NIKE, INC. 
OVERVIEW
NIKE designs, develops, markets and sells athletic footwear, apparel, equipment, accessories and services worldwide. We are the largest seller of athletic footwear and apparel in the world. We sell our products throughNIKE Direct operations, which is comprised of bothNIKE -owned retail stores and sales through our digital platforms (also referred to as "NIKE Brand Digital"), to retail accounts and to a mix of independent distributors, licensees and sales representatives in virtually all countries around the world. Our goal is to deliver value to our shareholders by building a profitable global portfolio of branded footwear, apparel, equipment and accessories businesses. Our strategy is to achieve long-term revenue growth by creating innovative, "must-have" products, building deep personal consumer connections with our brands and delivering compelling consumer experiences through digital platforms and at retail. Through the Consumer Direct Acceleration, we are focusing on creating the marketplace of the future through more premium, consistent and seamless consumer experiences, leading with digital and our owned stores, as well as select wholesale partners that share our marketplace vision. Over the last several years, as we have executed against the Consumer Direct Acceleration, we have grown ourNIKE Direct business to be approximately 42% of totalNIKE Brand revenues for the first quarter of fiscal 2023, and we have reduced the number of wholesale accounts globally. Additionally, we have aligned our product creation and category organizations around a new consumer construct focused on Men's, Women's and Kids' and continue to invest in data and analytics, demand sensing, insight gathering, inventory management and other areas to create an end-to-end technology foundation, which we expect will further accelerate our digital transformation. We believe this unified approach will accelerate growth and unlock more efficiency for our business, while driving speed and responsiveness as we serve consumers globally. CURRENT ECONOMIC CONDITIONS AND MARKET DYNAMICS Ongoing supply chain challenges, macroeconomic conditions and the COVID-19 pandemic continue to create volatility in our business results and operations globally. Despite these challenges, our first quarter Revenues increased 4% and 10% on a reported and currency-neutral basis, respectively, led byNorth America , EMEA and APLA, partially offset by declines inGreater China due to COVID-19 disruptions. However, gross margin decreased by 220 basis points in the first quarter of fiscal 2023 with elevated freight and logistics costs and higher promotional activity, among other items, contributing to this decrease. During fiscal 2022, we experienced elevated inventory transit times due to port congestion, transportation delays, and labor and container shortages which caused seasonally late product to arrive in the first quarter of fiscal 2023. As a result, we planned our fiscal 2023 product purchases based on elevated inventory transit times continuing. However, during the first quarter of fiscal 2023, inventory transit times improved ahead of plan, particularly inNorth America , resulting in challenges managing the timing of seasonal inventory flow. This disruption in the flow of product caused inventories inNorth America to grow to$4.7 billion , an increase of 15% compared to the fourth quarter of fiscal 2022. At the same time, there is increased promotional activity across the retail industry. We increased promotional activity in the first quarter of fiscal 2023, primarily inNorth America , and expect to increase promotional activity in the second quarter of fiscal 2023, to sell excess inventory and create capacity in the marketplace for new seasonally relevant product.
Most of our geographies are currently operating with little to no COVID-19
related restrictions, but revenues in
Fluctuations in currency exchange rates also create volatility in our reported results as we translate the balance sheets, operational results and cash flows of our subsidiaries intoU.S. Dollars for consolidated reporting. During the first quarter of fiscal 2023, foreign currency headwinds increased significantly as theU.S. Dollar strengthened in relation to most foreign currencies, reducing reported Revenues by$823 million . We expect unfavorable changes in foreign currency exchange rates, net of hedges, will have a material negative impact on reported Revenues and Income before income taxes for the second quarter of fiscal 2023. Additionally, we expect the continued combination of elevated freight and logistics costs and increased promotional activity will have a negative impact on gross margin for the second quarter of fiscal 2023. We also continue to closely monitor macroeconomic conditions, including consumer behavior and the potential impacts inflation could have on consumer demand for our product. While we believe our Consumer Direct Acceleration Strategy continues to drive our business toward our long-term financial goals, worsening macroeconomic conditions could affect our business, including, among other things, higher inventory levels in various markets, higher inventory obsolescence reserves, higher promotional activity, reduced demand for our products, reduced orders from our wholesale customers for our products and order cancellations. There could also be new COVID-19 related restrictions or disruptions across our geographies. Any of these factors, among others, could have material adverse impacts on our revenue growth as well as overall profitability in future periods.
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FIRST QUARTER OVERVIEW For the first quarter of fiscal 2023,NIKE, Inc. Revenues increased 4% to$12.7 billion compared to the first quarter of fiscal 2022 and increased 10% on a currency-neutral basis. Net income was$1,468 million and diluted earnings per common share was$0.93 for the first quarter of fiscal 2023, compared to Net income of$1,874 million and diluted earnings per common share of$1.16 for the first quarter of fiscal 2022. Income before income taxes decreased 13% compared to the first quarter of fiscal 2022, due to higher Selling and administrative expense and gross margin contraction, partially offset by higher Revenues.NIKE Brand revenues, which represent over 90% ofNIKE, Inc. Revenues, increased 4% compared to the first quarter of fiscal 2022. On a currency-neutral basis,NIKE Brand revenues increased 10%, driven by higher revenues inNorth America , EMEA and APLA, partially offset by declines inGreater China . Additionally,NIKE Brand currency-neutral revenues were higher across footwear and apparel, as well as Men's, the Jordan Brand, Kids' and Women's. Revenues for Converse increased 2% and 8% compared to the first quarter of fiscal 2022, on a reported and currency-neutral basis, respectively, led by strong performance inNorth America andWestern Europe , partially offset by declines inAsia .
Our effective tax rate was 19.7% for the first quarter of fiscal 2023, compared to 11.0% for the first quarter of fiscal 2022, primarily due to decreased benefits from stock-based compensation.
OnAugust 16, 2022 , theU.S. government enacted the Inflation Reduction Act of 2022 that includes, among other provisions, changes to theU.S. corporate income tax system, including a fifteen percent minimum tax based on "adjusted financial statement income," which is effective forNIKE beginningJune 1, 2023 , and a one percent excise tax on net repurchases of stock afterDecember 31, 2022 . We are continuing to evaluate the Inflation Reduction Act and its requirements, as well as the application to our business. During the first quarter of fiscal 2023, we completed the sale of our entity inChile to a third party distributor and the impacts of completing this transaction were not material to the Unaudited Condensed Consolidated Financial Statements. Subsequent to the end of the first quarter we completed the sale of our entities inArgentina andUruguay to a third party distributor. For more information see Note 13 - Acquisitions and Divestitures within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements. As we shift from a wholesale and direct to consumer operating model within these countries, we expect consolidatedNIKE, Inc. and APLA revenue growth will be reduced due to different commercial terms. However, over time we expect the future operating model to have a favorable impact on our overall profitability as we reduce selling and administrative expenses, as well as lessen exposure to foreign exchange rate volatility. USE OF NON-GAAP FINANCIAL MEASURES Throughout this Quarterly Report on Form 10-Q, we discuss non-GAAP financial measures, including references to wholesale equivalent revenues, currency-neutral revenues, as well as TotalNIKE Brand earnings before interest and taxes (EBIT),Total NIKE, Inc. EBIT and EBIT Margin, which should be considered in addition to, and not in lieu of, the financial measures calculated and presented in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP"). References to wholesale equivalent revenues are intended to provide context as to the total size of ourNIKE Brand market footprint if we had noNIKE Direct operations.NIKE Brand wholesale equivalent revenues consist of (1) sales to external wholesale customers and (2) internal sales from our wholesale operations to ourNIKE Direct operations, which are charged at prices comparable to those charged to external wholesale customers. Additionally, currency-neutral revenues are calculated using actual exchange rates in use during the comparative prior year period to enhance the visibility of the underlying business trends excluding the impact of translation arising from foreign currency exchange rate fluctuations. EBIT is calculated as Net income before Interest expense (income), net and Income tax expense in the Unaudited Condensed Consolidated Statements of Income. EBIT Margin is calculated as EBIT divided by totalNIKE, Inc. Revenues. Management uses these non-GAAP financial measures when evaluating the Company's performance, including when making financial and operating decisions. Additionally, management believes these non-GAAP financial measures provide investors with additional financial information that should be considered when assessing our underlying business performance and trends. However, references to wholesale equivalent revenues, currency-neutral revenues, EBIT and EBIT margin should not be considered in isolation or as a substitute for other financial measures calculated and presented in accordance withU.S. GAAP and may not be comparable to similarly titled non-GAAP measures used by other companies.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31,
(Dollars in millions, except per share data) 2022 2021 % CHANGE
Revenues $ 12,687 $ 12,248 4 %
Cost of sales 7,072 6,552 8 %
Gross profit 5,615 5,696 -1 %
Gross margin 44.3 % 46.5 %
Demand creation expense 943 918 3 %
Operating overhead expense 2,977 2,654 12 %
Total selling and administrative expense 3,920 3,572 10 %
% of revenues 30.9 % 29.2 %
Interest expense (income), net 13 57 -
Other (income) expense, net (146) (39) -
Income before income taxes 1,828 2,106 -13 %
Income tax expense 360 232 55 %
Effective tax rate 19.7 % 11.0 %
NET INCOME $ 1,468 $ 1,874 -22 %
Diluted earnings per common share $ 0.93 $ 1.16 -20 %
CONSOLIDATED OPERATING RESULTS
REVENUES
THREE MONTHS ENDED AUGUST 31,
% CHANGE EXCLUDING
(Dollars in millions) 2022 2021 % CHANGE CURRENCY CHANGES(1)
NIKE, Inc. Revenues:
NIKE Brand Revenues by:
Footwear $ 8,114 $ 7,718 5 % 12 %
Apparel 3,434 3,450 0 % 7 %
Equipment 486 465 5 % 12 %
Global Brand Divisions(2) 14 7 100 % 96 %
Total NIKE Brand Revenues 12,048 11,640 4 % 10 %
Converse 643 629 2 % 8 %
Corporate(3) (4) (21) - -
TOTAL NIKE, INC. REVENUES $ 12,687 $ 12,248 4 % 10 %
Supplemental NIKE Brand Revenues Details:
NIKE Brand Revenues by:
Sales to Wholesale Customers $ 6,983 $ 6,943 1 % 8 %
Sales through NIKE Direct 5,051 4,690 8 % 14 %
Global Brand Divisions(2) 14 7 100 % 96 %
TOTAL NIKE BRAND REVENUES $ 12,048 $ 11,640 4 % 10 %
(1)The percent change excluding currency changes represents a non-GAAP financial measure. See "Use of Non-GAAP Financial Measures" for further information.
(2)Global Brand Divisions revenues include
(3)Corporate revenues primarily consist of foreign currency hedge gains and
losses related to revenues generated by entities within the
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FIRST QUARTER OF FISCAL 2023 COMPARED TO FIRST QUARTER OF FISCAL 2022 On a currency-neutral basis,NIKE, Inc. Revenues increased 10% for the first quarter of fiscal 2023, driven by growth inNorth America , EMEA and APLA, partially offset by lower revenues inGreater China . Higher revenues inNorth America , EMEA and APLA contributed approximately 5, 5 and 2 percentage points toNIKE, Inc. Revenues, respectively, while lower revenues inGreater China reducedNIKE, Inc. Revenues by approximately 2 percentage points. On a currency-neutral basis,NIKE Brand footwear revenues increased 12% in the first quarter of fiscal 2023, driven by higher revenues in Men's and theJordan Brand. Unit sales of footwear increased 3%, while higher average selling price (ASP) per pair contributed approximately 9 percentage points of footwear revenue growth, primarily due to higher full-price ASP, net of discounts, on a wholesale equivalent basis, the favorable impact of growth in ourNIKE Direct business and higherNIKE Direct ASP. Currency-neutralNIKE Brand apparel revenues, for the first quarter of fiscal 2023, increased 7%, driven primarily by growth in Men's. Unit sales of apparel increased 5%, and higher ASP per unit contributed approximately 2 percentage points of apparel revenue growth, primarily due to higher full-price ASP, net of discounts, partially offset by lowerNIKE Direct ASP. On a reported basis,NIKE Direct revenues represented approximately 42% of our totalNIKE Brand revenues for the first quarter of fiscal 2023 compared to 40% for the first quarter of fiscal 2022.NIKE Brand Digital sales were$2.9 billion for the first quarter of fiscal 2023 compared to$2.5 billion for the first quarter of fiscal 2022. On a currency-neutral basis,NIKE Direct revenues increased 14%, driven byNIKE Brand Digital sales growth of 23%, comparable store sales growth of 4%, in part due to improved physical retail traffic, and the addition of new stores. Comparable store sales, which excludeNIKE Brand Digital sales, comprises revenues fromNIKE -owned in-line and factory stores for which all three of the following requirements have been met: (1) the store has been open at least one year, (2) square footage has not changed by more than 15% within the past year and (3) the store has not been permanently repositioned within the past year. Comparable store sales includes revenues from stores that were temporarily closed during the period as a result of COVID-19. Comparable store sales represents a performance measure that we believe is useful information for management and investors in understanding the performance of our establishedNIKE -owned in-line and factory stores. Management considers this metric when making financial and operating decisions. The method of calculating comparable store sales varies across the retail industry. As a result, our calculation of this metric may not be comparable to similarly titled measures used by other companies. GROSS MARGIN THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2022 2021 % CHANGE Gross profit$ 5,615 $ 5,696 -1 % Gross margin 44.3 % 46.5 % (220) bps
For the first quarter of fiscal 2023, our consolidated gross margin was 220 basis points lower than the prior year and primarily reflected the following factors:
•HigherNIKE Brand product costs, on a wholesale equivalent basis, primarily due to elevated freight and logistics costs and product mix (decreasing gross margin approximately 190 basis points); •Higher other costs, in part due to higher inventory obsolescence inNorth America and EMEA, among other factors (decreasing gross margin approximately 100 basis points);
•Lower margin in our
•Unfavorable changes in net foreign currency exchange rates, including hedges, (decreasing gross margin approximately 70 basis points); and
•Higher full-price ASP, net of discounts, on a wholesale equivalent basis (increasing gross margin approximately 200 basis points), reflecting strategic pricing increases and product mix.
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TOTAL SELLING AND ADMINISTRATIVE EXPENSE
THREE MONTHS ENDED AUGUST 31,
(Dollars in millions) 2022 2021 % CHANGE
Demand creation expense(1) $ 943 $ 918 3 %
Operating overhead expense 2,977 2,654 12 %
Total selling and administrative expense $ 3,920 $ 3,572 10 %
% of revenues 30.9 % 29.2 % 170 bps
(1)Demand creation expense consists of advertising and promotion costs,
including costs of endorsement contracts, complimentary products, television,
digital and print advertising and media costs, brand events and retail brand
presentation.
FIRST QUARTER OF FISCAL 2023 COMPARED TO FIRST QUARTER OF FISCAL 2022 Demand creation expense increased 3% for the first quarter of fiscal 2023 primarily due to normalization of spend against sports marketing and brand campaign investments. Changes in foreign currency exchange rates decreased Demand creation expense by approximately 5 percentage points.
Operating overhead expense increased 12% primarily due to higher wage-related expenses, an increase in strategic technology investments and increasedNIKE Direct costs. Changes in foreign currency exchange rates decreased Operating overhead expense by approximately 4 percentage points. OTHER (INCOME) EXPENSE, NET THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2022 2021 Other (income) expense, net $ (146)$ (39) Other (income) expense, net comprises foreign currency conversion gains and losses from the remeasurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments, as well as unusual or non-operating transactions that are outside the normal course of business. For the first quarter of fiscal 2023, Other (income) expense, net increased from$39 million of other income to$146 million in the current year, primarily due to a favorable change in foreign currency conversion gains and losses, including hedges, as well as settlements of legal matters, partially offset by net favorable activity in the prior year related to our strategic distributor partnership transition within APLA. We estimate the combination of the translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency-related gains and losses included in Other (income) expense, net had unfavorable impacts of approximately$234 million on our Income before income taxes for the first quarter of fiscal 2023. INCOME TAXES THREE MONTHS ENDED AUGUST 31, 2022 2021 % CHANGE Effective tax rate 19.7 % 11.0 % 870 bps
Our effective tax rate was 19.7% for the first quarter of fiscal 2023, compared to 11.0% for the first quarter of fiscal 2022, primarily due to decreased benefits from stock-based compensation.
Refer to Note 5 - Income Taxes within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.
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OPERATING SEGMENTS
Our operating segments are evidence of the structure of the Company's internal
organization. The
EachNIKE Brand geographic segment operates predominantly in one industry: the design, development, marketing and selling of athletic footwear, apparel and equipment. The Company's reportable operating segments for theNIKE Brand are:North America ;Europe ,Middle East &Africa (EMEA);Greater China ; andAsia Pacific &Latin America (APLA), and include results for theNIKE and Jordan brands. The Company'sNIKE Direct operations are managed within each geographic operating segment. Converse is also a reportable operating segment for the Company, and operates predominately in one industry: the design, marketing, licensing and selling of athletic lifestyle sneakers, apparel and accessories. As part of our centrally managed foreign exchange risk management program, standard foreign currency exchange rates are assigned twice per year to eachNIKE Brand entity in our geographic operating segments and Converse. These rates are set approximately nine and twelve months in advance of the future selling seasons to which they relate (specifically, for each currency, one standard rate applies to the fall and holiday selling seasons and one standard rate applies to the spring and summer selling seasons) based on average market spot rates in the calendar month preceding the date they are established. Inventories and Cost of sales for geographic operating segments and Converse reflect the use of these standard rates to record non-functional currency product purchases into the entity's functional currency. Differences between assigned standard foreign currency exchange rates and actual market rates are included in Corporate, together with foreign currency hedge gains and losses generated from our centrally managed foreign exchange risk management program and other conversion gains and losses.
The breakdown of Revenues is as follows:
THREE MONTHS ENDED
% CHANGE EXCLUDING
(Dollars in millions) 2022 2021 % CHANGE CURRENCY CHANGES(1)
North America $ 5,510 $ 4,879 13 % 13 %
Europe, Middle East & Africa 3,333 3,307 1 % 17 %
Greater China 1,656 1,982 -16 % -13 %
Asia Pacific & Latin America 1,535 1,465 5 % 16 %
Global Brand Divisions(2) 14 7 100 % 96 %
TOTAL NIKE BRAND 12,048 11,640 4 % 10 %
Converse 643 629 2 % 8 %
Corporate(3) (4) (21) - -
TOTAL NIKE, INC. REVENUES $ 12,687 $ 12,248 4 % 10 %
(1) The percent change excluding currency changes represents a non-GAAP financial measure. See "Use of Non-GAAP Financial Measures" for further information.
(2) Global Brand Divisions revenues include
(3) Corporate revenues primarily consist of foreign currency hedge gains and
losses related to revenues generated by entities within the
The primary financial measure used by the Company to evaluate performance of individual operating segments is EBIT, which represents Net income before Interest expense (income), net and Income tax expense in the Unaudited Condensed Consolidated Statements of Income. As discussed in Note 11 - Operating Segments in the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements, certain corporate costs are not included in EBIT of our operating segments. 26
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The breakdown of earnings before interest and taxes is as follows:
THREE MONTHS ENDED AUGUST 31,
(Dollars in millions) 2022 2021 % CHANGE
North America $ 1,377 $ 1,434 -4 %
Europe, Middle East & Africa 975 875 11 %
Greater China 541 701 -23 %
Asia Pacific & Latin America 500 481 4 %
Global Brand Divisions (1,187) (987) -20 %
TOTAL NIKE BRAND (1) 2,206 2,504 -12 %
Converse 209 204 2 %
Corporate (574) (545) -5 %
TOTAL
2,163 -15 %
EBIT margin(1) 14.5 % 17.7 %
Interest expense (income), net 13 57 -
TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES $ 1,828 $ 2,106 -13 %
(1) Total
NORTH AMERICA
THREE MONTHS ENDED
% CHANGE EXCLUDING
(Dollars in millions) 2022 2021 % CHANGE CURRENCY CHANGES
Revenues by:
Footwear $ 3,805 $ 3,264 17 % 17 %
Apparel 1,494 1,430 4 % 5 %
Equipment 211 185 14 % 14 %
TOTAL REVENUES $ 5,510 $ 4,879 13 % 13 %
Revenues by:
Sales to Wholesale Customers $ 3,027 $ 2,678 13 % 13 %
Sales through NIKE Direct 2,483 2,201 13 % 13 %
TOTAL REVENUES $ 5,510 $ 4,879 13 % 13 %
EARNINGS BEFORE INTEREST AND TAXES $ 1,377 $ 1,434 -4 %
FIRST QUARTER OF FISCAL 2023 COMPARED TO FIRST QUARTER OF FISCAL 2022
On a currency-neutral basis,North America revenues for the first quarter of fiscal 2023 increased 13%, due primarily to higher revenues in Men's and the Jordan Brand.NIKE Direct revenues increased 13%, driven by strong digital sales growth of 19%, comparable store sales growth of 4%, in part due to improved physical retail traffic, and the addition of new stores. Footwear revenues increased 17% on a currency-neutral basis, driven by higher revenues in Men's and the Jordan Brand. Unit sales of footwear increased 10%, while higher ASP per pair contributed approximately 7 percentage points of footwear revenue growth, primarily due to higher full-price ASP.
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On a currency-neutral basis, apparel revenues increased 5%, driven by higher revenues in Men's. Unit sales of apparel increased 5%, while ASP per unit remained flat, as higher full-price ASP was offset by lowerNIKE Direct ASP, primarily due to higher promotional activity. Reported EBIT decreased 4% primarily due to gross margin contraction, offset by higher revenues and lower selling and administrative expense as a percent of revenues. Gross margin decreased approximately 460 basis points largely driven by higher product costs, primarily due to increased freight and logistics costs as well as product mix, lower margin in ourNIKE Direct business driven by higher promotional activity, an increase in other costs reflecting higher inventory obsolescence and a lower mix of full-price sales. This activity was partially offset by higher full-price ASP, net of discounts, due to product mix and strategic pricing increases. Selling and administrative expense increased due to higher operating overhead expense, slightly offset by lower demand creation expense. Operating overhead expense increased primarily as a result of an increase in wage-related expenses, lower bad debt recoveries and increasedNIKE Direct costs. The decrease in demand creation expense reflected lower advertising and marketing expense for brand events and our retail operations, partially offset by higher sports marketing expense.
THREE MONTHS ENDED
% CHANGE EXCLUDING
(Dollars in millions) 2022 2021 % CHANGE CURRENCY CHANGES
Revenues by:
Footwear $ 2,012 $ 1,983 1 % 18 %
Apparel 1,153 1,159 -1 % 15 %
Equipment 168 165 2 % 18 %
TOTAL REVENUES $ 3,333 $ 3,307 1 % 17 %
Revenues by:
Sales to Wholesale Customers $ 2,203 $ 2,224 -1 % 15 %
Sales through NIKE Direct 1,130 1,083 4 % 20 %
TOTAL REVENUES $ 3,333 $ 3,307 1 % 17 %
EARNINGS BEFORE INTEREST AND TAXES $ 975 $ 875 11 %
FIRST QUARTER OF FISCAL 2023 COMPARED TO FIRST QUARTER OF FISCAL 2022
On a currency-neutral basis, EMEA revenues for the first quarter of fiscal
2023 increased 17%, primarily driven by growth in Men's and the Jordan Brand.
NIKE Direct revenues increased 20%, driven by strong digital sales growth of 46%
and comparable store sales growth of 3%, partially offset by store closures.
Currency-neutral footwear revenues increased 18%, driven by higher revenues in
Men's and the Jordan Brand. Unit sales of footwear remained flat, while higher
ASP per pair contributed approximately 18 percentage points of footwear revenue
growth. Higher ASP per pair was primarily due to higher full-price and NIKE
Direct ASPs as well as a higher mix of full-price sales.
Currency-neutral apparel revenues increased 15% due primarily to higher revenues
in Men's. Unit sales of apparel increased 7%, while higher ASP per unit
contributed approximately 8 percentage points of apparel revenue growth,
primarily due to higher full-price ASP, partially offset by a lower mix of NIKE
Direct sales and lower NIKE Direct ASP.
Reported EBIT increased 11% as gross margin expansion and higher revenues more
than offset higher selling and administrative expense. Gross margin increased
approximately 380 basis points primarily due to higher full-price ASP, net of
discounts, reflecting strategic pricing increases, as well as higher margin and
the favorable impact of growth in our NIKE Direct business, a higher mix of
full-price sales, higher off-price margin and favorable changes in standard
foreign currency exchange rates. This activity was partially offset by higher
product costs and higher other costs, particularly higher inventory
obsolescence. Selling and administrative expense increased due to higher demand
creation and operating overhead expense. Higher demand creation expense was
primarily due to increases in advertising and marketing expense as well as
sports marketing expense. Higher operating overhead expense was driven by lower
bad debt recoveries and an increase in strategic technology investments, offset
by lower wage-related expense.
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Table of ContentsGREATER CHINA
THREE MONTHS ENDED
% CHANGE EXCLUDING
(Dollars in millions) 2022 2021 % CHANGE CURRENCY CHANGES
Revenues by:
Footwear $ 1,233 $ 1,449 -15 % -11 %
Apparel 374 476 -21 % -18 %
Equipment 49 57 -14 % -10 %
TOTAL REVENUES $ 1,656 $ 1,982 -16 % -13 %
Revenues by:
Sales to Wholesale Customers $ 839 $ 1,114 -25 % -21 %
Sales through NIKE Direct 817 868 -6 % -2 %
TOTAL REVENUES $ 1,656 $ 1,982 -16 % -13 %
EARNINGS BEFORE INTEREST AND TAXES $ 541 $ 701 -23 %
FIRST QUARTER OF FISCAL 2023 COMPARED TO FIRST QUARTER OF FISCAL 2022
On a currency-neutral basis,Greater China revenues for the first quarter of fiscal 2023 decreased 13%, reflecting impacts from COVID-19 related disruptions. The decrease in revenues was primarily due to lower revenues in Men's and Women's, partially offset by growth in the Jordan Brand.NIKE Direct revenues decreased 2% due to digital sales declines of 5%, comparable store sales declines of 3%, in part due to reduced physical retail traffic as a result of COVID-19 related disruptions, partially offset by the addition of new stores. Currency-neutral footwear revenues decreased 11%, driven primarily by lower revenues in Men's and Women's, partially offset by growth in the Jordan Brand. Unit sales of footwear decreased 10%, while lower ASP per pair reduced footwear revenues by approximately 1 percentage point, driven by lower full-price and off-price ASPs, partially offset by higherNIKE Direct ASP. Currency-neutral apparel revenues decreased 18%, due primarily to lower revenues in Men's and Women's. Unit sales of apparel decreased 7%, while lower ASP per unit reduced apparel revenues by approximately 11 percentage points, primarily due to lower off-price, full-price andNIKE Direct ASPs. Reported EBIT decreased 23% due to lower revenues, gross margin contraction and higher selling and administrative expense as a percent of revenues. Gross margin decreased approximately 20 basis points reflecting lowerNIKE Direct margin and full-price ASP, net of discounts. This activity was partially offset by lower other costs, primarily due to lower warehousing and freight charges and lower inventory obsolescence, as well as favorable changes in standard foreign currency exchange rates. Selling and administrative expense decreased due to lower demand creation, offset by higher operating overhead expense. The decrease in demand creation expense was primarily due to lower retail brand presentation expense as well as lower investments in digital marketing, partially offset by higher advertising and marketing expense. Operating overhead expense increased largely due to higher wage-related costs and higherNIKE Direct strategic technology investments. 29
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Table of ContentsASIA PACIFIC &LATIN AMERICA
THREE MONTHS ENDED
% CHANGE EXCLUDING
(Dollars in millions) 2022 2021 % CHANGE CURRENCY CHANGES
Revenues by:
Footwear $ 1,064 $ 1,022 4 % 15 %
Apparel 413 385 7 % 19 %
Equipment 58 58 0 % 12 %
TOTAL REVENUES $ 1,535 $ 1,465 5 % 16 %
Revenues by:
Sales to Wholesale Customers $ 914 $ 927 -1 % 8 %
Sales through NIKE Direct 621 538 15 % 30 %
TOTAL REVENUES $ 1,535 $ 1,465 5 % 16 %
EARNINGS BEFORE INTEREST AND TAXES $ 500 $ 481 4 %
As discussed previously, our NIKE Brand business in Brazil transitioned to a
distributor operating model during fiscal 2021. During the first quarter of
fiscal 2023, we completed the sale of our entity in Chile to a third-party
distributor and the impacts from closing this transaction are included within
Corporate and are not reflected in the APLA operating segment results.
Subsequent to the end of the first quarter of fiscal 2023, we completed the sale
of our Argentina and Uruguay entities to a third party distributor. This
completes the transition of our NIKE Brand businesses in these markets to a
distributor operating model. Our Central and South America (CASA) marketplace
now reflects a full distributor operating model. For more information see
Note 13 - Acquisitions and Divestitures within the accompanying Notes to the
Unaudited Condensed Consolidated Financial Statements.
FIRST QUARTER OF FISCAL 2023 COMPARED TO FIRST QUARTER OF FISCAL 2022
On a currency-neutral basis, APLA revenues increased 16% for the first quarter of fiscal 2023. The increase was due to higher revenues across nearly all territories, led bySoutheast Asia &India andKorea , which increased 64% and 23%, respectively. Revenues increased primarily due to higher revenues in Men's, Women's and the Jordan Brand.NIKE Direct revenues increased 30%, primarily due to digital sales growth of 29%, comparable store sales growth of 24%, in part due to improved physical retail traffic, and the addition of new stores. Currency-neutral footwear revenues increased 15%, due primarily to higher revenues in Women's and the Jordan Brand. Unit sales of footwear increased 1%, while higher ASP per pair contributed approximately 14 percentage points of footwear revenue growth. Higher ASP per pair was driven by the favorable impact of growth in ourNIKE Direct business as well as higher full-price ASP. Higher ASPs, in part, reflect inflationary conditions inArgentina . Currency-neutral apparel revenues increased 19%, due primarily to higher revenues in Men's and Women's. Unit sales of apparel increased 18%, while higher ASP per unit contributed approximately 1 percentage point of apparel revenue growth, driven by higher off-price ASP. Higher ASPs, in part, reflect inflationary conditions inArgentina . Reported EBIT increased 4% for the first quarter of fiscal 2023, as higher revenues and gross margin expansion more than offset higher selling and administrative expense. Gross margin increased approximately 90 basis points due to higher full-price ASP, net of discounts, the favorable impact of growth and higher margin in ourNIKE Direct business, higher off-price margin, and favorable changes in standard foreign currency exchange rates. This activity was partially offset by higher other costs, primarily higher warehousing and freight, as well as higher product costs. Selling and administrative expense increased due to higher operating overhead and demand creation expense. Higher operating overhead expense was primarily due to an increase in professional services costs, as well as higher wage-related expenses. The increase in demand creation expense was primarily due to normalization of sports marketing spend. 30
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GLOBAL BRAND DIVISIONS
THREE MONTHS ENDED
% CHANGE EXCLUDING
(Dollars in millions) 2022 2021 % CHANGE CURRENCY CHANGES
Revenues $ 14 $ 7 100 % 96 %
Earnings (Loss) Before Interest and Taxes $ (1,187) $ (987) -20 %
Global Brand Divisions primarily represent demand creation and operating
overhead expense, including product creation and design expenses that are
centrally managed for the
FIRST QUARTER OF FISCAL 2023 COMPARED TO FIRST QUARTER OF FISCAL 2022
Global Brand Divisions' loss before interest and taxes increased 20% for the
first quarter of fiscal 2023 driven primarily by higher operating overhead
expense while demand creation expense remained flat. Higher operating overhead
expense was primarily due to an increase in wage-related costs and strategic
technology investments.
CONVERSE
THREE MONTHS ENDED
% CHANGE EXCLUDING
(Dollars in millions) 2022 2021 % CHANGE CURRENCY CHANGES
Revenues by:
Footwear $ 577 $ 567 2 % 7 %
Apparel 20 24 -17 % -10 %
Equipment 8 9 -11 % 1 %
Other(1) 38 29 31 % 30 %
TOTAL REVENUES $ 643 $ 629 2 % 8 %
Revenues by:
Sales to Wholesale Customers $ 344 $ 369 -7 % 0 %
Sales through Direct to Consumer 261 231 13 % 17 %
Other(1) 38 29 31 % 30 %
TOTAL REVENUES $ 643 $ 629 2 % 8 %
EARNINGS BEFORE INTEREST AND TAXES $ 209 $ 204 2 %
(1)Other revenues consist of territories serviced by third-party licensees who
pay royalties to Converse for the use of its registered trademarks and other
intellectual property rights. We do not own the Converse trademarks in Japan and
accordingly do not earn revenues in Japan .
FIRST QUARTER OF FISCAL 2023 COMPARED TO FIRST QUARTER OF FISCAL 2022
On a currency-neutral basis, Converse revenues increased 8% for the first quarter of fiscal 2023 as revenue growth inNorth America andWestern Europe was partially offset by declines inAsia . Direct to consumer revenues increased 17%, driven by strong digital demand inNorth America . Combined unit sales within the wholesale and direct to consumer channels decreased 5%, while ASP increased 12%, driven by growth in direct to consumer. Reported EBIT increased 2%, driven by gross margin expansion and higher revenues, partially offset by higher selling and administrative expense. Gross margin increased approximately 220 basis points as higher ASP, net of discounts, and higher margin in direct to consumer were partially offset by higher product and other costs, primarily due to increased freight costs. Selling and administrative expense increased due to higher operating overhead expense, partially offset by a decrease in demand creation expense. Operating overhead expense increased as a result of higher professional services costs, lower bad debt recoveries and an increase in wage-related expenses.
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CORPORATE
THREE MONTHS ENDED AUGUST 31,
(Dollars in millions) 2022 2021 % CHANGE
Revenues $ (4) $ (21) -
Earnings (Loss) Before Interest and Taxes $ (574) $ (545) -5 %
Corporate revenues primarily consist of foreign currency hedge gains and losses
related to revenues generated by entities within the
The Corporate loss before interest and taxes primarily consists of unallocated general and administrative expenses, including expenses associated with centrally managed departments; depreciation and amortization related to our corporate headquarters; unallocated insurance, benefit and compensation programs, including stock-based compensation; and certain foreign currency gains and losses. In addition to the foreign currency gains and losses recognized in Corporate revenues, foreign currency results in Corporate include gains and losses resulting from the difference between actual foreign currency exchange rates and standard rates used to record non-functional currency denominated product purchases within theNIKE Brand geographic operating segments and Converse; related foreign currency hedge results; conversion gains and losses arising from remeasurement of monetary assets and liabilities in non-functional currencies; and certain other foreign currency derivative instruments.
FIRST QUARTER OF FISCAL 2023 COMPARED TO FIRST QUARTER OF FISCAL 2022
Corporate's loss before interest and taxes increased
•an unfavorable change of$140 million related to the difference between actual foreign currency exchange rates and standard foreign currency exchange rates assigned to theNIKE Brand geographic operating segments and Converse, net of hedge gains and losses; these results are reported as a component of consolidated gross margin; •a favorable change in net foreign currency gains and losses of$67 million related to the remeasurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments, reported as a component of consolidated Other (income) expense, net; and
•a favorable change of
FOREIGN CURRENCY EXPOSURES AND HEDGING PRACTICES
OVERVIEW
As a global company with significant operations outsidethe United States , in the normal course of business we are exposed to risk arising from changes in currency exchange rates. Our primary foreign currency exposures arise from the recording of transactions denominated in non-functional currencies and the translation of foreign currency denominated results of operations, financial position and cash flows intoU.S. Dollars. Our foreign exchange risk management program is intended to lessen both the positive and negative effects of currency fluctuations on our consolidated results of operations, financial position and cash flows. We manage global foreign exchange risk centrally on a portfolio basis to address those risks material toNIKE, Inc. Our hedging policy is designed to partially or entirely offset the impact of exchange rate changes on the underlying net exposures being hedged. Where exposures are hedged, our program has the effect of delaying the impact of exchange rate movements on our Unaudited Condensed Consolidated Financial Statements; the length of the delay is dependent upon hedge horizons. We do not hold or issue derivative instruments for trading or speculative purposes. As of and for the three months endedAugust 31, 2022 , there have been no material changes to the Company's hedging program or strategy from what was disclosed within the Annual Report on Form 10-K. Refer to Note 4 - Fair Value Measurements and Note 8 - Risk Management and Derivatives in the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements for additional description of outstanding derivatives at each reported period end. For additional information about our Foreign Currency Exposures and Hedging Practices refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year endedMay 31, 2022 .
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TRANSACTIONAL EXPOSURES
We conduct business in various currencies and have transactions which subject us to foreign currency risk. Our most significant transactional foreign currency exposures are: •Product Costs - Product purchases denominated in currencies other than the functional currency of the transacting entity and factory input costs from the foreign currency adjustments program with certain factories. •Non-Functional Currency Denominated External Sales - A portion of ourNIKE Brand and Converse revenues associated with European operations are earned in currencies other than the Euro (e.g., the British Pound) but are recognized at a subsidiary that uses the Euro as its functional currency. These sales generate a foreign currency exposure.
•Other Costs - Non-functional currency denominated costs, such as endorsement contracts, also generate foreign currency risk, though to a lesser extent.
•Non-Functional Currency Denominated Monetary Assets and Liabilities - Our global subsidiaries have various monetary assets and liabilities, primarily receivables and payables, including intercompany receivables and payables, denominated in currencies other than their functional currencies. These balance sheet items are subject to remeasurement which may create fluctuations in Other (income) expense, net within our consolidated results of operations. MANAGING TRANSACTIONAL EXPOSURES Transactional exposures are managed on a portfolio basis within our foreign currency risk management program. We manage these exposures by taking advantage of natural offsets and currency correlations that exist within the portfolio and may also elect to use currency forward and option contracts to hedge the remaining effect of exchange rate fluctuations on probable forecasted future cash flows, including certain product cost exposures, non-functional currency denominated external sales and other costs described above. Generally, these are accounted for as cash flow hedges, except for hedges of the embedded derivative components of the product cost exposures and other contractual agreements. Certain currency forward contracts used to manage the foreign exchange exposure of non-functional currency denominated monetary assets and liabilities subject to remeasurement and embedded derivative contracts are not formally designated as hedging instruments and are recognized in Other (income) expense, net.
TRANSLATIONAL EXPOSURES
Many of our foreign subsidiaries operate in functional currencies other than theU.S. Dollar. Fluctuations in currency exchange rates create volatility in our reported results as we are required to translate the balance sheets, operational results and cash flows of these subsidiaries intoU.S. Dollars for consolidated reporting. The translation of foreign subsidiaries' non-U.S. Dollar denominated balance sheets intoU.S. Dollars for consolidated reporting results in a cumulative translation adjustment to Accumulated other comprehensive income (loss) within Shareholders' equity. The impact of foreign exchange rate fluctuations on the translation of our consolidated Revenues was a detriment of approximately$823 million for the three months endedAugust 31, 2022 , and a benefit of approximately$382 million for the three months endedAugust 31, 2021 . The impact of foreign exchange rate fluctuations on the translation of our Income before income taxes was a detriment of approximately$253 million for the three months endedAugust 31, 2022 , and a benefit of approximately$117 million for the three months endedAugust 31, 2021 . Management generally identifies hyper-inflationary markets as those markets whose cumulative inflation rate over a three-year period exceeds 100%. Management has concluded ourArgentina subsidiary within our APLA operating segment and ourTurkey subsidiary within our EMEA operating segment are operating in hyper-inflationary markets. As a result, beginning in the second quarter of fiscal 2019 and the first quarter of fiscal 2023, the functional currency of ourArgentina subsidiary and ourTurkey subsidiary, respectively, changed from the local currency to theU.S. Dollar. As of and for the three months endedAugust 31, 2022 , these changes did not have a material impact on our results of operations or financial condition, and we do not anticipate they will have a material impact in future periods based on current rates. MANAGING TRANSLATIONAL EXPOSURES To minimize the impact of translating foreign currency denominated revenues and expenses intoU.S. Dollars for consolidated reporting, certain foreign subsidiaries use excess cash to purchaseU.S. Dollar denominated available-for-sale investments. The variable future cash flows associated with the purchase and subsequent sale of theseU.S. Dollar denominated investments at non-U.S. Dollar functional currency subsidiaries creates a foreign currency exposure that qualifies for hedge accounting underU.S. GAAP. We utilize forward contracts and/or options to mitigate the variability of the forecasted future purchases and sales of theseU.S. Dollar investments. The combination of the purchase and sale of theU.S. Dollar investment and the hedging instrument has the effect of partially offsetting the year-over-year foreign currency translation impact on net earnings in the period the investments are sold. Hedges of the purchase ofU.S. Dollar denominated available-for-sale investments are accounted for as cash flow hedges.
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We estimate the combination of translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency related gains and losses included in Other (income) expense, net had an unfavorable impact of approximately$234 million on our Income before income taxes for the three months endedAugust 31, 2022 .
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW ACTIVITY
Cash provided (used) by operations was an inflow of$357 million for the first three months of fiscal 2023, compared to$1,111 million for the first three months of fiscal 2022. Net income, adjusted for non-cash items, generated$1,771 million of operating cash inflow for the first three months of fiscal 2023, compared to$2,076 million for the first three months of fiscal 2022. The net change in working capital and other assets and liabilities resulted in a decrease to Cash provided (used) by operations of$1,414 million for the first three months of fiscal 2023 compared to$965 million for the first three months of fiscal 2022. The net change in working capital was unfavorably impacted by an increase in Inventories of$1,464 million as a result of higher inventory levels due to extended lead times and shifts in product flow as a result of ongoing supply chain volatility. The change in working capital was also impacted by a$707 million favorable change in Accounts payable due to higher product purchases and the net favorable change in cash collateral with derivative counterparties as a result of hedging transactions. During the first three months of fiscal 2023, we received cash collateral of$476 million as compared to$39 million during the first three months of fiscal 2022. Refer to the Credit Risk section of Note 8 - Risk Management and Derivatives in the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements for additional details. Cash provided (used) by investing activities was an outflow of$214 million for the first three months of fiscal 2023, compared to an inflow of$501 million for the first three months of fiscal 2022, primarily driven by the net change in short-term investments. For the first three months of fiscal 2023, the net change in short-term investments (including sales, maturities and purchases) resulted in a cash outflow of$89 million compared to a cash inflow of$583 million for the first three months of fiscal 2022. Cash provided (used) by financing activities was an outflow of$1,404 million for the first three months of fiscal 2023 compared to$743 million for the first three months of fiscal 2022. The increased outflow in the first three months of fiscal 2023 was driven by lower proceeds from stock option exercises, which resulted in a cash inflow of$82 million in the first three months of fiscal 2023 compared to$473 million in the first three months of fiscal 2022, as well as higher share repurchases of$983 million for the first three months of fiscal 2023 compared to$752 million in the first three months of fiscal 2022. During the first three months of fiscal 2023, we repurchased a total of 9.0 million shares ofNIKE's Class B Common Stock for$991.1 million (an average price of$110.58 per share). InAugust 2022 , we terminated the previous four-year,$15 billion share repurchase program approved by the Board of Directors inJune 2018 . Under this program, we repurchased 6.5 million shares for a total approximate cost of$710.0 million (an average price of$109.85 per share) during the first quarter of fiscal 2023 and 83.8 million shares for a total approximate cost of$9.4 billion (an average price of$111.82 per share) during the term of the program. Upon termination of the four-year,$15 billion program, we began purchasing shares under the new four-year,$18 billion share repurchase plan authorized by the Board of Directors inJune 2022 . As ofAugust 31, 2022 , we had repurchased 2.5 million shares at a cost of approximately$281.1 million (an average price of$112.48 per share) under this new program. We continue to expect funding of share repurchases will come from operating cash flows and excess cash. The timing and the amount of share repurchases will be dictated by our capital needs and stock market conditions.
CAPITAL RESOURCES
OnJuly 21, 2022 , we filed a shelf registration statement (the "Shelf") with theU.S. Securities and Exchange Commission (SEC) which permits us to issue an unlimited amount of debt securities from time to time. The Shelf expires onJuly 21, 2025 . As ofAugust 31, 2022 , our committed credit facilities were unchanged from the information previously reported on Form 10-K for the fiscal year endedMay 31, 2022 . We currently have long-term debt ratings of AA- and A1 from Standard and Poor's Corporation andMoody's Investor Services , respectively. Any changes to these ratings could result in interest rate and facility fee changes. As ofAugust 31, 2022 , we were in full compliance with the covenants under our facilities and believe it is unlikely we will fail to meet any of the covenants in the foreseeable future. As ofAugust 31, 2022 andMay 31, 2022 , no amounts were outstanding under our committed credit facilities. Liquidity was also provided by our$3 billion commercial paper program. As of and for the three months endedAugust 31, 2022 , we did not have any borrowings outstanding under our$3 billion program. We may issue commercial paper or other debt securities depending on general corporate needs. We currently have short-term debt ratings of A1+ and P1 from Standard and Poor's Corporation andMoody's Investor Services , respectively.
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To date, in fiscal 2023, we have not experienced difficulty accessing the credit markets; however, future volatility in the capital markets may increase costs associated with issuing commercial paper or other debt instruments or affect our ability to access those markets. As ofAugust 31, 2022 , we had cash, cash equivalents and short-term investments totaling$11.9 billion , primarily consisting of commercial paper, corporate notes, deposits held at major banks, money market funds,U.S. Treasury obligations and other investment grade fixed-income securities. Our fixed-income investments are exposed to both credit and interest rate risk. All of our investments are investment grade to minimize our credit risk. While individual securities have varying durations, as ofAugust 31, 2022 , the weighted average days to maturity of our cash equivalents and short-term investments portfolio was 136 days. We believe that existing cash, cash equivalents, short-term investments and cash generated by operations, together with access to external sources of funds as described above, will be sufficient to meet our domestic and foreign capital needs in the foreseeable future.
There have been no significant changes to the material cash requirements
reported in our Annual Report on Form 10-K for the fiscal year ended
OFF-BALANCE SHEET ARRANGEMENTS
As of
NEW ACCOUNTING PRONOUNCEMENTS
There have been no material changes in recently issued or adopted accounting standards from those disclosed in our Annual Report on Form 10-K for the fiscal year endedMay 31, 2022 .
CRITICAL ACCOUNTING ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon our Unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America . The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We believe the assumptions and judgments involved in the accounting estimates described in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of our most recent Annual Report on Form 10-K have the greatest potential impact on our financial statements, so we consider these to be our critical accounting estimates. Actual results could differ from these estimates. We are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported. 35
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