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NIKE (NKE) Stock Up on Q4 Earnings & Sales Beat, Robust View
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NIKE Inc. (NKE - Free Report) posted fourth-quarter fiscal 2021 results, wherein sales and earnings beat the Zacks Consensus Estimate and improved year over year. The strong fiscal fourth-quarter results can be attributed to the return of sports activity, the reopening of physical retail operations, strength in the wholesale business and continued growth of NIKE Digital. Also, its connection with customers through compelling brand experiences across NIKE Jordan and Converse, product innovation and expanding digital advantage have been key drivers.
Consequently, shares of the company rallied 14.1% after the close of the trading session on Jun 24.
Overall, shares of this Zacks Rank #3 (Hold) company have gained 0.5% in the past three months compared with the industry’s 0.9% growth.
Image Source: Zacks Investment Research
Q4 Highlights
In the reported quarter, the company’s earnings per share of 93 cents increased substantially from a loss per share of 51 cents reported the year-ago quarter and beat the Zacks Consensus Estimate of earnings of 51 cents.
Revenues of the Swoosh brand owner grew 96% year over year to $12,344 million and surpassed the Zacks Consensus Estimate of $11,059.3 million. Additionally, revenues increased 21% from fourth-quarter fiscal 2019. On a currency-neutral basis, revenues improved 88% year over year mainly due to the recovery of retail business, which was impacted by the COVID-related closures in the year-ago quarter.
In the reported quarter, the company witnessed strong growth in wholesale shipments and NIKE-owned stores’ performance, owing to the anniversary of COVID-led physical store closures across North America, EMEA and APLA in the prior-year quarter. Also, the company’s revenues benefited from the return of sports activities.
Notably, NIKE continued to witness robust revenue growth at the NIKE Brand’s Digital business despite the reopening of stores. In the fiscal fourth quarter, digital revenues for the NIKE Brand improved 41% year over year and 147% from the fourth quarter of fiscal 2019. NIKE Digital accounted for nearly 21% of total NIKE Brand revenues. On a reported basis, NIKE Direct sales increased 73% year over year to $4.5 billion, representing about 40% of total NIKE Brand revenues.
Operating Segments
Revenues for the NIKE Brand were $11,761 million, up 96% year over year on a reported basis. Moreover, revenues for the brand increased 88% on a constant-dollar basis primarily due to triple-digit growth in the wholesale business and double-digit growth in its digital business.
Within the NIKE Brand, revenues in North America advanced 141% on both reported and currency-neutral basis to $5,384 million. This marked the first-ever quarter of recording $5 billion revenues for the North America segment. Moreover, revenues improved 29% from fourth-quarter fiscal 2019. North America revenues benefited from increased full-price sales as physical retailing reopened and sports activity returned. Moreover, it witnessed strong wholesale revenues, owing to the receipt of delayed shipments from the prior quarter. In third-quarter fiscal 2021, shipment delays were caused by global container shortages and port congestions on the West Coast of the United States. Revenues also benefited from continued growth in digital revenues, which improved 54% year over year and 177% from fourth-quarter fiscal 2019.
In EMEA, the company’s revenues rose 124% on a reported basis and 107% on a currency-neutral basis to $2,979 million. Moreover, revenues improved 21% from fourth-quarter fiscal 2019 despite the COVID-led temporary store closures continuing throughout the reported quarter. In the first two months of the fiscal fourth quarter, the company had nearly 50% of its stores in the region closed. With restrictions easing in May, it witnessed strong customer response and demand, which persisted in June. Growth across the region was led by strength in the U.K. and Ireland, France, Germany and Italy. As stores remained closed, sales at NIKE Digital improved 40% year over year and 170% from fourth-quarter fiscal 2019. Moreover, the company highlighted that about 99% of the stores in EMEA were open or operating at reduced hours as of Jun 24.
In Greater China, revenues increased 17% year over year on a reported basis and 9% on a currency-neutral basis in the fiscal fourth quarter to $1,933 million. Revenues improved on consistent brand strength despite adverse market dynamics. NIKE Direct rose 2% in the fiscal fourth quarter, driven by strong growth in NIKE-owned stores, offset by a decline in NIKE Digital. The company witnessed adverse sales trends in April. Consequently, it adjusted operations by suspending marketing activities and product launches. However, trends began improving in May, recording a single-digit decline. Moreover, the company highlighted that the sequential trend has improved in June, with month-to-month retail sales nearing the prior-year levels.
In APLA, NIKE revenues advanced 82% on a reported basis and 76% on a currency-neutral basis to $1,458 million. Revenues were aided by growth across all regions, led by Japan, SOKO and Mexico. Also, revenues improved in double-digits in Korea. NIKE Digital grew more than 50%, aided by its membership offense. The regions’ operations benefited from the launch of the Express Lane offense in Japan. Notably, APLA was the last geography to launch the Express Lane offense. Moreover, the company sees a significant opportunity to leverage the capabilities to drive improved customer connections across the region.
Revenues at the Converse brand improved 95% on a reported basis to $596 million. On a currency-neutral basis, revenues of the segment were up 85%, backed by strong market demand in North America and Western Europe.
Costs & Margins
Gross profit advanced 140% year over year to $5,655 million, while gross margin expanded 850 basis points (bps) to 45.8%. Gross margin growth can be attributed to improved NIKE Direct margins as well as the anniversary of last year’s higher costs incurred to manage supply and demand amid the pandemic. This included lower factory cancellation charges, lower inventory obsolescence reserves and a favorable rate impact of supply-chain fixed costs on a higher volume of wholesale shipments.
Selling and administrative expenses rose 17% to $3,742 million, driven by higher operating overhead and demand-creating expenses. As a percentage of sales, SG&A expenses contracted significantly to 30.3% from the SG&A rate of 50.5% in the prior-year quarter.
Notably, demand-creation expenses increased 21% year over year to $997 million, owing to elevated brand activity related to the return of sporting events. Branding events attracted increased advertising and marketing expenses as well as digital marketing investments.
Operating overhead expenses were up 16% to $2,745 million, owing to higher technology investments to support digital transformation, NIKE Direct variable costs and increased wage-related expenses. This was partly offset by lower bad debt expenses.
Balance Sheet & Shareholder-Friendly Moves
NIKE ended fiscal 2021 with cash and short-term investments of $13,476 million, up $4.7 billion from the last year. These included proceeds from net income, partly offset by cash dividends. Moreover, it had long-term debt (excluding current maturities) of $9,413 million and shareholders’ equity of $12,767 million as of the end of fiscal 2021. As of May 31, 2021, inventories declined 7% year over year to $6,854 million.
In fiscal 2021, the company returned $2.3 billion to shareholders, including dividend payouts of $1.6 billion and $650 million for share repurchases. The share repurchases included the buy-back of 4.9 million shares under its $15-million program approved in June 2018.
The company resumed its share-repurchase activity in the fourth quarter of fiscal 2021, after suspending it in March 2020 to preserve liquidity amid the pandemic. As of May 31, it has repurchased 50 million shares for $4.7 billion under the aforesaid program.
Outlook
The company provided guidance for fiscal 2022 and set long-term targets for fiscal 2025, driven by the momentum in its business as it comes out of the pandemic. For fiscal 2022, it anticipates revenue growth in low-double digits, surpassing $50 billion, driven by strong customer demand across its operating segments. It expects to benefit from robust digital growth, scaling NIKE-owned physical retail concepts and growing with partners. Moreover, it expects revenue growth in the first half of fiscal 2022 to be slightly higher than the second half. Foreign currency is expected to be a tailwind in fiscal 2022, suggesting gains of 70 bps.
Gross margin is estimated to expand 125-150 bps, driven by the continued shift to higher-margin NIKE Direct business and sustained strong full-priced sales. This is likely to be partly offset by higher product costs, supply-chain investments and lapping of some one-time gains realized in fiscal 2021. SG&A growth is expected to slightly surpass revenue growth, driven by spends related to sporting events, consistent store-operating schedules and investments against its largest opportunities. Effective tax rate is estimated to be in the mid-teens.
Coming to the fiscal 2025 view, the company expects sustained strong revenue growth. Revenue growth for fiscal 2025 is expected to inflect upward to high-single-digit to low-double-digit growth, on average. This is likely to be driven by strong opportunities in women's, apparel, Jordan, digital and international. The company expects growth to be led by NIKE Direct, which is anticipated to represent 60% of revenues in fiscal 2025 on strong digital growth. Additionally, it expects NIKE-owned and partnered Digital to reach 50% business mix in fiscal 2025, with NIKE-owned Digital to account for 40% of the business.
Furthermore, the company remains keen on reshaping its wholesale business portfolio. Consequently, it anticipated the wholesale business revenues to remain nearly flat with the fiscal 2021 levels.
Moreover, the company expects higher revenue growth across its operating segments, backed by the power of its diverse global portfolio. On average, North America revenues are anticipated to increase in the mid-single to high-single digits in fiscal 2025. Average revenue growth of high-single digits and low-double digits is expected in EMEA and APLA, respectively. In Greater China, the company expects to see growth in low to mid-teens in the long term.
Gross margin rate for fiscal 2025 is expected to be in the high 40s. SG&A rate is anticipated to be 32-33% of revenues, on average, for fiscal 2025. Consequently, EBIT margin is expected to reach high-teens, with earnings per share of mid to high-teens, on average, for fiscal 2025.
The company expects to deliver strong free cash flow, maintain a capital expenditure of 3% of revenues and return on invested capital at a low 30%. It also expects to consistently return cash to shareholders in the forms of dividends and share repurchases.
Crocs, Inc. (CROX - Free Report) has a long-term earnings growth rate of 15% and it flaunts a Zacks Rank #1 at present.
Columbia Sportswear Company (COLM - Free Report) has a long-term earnings growth rate of 32%. The company currently has a Zacks Rank #2 (Buy).
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NIKE (NKE) Stock Up on Q4 Earnings & Sales Beat, Robust View
NIKE Inc. (NKE - Free Report) posted fourth-quarter fiscal 2021 results, wherein sales and earnings beat the Zacks Consensus Estimate and improved year over year. The strong fiscal fourth-quarter results can be attributed to the return of sports activity, the reopening of physical retail operations, strength in the wholesale business and continued growth of NIKE Digital. Also, its connection with customers through compelling brand experiences across NIKE Jordan and Converse, product innovation and expanding digital advantage have been key drivers.
Consequently, shares of the company rallied 14.1% after the close of the trading session on Jun 24.
Overall, shares of this Zacks Rank #3 (Hold) company have gained 0.5% in the past three months compared with the industry’s 0.9% growth.
Q4 Highlights
In the reported quarter, the company’s earnings per share of 93 cents increased substantially from a loss per share of 51 cents reported the year-ago quarter and beat the Zacks Consensus Estimate of earnings of 51 cents.
Revenues of the Swoosh brand owner grew 96% year over year to $12,344 million and surpassed the Zacks Consensus Estimate of $11,059.3 million. Additionally, revenues increased 21% from fourth-quarter fiscal 2019. On a currency-neutral basis, revenues improved 88% year over year mainly due to the recovery of retail business, which was impacted by the COVID-related closures in the year-ago quarter.
In the reported quarter, the company witnessed strong growth in wholesale shipments and NIKE-owned stores’ performance, owing to the anniversary of COVID-led physical store closures across North America, EMEA and APLA in the prior-year quarter. Also, the company’s revenues benefited from the return of sports activities.
NIKE, Inc. Price, Consensus and EPS Surprise
NIKE, Inc. price-consensus-eps-surprise-chart | NIKE, Inc. Quote
Notably, NIKE continued to witness robust revenue growth at the NIKE Brand’s Digital business despite the reopening of stores. In the fiscal fourth quarter, digital revenues for the NIKE Brand improved 41% year over year and 147% from the fourth quarter of fiscal 2019. NIKE Digital accounted for nearly 21% of total NIKE Brand revenues. On a reported basis, NIKE Direct sales increased 73% year over year to $4.5 billion, representing about 40% of total NIKE Brand revenues.
Operating Segments
Revenues for the NIKE Brand were $11,761 million, up 96% year over year on a reported basis. Moreover, revenues for the brand increased 88% on a constant-dollar basis primarily due to triple-digit growth in the wholesale business and double-digit growth in its digital business.
Within the NIKE Brand, revenues in North America advanced 141% on both reported and currency-neutral basis to $5,384 million. This marked the first-ever quarter of recording $5 billion revenues for the North America segment. Moreover, revenues improved 29% from fourth-quarter fiscal 2019. North America revenues benefited from increased full-price sales as physical retailing reopened and sports activity returned. Moreover, it witnessed strong wholesale revenues, owing to the receipt of delayed shipments from the prior quarter. In third-quarter fiscal 2021, shipment delays were caused by global container shortages and port congestions on the West Coast of the United States. Revenues also benefited from continued growth in digital revenues, which improved 54% year over year and 177% from fourth-quarter fiscal 2019.
In EMEA, the company’s revenues rose 124% on a reported basis and 107% on a currency-neutral basis to $2,979 million. Moreover, revenues improved 21% from fourth-quarter fiscal 2019 despite the COVID-led temporary store closures continuing throughout the reported quarter. In the first two months of the fiscal fourth quarter, the company had nearly 50% of its stores in the region closed. With restrictions easing in May, it witnessed strong customer response and demand, which persisted in June. Growth across the region was led by strength in the U.K. and Ireland, France, Germany and Italy. As stores remained closed, sales at NIKE Digital improved 40% year over year and 170% from fourth-quarter fiscal 2019. Moreover, the company highlighted that about 99% of the stores in EMEA were open or operating at reduced hours as of Jun 24.
In Greater China, revenues increased 17% year over year on a reported basis and 9% on a currency-neutral basis in the fiscal fourth quarter to $1,933 million. Revenues improved on consistent brand strength despite adverse market dynamics. NIKE Direct rose 2% in the fiscal fourth quarter, driven by strong growth in NIKE-owned stores, offset by a decline in NIKE Digital. The company witnessed adverse sales trends in April. Consequently, it adjusted operations by suspending marketing activities and product launches. However, trends began improving in May, recording a single-digit decline. Moreover, the company highlighted that the sequential trend has improved in June, with month-to-month retail sales nearing the prior-year levels.
In APLA, NIKE revenues advanced 82% on a reported basis and 76% on a currency-neutral basis to $1,458 million. Revenues were aided by growth across all regions, led by Japan, SOKO and Mexico. Also, revenues improved in double-digits in Korea. NIKE Digital grew more than 50%, aided by its membership offense. The regions’ operations benefited from the launch of the Express Lane offense in Japan. Notably, APLA was the last geography to launch the Express Lane offense. Moreover, the company sees a significant opportunity to leverage the capabilities to drive improved customer connections across the region.
Revenues at the Converse brand improved 95% on a reported basis to $596 million. On a currency-neutral basis, revenues of the segment were up 85%, backed by strong market demand in North America and Western Europe.
Costs & Margins
Gross profit advanced 140% year over year to $5,655 million, while gross margin expanded 850 basis points (bps) to 45.8%. Gross margin growth can be attributed to improved NIKE Direct margins as well as the anniversary of last year’s higher costs incurred to manage supply and demand amid the pandemic. This included lower factory cancellation charges, lower inventory obsolescence reserves and a favorable rate impact of supply-chain fixed costs on a higher volume of wholesale shipments.
Selling and administrative expenses rose 17% to $3,742 million, driven by higher operating overhead and demand-creating expenses. As a percentage of sales, SG&A expenses contracted significantly to 30.3% from the SG&A rate of 50.5% in the prior-year quarter.
Notably, demand-creation expenses increased 21% year over year to $997 million, owing to elevated brand activity related to the return of sporting events. Branding events attracted increased advertising and marketing expenses as well as digital marketing investments.
Operating overhead expenses were up 16% to $2,745 million, owing to higher technology investments to support digital transformation, NIKE Direct variable costs and increased wage-related expenses. This was partly offset by lower bad debt expenses.
Balance Sheet & Shareholder-Friendly Moves
NIKE ended fiscal 2021 with cash and short-term investments of $13,476 million, up $4.7 billion from the last year. These included proceeds from net income, partly offset by cash dividends. Moreover, it had long-term debt (excluding current maturities) of $9,413 million and shareholders’ equity of $12,767 million as of the end of fiscal 2021. As of May 31, 2021, inventories declined 7% year over year to $6,854 million.
In fiscal 2021, the company returned $2.3 billion to shareholders, including dividend payouts of $1.6 billion and $650 million for share repurchases. The share repurchases included the buy-back of 4.9 million shares under its $15-million program approved in June 2018.
The company resumed its share-repurchase activity in the fourth quarter of fiscal 2021, after suspending it in March 2020 to preserve liquidity amid the pandemic. As of May 31, it has repurchased 50 million shares for $4.7 billion under the aforesaid program.
Outlook
The company provided guidance for fiscal 2022 and set long-term targets for fiscal 2025, driven by the momentum in its business as it comes out of the pandemic. For fiscal 2022, it anticipates revenue growth in low-double digits, surpassing $50 billion, driven by strong customer demand across its operating segments. It expects to benefit from robust digital growth, scaling NIKE-owned physical retail concepts and growing with partners. Moreover, it expects revenue growth in the first half of fiscal 2022 to be slightly higher than the second half. Foreign currency is expected to be a tailwind in fiscal 2022, suggesting gains of 70 bps.
Gross margin is estimated to expand 125-150 bps, driven by the continued shift to higher-margin NIKE Direct business and sustained strong full-priced sales. This is likely to be partly offset by higher product costs, supply-chain investments and lapping of some one-time gains realized in fiscal 2021. SG&A growth is expected to slightly surpass revenue growth, driven by spends related to sporting events, consistent store-operating schedules and investments against its largest opportunities. Effective tax rate is estimated to be in the mid-teens.
Coming to the fiscal 2025 view, the company expects sustained strong revenue growth. Revenue growth for fiscal 2025 is expected to inflect upward to high-single-digit to low-double-digit growth, on average. This is likely to be driven by strong opportunities in women's, apparel, Jordan, digital and international. The company expects growth to be led by NIKE Direct, which is anticipated to represent 60% of revenues in fiscal 2025 on strong digital growth. Additionally, it expects NIKE-owned and partnered Digital to reach 50% business mix in fiscal 2025, with NIKE-owned Digital to account for 40% of the business.
Furthermore, the company remains keen on reshaping its wholesale business portfolio. Consequently, it anticipated the wholesale business revenues to remain nearly flat with the fiscal 2021 levels.
Moreover, the company expects higher revenue growth across its operating segments, backed by the power of its diverse global portfolio. On average, North America revenues are anticipated to increase in the mid-single to high-single digits in fiscal 2025. Average revenue growth of high-single digits and low-double digits is expected in EMEA and APLA, respectively. In Greater China, the company expects to see growth in low to mid-teens in the long term.
Gross margin rate for fiscal 2025 is expected to be in the high 40s. SG&A rate is anticipated to be 32-33% of revenues, on average, for fiscal 2025. Consequently, EBIT margin is expected to reach high-teens, with earnings per share of mid to high-teens, on average, for fiscal 2025.
The company expects to deliver strong free cash flow, maintain a capital expenditure of 3% of revenues and return on invested capital at a low 30%. It also expects to consistently return cash to shareholders in the forms of dividends and share repurchases.
3 Better-Ranked Stocks to Watch
Carter’s, Inc. (CRI - Free Report) has a long-term earnings growth rate of 21.1%. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Crocs, Inc. (CROX - Free Report) has a long-term earnings growth rate of 15% and it flaunts a Zacks Rank #1 at present.
Columbia Sportswear Company (COLM - Free Report) has a long-term earnings growth rate of 32%. The company currently has a Zacks Rank #2 (Buy).
Infrastructure Stock Boom to Sweep America
A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made.
The only question is “Will you get into the right stocks early when their growth potential is greatest?”
Zacks has released a Special Report to help you do just that, and today it’s free. Discover 7 special companies that look to gain the most from construction and repair to roads, bridges, and buildings, plus cargo hauling and energy transformation on an almost unimaginable scale.
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