NIKE, Inc. reported financial results for its fiscal 2020 fourth quarter and full year ended 31st May, 2020.
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Fourth quarter reported revenues were $6.3 billion, declining from prior year as the majority of NIKE-owned and partner stores in North America, EMEA and APLA were closed due to the COVID-19 pandemic.
NIKE digital sales increased 75 percent in the fourth quarter, or 79 percent on a currency- neutral basis, with strong double-digit increases across all geographies and was approximately 30 percent of total revenue.
For the fiscal year, Greater China revenues increased 8 percent, or 11 percent on a currency-neutral basis, marking its sixth consecutive year of double-digit currency-neutral growth despite the headwinds from COVID-19 in the second half of the year.
The fourth quarter results were significantly impacted by physical store closures across North America, EMEA and APLA, where 90 percent of NIKE-owned stores were closed for roughly eight weeks in the quarter to protect the health and safety of teammates and consumers and help slow the spread of the COVID-19 pandemic.
“In a highly dynamic environment, the NIKE Brand continues to resonate strongly with consumers all over the world as our digital business accelerates in every market. We are uniquely positioned to grow, and now is the time to build on NIKE’s strengths and distinct capabilities. We are continuing to invest in our biggest opportunities, including a more connected digital marketplace, to extend our leadership and fuel long-term growth,” said John Donahoe, President and Chief Executive Officer, NIKE, Inc.
As of today, approximately 90 percent of NIKE-owned stores are open across the globe. Retail traffic continues to improve week-over-week with higher conversion rates as compared to the prior year.
“As physical retail re-opens, NIKE’s strong digital trends continue, a testament to the strength of our brand and the investments we’ve made to elevate digital consumer experiences. Amid macroeconomic uncertainty, we will continue to operate with agility, focused on optimizing marketplace supply and demand, cost management and leveraging our financial strength to drive long-term sustainable, profitable growth,” said Matt Friend, Executive Vice President and Chief Financial Officer, NIKE, Inc.
Revenues for NIKE, Inc. decreased 38 percent to $6.3 billion, down 36 percent on a currency- neutral basis, primarily due to owned and partner physical store closures across North America, EMEA and APL A due to COVID-19, partially offset by growth in Greater China.
Gross margin decreased 820 basis points to 37.3 percent as higher full-price average selling prices, despite increased wholesale discounts, were more than offset by higher product costs including factory cancellation charges, increased inventory obsolescence reserves and the adverse rate impact of supply chain fixed costs on lower wholesale shipments primarily due to COVID-19.
Selling and administrative expense decreased 6 percent to $3.2 billion, which included an incremental $178 million increase in bad debt expense. Demand creation expense was $823 million, down 19 percent to prior year as retail and brand marketing spend was shifted as sporting events were canceled or delayed due to COVID-19. Operating overhead expense decreased 1 percent to $2.4 billion driven primarily by lower total wages and travel and related expenses, partially offset by higher bad debt expense.
The effective tax rate was 1.7 percent, compared to 20.4 percent for the same period last year. This is primarily due to the mix of earnings taxed in the U.S. and favorability attributable to items such as the use of foreign tax credits.
Net loss was $790 million and diluted net loss per share was $0.51 driven by lower revenue and gross margin as a result of the COVID-19 impact on operations, partially offset by lower selling and administrative expenses.
Inventories for NIKE, Inc. were $7.4 billion, up 31 percent compared to the prior year period, primarily reflecting the impact of NIKE-owned store closures in North America, EMEA and APLA as well as lower wholesale shipments in the fourth quarter due to COVID-19.
Total liquidity at 31st May was $12.5 billion with robust cash and equivalents and short-term investments of $8.8 billion, $4.1 billion higher than last year primarily due to proceeds from a $6 billion corporate bond issuance in March, partially offset by share repurchase activity in the first ten months of the year, cash dividends and investments in infrastructure. In addition, NIKE secured a new $2 billion credit facility adding to the existing credit facility of $2 billion to ensure appropriate liquidity and flexibility during the COVID-19 pandemic.
NIKE has a strong track record of investing to fuel growth and consistently increasing returns to shareholders through dividends and share repurchases including 18 consecutive years of increasing dividend payouts. In fiscal 2020, the Company returned $4.5 billion to shareholders, including:
Dividends of $1.5 billion, compared with $1.3 billion in fiscal 2019, reflecting a lower share count offset by an 11 percent increase in the dividend per share.
Share repurchases totaling $3.0 billion for fiscal 2020 reflecting 33.5 million shares retired as part of the four-year, $15 billion program approved by the Board of Directors in June 2018.
During the fourth quarter, NIKE, Inc. repurchased 1.9 million shares for approximately $159 million before suspending share repurchase activity in March to maximize liquidity in the current dynamic environment.
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As of 31st May, 2020, a total of 45.2 million shares had been repurchased for approximately $4.0 billion, resulting in approximately $11 billion in remaining capacity under the 2018 share repurchase program.