EMEA and Greater China, Nike is stepping up its strategic approach to innovation and numerous cost-cutting measures to improve its financial results in the coming quarters.
That effort will include greater emphasis on product newness and opportunities to slash up to $2 billion in expenses over the next three years, particularly in the areas of increased automation, a simplified product assortment, greater use of technology, and an organizational streamlining that will initially result in $400-$450 million in pre-tax charges in its next fiscal quarter.
“We will become a faster, more efficient Nike,” CFO Matt Friend told analysts yesterday afternoon.
Q2 results in brief
The group reported a 16 percent Ebit increase in Q2 to $1.92 billion on 1 percent overall revenue growth to nearly $13.4 billion for the period ended Nov. 30. Gross margin improved by 170 basis points to 44.6 percent from 42.9 percent as Nike had lower markdown rates than many of its competitors despite facing more cautious consumers worldwide, softer digital demand, and higher levels of promotion across geographic markets. Besides limited promotions, the gross margin benefitted from strategic price increases and lower freight costs. Operating overhead expense was flat year-over-year at $3.03 billion, and demand creation expense inched up 1 percent to $1.11 billion.
| Nike - Income | |||
|---|---|---|---|
| 2023 | 2022 | Change | |
| Three months ended Nov. 30 ($ million) | |||
| Revenues | 13,388 | 13,315 | 0.5% |
| Cost of sales | 7,417 | 7,604 | -2.5% |
| Gross profit | 5,971 | 5,711 | 4.6% |
| Selling and admin. expense | 4,146 | 4,124 | 0.5% |
| Interest expense | -22 | 16 | – |
| Other expense | -75 | -79 | 5.1% |
| Pre-tax | 1,922 | 1,650 | 16.5% |
| Tax | 344 | 319 | 7.8% |
| Net income | 1,578 | 1,331 | 18.6% |
| Diluted EPS | 1.03 | 0.85 | 21.2% |
| Six months ended Nov. 30 ($ million) | |||
| Revenues | 26,237 | 26,002 | 0.9% |
| Cost of sales | 14,636 | 14,676 | -0.3% |
| Gross profit | 11,691 | 11,326 | 3.2% |
| Selling and admin. expense | 8,262 | 8,044 | 2.7% |
| Interest expense | -56 | 29 | – |
| Other expense | -85 | -225 | 62.2% |
| Pre-tax | 3,570 | 3,478 | 2.6% |
| Tax | 542 | 679 | -20.2% |
| Net income | 3,028 | 2,799 | 8.2% |
| Diluted EPS | 1.97 | 1.77 | 11.3% |
| Source: Nike Inc. | |||
However, Nike achieved strong growth in $100+ footwear, higher average selling prices for both footwear and apparel and experienced only its second-ever $13+ billion sales quarter. In H2/24, the company’s increased focus on innovation will commence with particular attention on women’s, the Jordan brand and running. The women’s business, which has grown at a high single-digit rate in recent years, is currently about a $9 billion business, excluding Converse and Jordan. Nike intends to introduce bras and leggings across price points for this audience.
As for Jordan, it has become the number two athletic footwear brand in North America as it continues to gain international traction in markets such as Milan, Rome and Seoul. Jordan branded apparel, having grown at approximately 20 percent annually over the last three years, is now a $1 billion business.
Nike’s attention to the running segment will target racing shoes; trail, becoming a lifestyle product in the EU, and “every day,” where investments will continually be made as the brand looks to increase its relevance and penetration in the specialty run retail channel. The Pegasus 41 and various updates to it will be a key 2024 focus.
Q2 by region
Against a difficult year-over-year comparison, EMEA sales rose by 2 percent to $3.66 billion, with footwear up by 6 percent to $2.19 billion and apparel sales down by 6 percent to $1.2 billion. Wholesale revenues slipped by 8 percent as direct sales increased by 7 percent and store sales grew by 8 percent. Regional Ebit fell 6 percent to $927 million from $990 million.
North American Ebit rose by 2 percent to nearly $1.53 billion despite a 4 percent decline in period revenues to $5.63 billion. Footwear sales slipped by 5 percent to $3.76 billion as apparel revenues inched down by 1 percent to $1.67 billion. Dick’s Sporting Goods and Hibbett were among the retailers that experienced a double-digit sales gain for the brand.
| Nike - Revenues | ||||
|---|---|---|---|---|
| 2023 | 2022 | Change | ||
| Three months ended Nov. 30 ($ millions) | ||||
| North America | ||||
| Footwear | 3,757 | 3,963 | -5.2% | |
| Apparel | 1,668 | 1,685 | -1.0% | |
| Equipment | 200 | 182 | 9.9% | |
| Total | 5,625 | 5,830 | -3.5% | |
| EMEA | ||||
| Footwear | 2,186 | 2,063 | 6.0% | |
| Apparel | 1,200 | 1,281 | -6.3% | |
| Equipment | 181 | 145 | 24.8% | |
| Total | 3,567 | 3,489 | 2.2% | |
| Greater China | ||||
| Footwear | 1,361 | 1,370 | -0.7% | |
| Apparel | 469 | 393 | 19.3% | |
| Equipment | 33 | 25 | 32.0% | |
| Total | 1,863 | 1,788 | 4.2% | |
| Asia-Pacific & Latin America | ||||
| Footwear | 1,303 | 1,108 | 17.6% | |
| Apparel | 437 | 435 | 0.5% | |
| Equipment | 65 | 56 | 16.1% | |
| Total | 1,805 | 1,599 | 12.9% | |
| Global Brand Divisions | 12 | 18 | -33.3% | |
| Total Nike Brand | 12,872 | 12,724 | 1.2% | |
| Converse | 519 | 586 | -11.4% | |
| Corporate | -3 | 5 | – | |
| Total Nike Inc. | 13,388 | 13,315 | 0.5% | |
| Total Nike brand | ||||
| Footwear | 8,607 | 8,504 | 1.2% | |
| Apparel | 3,774 | 3,794 | -0.5% | |
| Equipment | 479 | 408 | 17.4% | |
| Global Brand Divisions | 12 | 18 | -33.3% | |
| Total Nike brand | 12,872 | 12,724 | 1.2% | |
| Six months ended Nov. 30 ($ millions) | ||||
| North America | ||||
| Footwear | 7,490 | 7,768 | -3.6% | |
| Apparel | 3,147 | 3,179 | -1.0% | |
| Equipment | 411 | 393 | 4.6% | |
| Total | 11,048 | 11,340 | -2.6% | |
| EMEA | ||||
| Footwear | 4,446 | 4,075 | 9.1% | |
| Apparel | 2,337 | 2,434 | -4.0% | |
| Equipment | 394 | 313 | 25.9% | |
| Total | 7,177 | 6,822 | 5.2% | |
| Greater China | ||||
| Footwear | 2,648 | 2,603 | 1.7% | |
| Apparel | 870 | 767 | 13.4% | |
| Equipment | 80 | 74 | 8.1% | |
| Total | 3,598 | 3,444 | 4.5% | |
| Asia-Pacific & Latin America | ||||
| Footwear | 2,444 | 2,172 | 12.5% | |
| Apparel | 808 | 848 | -4.7% | |
| Equipment | 125 | 114 | 9.6% | |
| Total | 3,377 | 3,134 | 7.8% | |
| Global Brand Divisions | 25 | 32 | -21.9% | |
| Total Nike Brand | 25,225 | 24,772 | 1.8% | |
| Converse | 1,107 | 1,229 | -9.9% | |
| Corporate | -5 | 1 | – | |
| Total Nike Inc. | 26,327 | 26,002 | 1.2% | |
| Total Nike brand | ||||
| Footwear | 17,028 | 16,618 | 2.5% | |
| Apparel | 7,162 | 7,228 | -0.9% | |
| Equipment | 1,010 | 894 | 13.0% | |
| Global Brand Divisions | 25 | 32 | -21.9% | |
| Total Nike brand | 25,225 | 24,772 | 1.8% | |
| Source: Nike Inc. | ||||
Greater China had a 1 percent gain in ebit to $514 million on a 4 percent revenue expansion to $1.86 billion on a difficult year-over-year comparison and in a highly promotional marketplace. Wholesale revenues were up by 19 percent, but direct sales slipped by 4 percent. Locally inspired collections were the top choices of local customers, and performance products outperformed lifestyle items.
Ebit expanded by 7 percent in the APLA to $521 million on revenue growth of 18 percent to $1.3 billion, with direct sales up by 15 percent as Southeast Asia, Korea, and Mexico each increased quarter-over-quarter sales by double-digits.
Revised FY24 outlook
Nike is now forecasting its Q3 revenues to be “slightly negative” and its Q4 sales to be up by “low single digits, partially due to increased macroeconomic headwinds in EMEA and Greater China and a stronger U.S. dollar. But gross margins should improve in H2 and go up by 140-160 basis points for the year due to lower ocean freight costs and stronger supply chain efficiencies.
