The Nike group posted better-than-expected results for the fourth quarter ended on May 31, 2021, as sales nearly doubled as compared to a year earlier, when its performance was severely impacted by store closures tied to the Covid-19 pandemic.

After the release of higher-than-expected results for the quarter, Nike’s share price jumped by more 15 percent in after-hours trading last night from a closing of $133.60 on the New York Stock Exchange, offsetting an 11 percent decrease suffered by the stock since it reached a 52-week record of $147 in early January. It gained ground after the management’s conference call with financial analysts, ending up at $152.45 before the opening of the market this morning and settling around the same value in early morning trading.

Nike Consolidated Income Statement
(Million $, Quarter ended May 31)
  2021 2020 % Change
REVENUES 12,344  6,313  95.5
Cost of Sales 6,689  3,960  68.9
Gross Profit 5,655  2,353  140.3
Gross Margin 45.8  37.3  8.5 pp
SG&A 3,742  3,191  17.3
Net Interest (Income) Expense 63  50  26.0
Other (Income) Expense, net (4) (84) -
Pre-Tax Income 1,854  (804) -
Tax 345  (14) -
NET INCOME 1,509  (790) -
Earnings/Share ($, Diluted) 0.93 -0.51 -
Source: Nike

Overall, the group’s revenues increased by a reported 96 percent to $12,344 million and were up by 88 percent at constant exchange rates, comfortably above an analyst consensus for a top line of $11,050 million.

The quarterly net income amounted to $1,509 million and diluted earnings per share stood at $0.93, well above an analyst consensus for diluted EPS of $0.51 dollars. This compared with a net loss of $790 million or $0.51 per share in the same period of last year.

The gross margin widened by 8.5 percentage points to 45.8 percent, and it was slightly higher than in the corresponding 2019 period, primarily as a result of annualizing impacts of Covid-19 such as lower factory cancellation charges, and lower inventory obsolescence reserves along with the leverage of high volumes on fixed supply chain costs.

The company also pointed to the solid margins generated by its expanding direct-to-consumer business, which grew by 73 percent overall. Even as physical stores reopened, the Nike brand continued to experience strong growth in digital sales, which were up by 41 percent versus the prior year and 147 percent higher than in the fourth quarter of 2019.

Strong increases at directly managed stores more than offset a tough comparison in the digital channel against the high pandemic levels of a year ago. The company’s own digital sales represented 21 percent of revenues during the quarter. Combined with the digital revenues of wholesale partners, they accounted for nearly 35 percent of the total turnover – three years ahead of the company’s business plan and well on the way to a planned 50 percent penetration by fiscal 2025.

Boosting the bottom line, the group reduced operating expenses to 30.3 percent of sales from 50.5 percent in the year-ago quarter, although there were no cuts in absolute numbers. In particular, demand creation expenses were raised by 21 percent to $997 million in the quarter with the resumption of sports events, but at 8.1 percent of revenues they were below historical levels of around 10 percent. Other operating expenses went up by 16 percent.

Revenues for the core Nike brand rose in the latest quarter by 96 percent in reported dollars to $11,761 million and were 88 percent higher on a constant-currency basis. At constant exchange rates, the brand’s footwear sales went up by 83 percent while apparel gained 101 percent and equipment saw a 113 percent rise.

At Converse, sales increased by 95 percent to $596 million, led by strong market demand in Western Europe and North America. The result was an operating profit of $138 million against a loss in the same quarter of last year.

Nike Regional Sales & EBIT
(Million $, Quarter ended May 31)
  2021 2020 % Change
NIKE Brand      
North America      
Footwear 3,793 1,606  136.2
Apparel 1,448 563  157.2
Equipment 143 61  134.4
Total Sales  5,384 2,230  141.4
EBIT 1,794 (13) -
Europe, Middle East & Africa      
Footwear 1,831 887  106.4
Apparel 1,023 398  157.0
Equipment 125 43  190.7
Total 2,979 1,328  124.3
EBIT 550 (153) -
Greater China      
Footwear 1,316 1,149  14.5
Apparel 572 468  22.2
Equipment 45 30  50.0
Total 1,933 1,647  17.4
EBIT 691 571  21.0
Asia Pacific & Latin America      
Footwear 1,007 559  80.1
Apparel 396 211  87.7
Equipment 55 31  77.4
Total 1,458 801  82.0
EBIT 418 79  429.1
       
Global Brand Divisions 7 16.7
EBIT (1,110) (844) -31.5
       
Total NIKE Brand 11,761 6,012  95.6
EBIT 2,343 (360) -
       
Converse 596 305  95.4
EBIT 138 (27) -
       
Corporate (13) (4) -
EBIT (564) (367) -53.7
       
TOTAL NIKE GROUP  12,344 6,313  95.5
Total EBIT 1,917 (754) -
Source: Nike

Nike’s sales surged in the EMEA region and North America by more than 100 percent as compared to a year ago, showing also increases of 21 percent and 29 percent from the corresponding period of 2019. The company’s business in China was relatively resilient despite threats to boycott Nike and other Western brands over the concerns they have expressed about alleged forced labor in Xinjiang. Nike’s performance was also helped by delays in deliveries during the third quarter, which were pushed over into the last three months of the fiscal year.

In the EMEA region, Nike’s fourth-quarter revenues soared by 124 percent in dollars and 107 percent in constant currencies to $2,979 million, with strong growth across the region, particularly in the U.K. and Ireland, France, Germany and Italy. They generated a positive operating income (Ebit) of $550 million as compared to a loss of $153 million a year earlier. The Nike Direct business in the region grew by 57 percent, despite government restrictions that led nearly half of all Nike-owned stores to remain closed for the first two months of the quarter. As restrictions eased in May, the company pointed to “incredible” pent-up demand, with the momentum continuing into June. Nike Digital grew by nearly 30 percent in EMEA.

In Greater China, the quarterly revenues increased by 17 percent in dollars and by 9 percent in constant currencies to $1,933 million, while Ebit rose by 21 percent to $691 million. Nike Direct grew by 2 percent, with strong growth at Nike-owned stores partly offset by declines in Nike Digital. After a strong March, Nike acknowledged that its business was negatively impacted – much like that of other Western sports brands - in April, leading the company to suspend marketing activities and product launches. In May, the Greater China business recovered to show a single-digit decline and improved further in June, approaching prior-year levels.

In North America, revenues rose by 141 percent to $5,384 million, marking the first-ever $5 billion quarter for the region, driven by improvements in full-price sell-through as the market reopened and sports activities resumed. Nike Direct grew by over 120 percent in the region as Nike-owned stores returned to positive sales growth versus pre-pandemic levels. Nike Digital grew by over 50 percent. Ebit in North America amounted to a positive $1,794 million versus a negative $13 million a year earlier.

In Asia-Pacific & Latin America, sales increased by 82 percent in dollars and by 76 percent in local currencies to $1,458 million, with the growth led by Japan, South Korea and Mexico. Nike Digital grew by more than 50 percent. Ebit jumped by 429 percent to $418 million.sports

Strong performance for the year

For the full financial year ended May 31, the group’s overall sales rose by 19 percent in reported dollars and by 17 percent on a currency-neutral basis, reaching $44,538 million, well above the analysts’ consensus of $43.26 billion. The Nike brand’s revenues rose by a reported 19 percent to $42,293 million and were 17 percent higher at constant currency rates, with the growth led by Sportswear and the Jordan brand. Revenues increased by 16 percent at Converse, led by double-digit growth in the digital channel.

Nike Regional Sales & EBIT
(Million $, Year ended May 31)
  2021 2020 % Change
NIKE Brand      
North America      
Footwear 11,644 9,329 24.8
Apparel 5,028 4,639 8.4
Equipment 507 516 -1.7
Total Sales  17,179 14,484 18.6
EBIT 5,089 2,899 75.5
Europe, Middle East & Africa      
Footwear 6,970 5,892 18.3
Apparel 3,996 3,053 30.9
Equipment 490 402 21.9
Total 11,456 9,347 22.6
EBIT 2,435 1,541 58.0
Greater China      
Footwear 5,748 4,635 24.0
Apparel 2,347 1,896 23.8
Equipment 195 148 31.8
Total 8,290 6,679 24.1
EBIT 3,243 2,490 30.2
Asia Pacific & Latin America      
Footwear 3,659 3,449 6.1
Apparel 1,494 1,365 9.5
Equipment 190 214 -11.2
Total 5,343 5,028 6.3
EBIT 1,530 1,184 29.2
       
Global Brand Divisions 25 30 -16.7
EBIT (3,656) (3,468) -5.4
       
Total NIKE Brand 42,293 35,568 18.9
EBIT 8,641 4,646 86.0
       
Converse 2,205 1,846 19.4
EBIT 543 297 82.8
       
Corporate 40  (11) -
EBIT (2,261) (1,967) -14.9
       
TOTAL NIKE GROUP  44,538 37,403 19.1
Total EBIT 6,661 2,887 130.7
Source: Nike
Nike Brand Sales
(Million $, Year ended May 31, wholesale equivalent)
  2021 2020 % Change
Nike Brand Category      
Sportswear 15,053 12,285 22.5
Running 3,987 3,830 4.1
Jordan Brand 4,711 3,609 30.5
Football (Soccer) 1,682 1,575 6.8
NIKE Basketball 1,692 1,508 12.2
Training 2,907 2,688 8.1
Others 5,738 5,113 12.2
Total  35,770 30,608 16.9
Source: Nike

Sales of women-specific products went up by 22 percent. On a wholesale-equivalent basis, total revenues were up by 15 percent in local currencies and stood at $35,770 million. Wholesale-equivalent sales for Sportswear rose by 20 percent to $15,083 million, while for the Jordan brand they increased by 28 percent to $4,711 million.

Nike Direct revenues went up by 30 percent on a constant-currency basis to $16,370 million, approaching a ratio of 40 percent of total Nike brand revenues. Nike Digital alone grew by 64 percent and represented 21 percent of the the brand’s total turnover. The brick-and-mortar business was up by 4 percent on a comparable store basis.

Nike’s digital business is being increasingly powered by its SNKRS app, which saw an increase in demand of more than 90 percent and a rise of 80 percent in monthly users in the latest quarter. There was an almost daily flow of new content between entertainment and new product drops. The total digital membership broke through the 300-million mark.

The net profit for the year jumped by 126 percent to $5,727 million, as diluted EPS increased to $3.56 from $1.60 the year before. While the gross margin expanded by 1.40 percentage points to 44.8 percent, operating costs were reduced by 5.9 percentage points to 29.1 percent of sales from 35.1 percent in the prior year. Spending on demand creation was cut by 13 percent to $3,114 million, while other operating expenses rose by 4 percent to $9,911 million, including restructuring costs of $260 million.

At the end of the fiscal year, inventories amounted to $6,854 million, down by 7 percent on the year earlier, driven by strong consumer demand and a return to healthier inventory levels.

Nike Consolidated Income Statement
(Million $, Year ended May 31)
  2021 2020 % Change
REVENUES 44,538 37,403 19.1
Cost of Sales 24,576 21,162 16.1
Gross Profit 19,962 16,241 22.9
Gross Margin 44.8% 43.4% 1.4 pp
SG&A 13,025 13,126 -0.8
Net Interest (Income) Expense 262 89 194.4
Other (Income) Expense, net 14 139 -89.9
Pre-Tax Income 6,661 2,887 130.7
Tax 934 348 168.4
NET INCOME 5,727 2,539 125.6
Earnings/Share ($, Diluted) 3.56 1.60 122.5
Source: Nike

Nike foresees an Ebit margin in the high teens by 2025

For the fiscal year ending in May 2022, the management expects sales to top the $50 billion threshold, with slightly higher growth in the first half than in the second one as its post-pandemic business normalizes. Some of the growth will come from Nike’s strong presence at major events such as the UEFA Euro Football Championship and the Tokyo Olympics. The management noted that Nike-sponsored athletes had scored the most goals so far into the European tournament.

For the year, the gross margin is projected to expand by 1.25 to 1.50 percentage points, thanks to a continued shift to Nike’s more profitable DTC business and sustained strong full-price realization. These factors should be offset, in part, by higher product costs, supply chain investments and the annualization of certain one-off benefits obtained in fiscal 2021. Foreign exchange rates are expected to provide a tailwind of about 0.7 percentage points.After reporting better-than-expected fourth quarter results, the company also raised its guidance through fiscal 2025. The company now anticipates that its revenues will grow in a high single-digit to low double-digit range during the next four years, improving on previous guidance of high single-digit growth, with “outsized marketplace opportunities” in Women’s, Apparel, Jordan, Digital and International.

All the growth will come from Nike Direct, which is now expected to account for 60 percent of the total turnover by fiscal 2025, with the directly owned digital channel representing 40 percent of total revenues. Wholesale revenues are expected to remain roughly flat as compared to fiscal 2021. Nike will continue to cut off “undifferentiated” retail partners, focusing instead on big players such as Dick’s Sporting Goods, Foot Locker and JD Sports Fashion, along with “compelling neighborhood partners who are authentic to sport performance and lifestyle.”

On average, Nike sees North America posting mid-single to high-single-digit sales growth, EMEA to grow by high single digits and APLA to advance by low double digits. In Greater China, Nike anticipates that it will continue to grow in the low-to-mid teens over the long term, but the management indicated that the growth will not be linear.

The gross margin is projected to reach a percentage rate in the high 40s by fiscal 2025, due to the anticipated increase in the weight of the Nike Direct business and the leverage provided by enhanced data and analytics capabilities to optimize inventory, drive higher full price realization and lower digital fulfillment costs.

The Ebit margin, a figure for which Nike previously did not provide an outlook, is seen reaching a percentage rate in the high teens by the 2024/25 fiscal year. The bottom line is seen rising by a percentage rate in the mid-to-high teens through fiscal 2025, up from prior guidance of a growth in the mid-teens.