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Nike Brushes Off Supply Delays, Expects First $50 Billion Year in 2022

Nike generated revenues of $12.3 billion in its fourth quarter, its highest quarterly total ever and up 96 percent compared to the prior year. Even more promising, the athleticwear and footwear giant’s revenues increased 21 percent compared to the fourth quarter of 2019.

Upon driving a healthy $1.5 billion net income for the final quarter, Nike gave both an outlook for the upcoming year and a separate guidance through its 2025 fiscal year that signals an even larger role for its direct-to-consumer business.

In a Nutshell: In an earnings call, executive vice president and chief financial officer Matt Friend said Nike expects revenue to grow in the “low-double digits” and surpass $50 billion in fiscal 2022.

“We do not expect quarter by quarter growth to be linear,” Friend said. “Therefore, we expect first half growth to be slightly higher than second half growth.”

The company expects gross margin to expand 125 to 150 basis points for the full year, reflecting the continued shift to a more profitable Nike Direct business and sustained, strong full-price realization.

Friend projected revenue growth to inflect upwards to a range of “high single-digit to low double-digit growth, on average” through the 2025 fiscal year.

While Nike Direct is approaching 40 percent of the Nike Brand business today, the Oregon company expects it to represent approximately 60 percent of the business in 2025, led by growth in digital.

According to CEO John Donahoe, the combination of owned and partner digital revenue is nearly 35 percent of Nike’s total business, with the company aiming for combined digital sales to expand to 50 percent of the business mix by 2025. Nike’s owned digital revenue is anticipated to represent 40 percent of the business.

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As the company continues to exit what it calls “undifferentiated” partners, Nike expects wholesale revenue to remain roughly flat versus fiscal 2021.

In the fourth quarter, apparel saw 110 percent revenue growth in the fourth quarter to $3.4 billion as the sector bounced back across the board due to 2020’s Covid-driven store closures. But the return of team sports also drove equipment revenue higher at a rate of 123 percent to $368 million.

Footwear generated $7.9 billion in the quarter, an 89 percent increase on an annual basis.

For the full-year, the Jordan Brand saw revenues increase 31 percent to a $4.7 billion business alone. Jordan outperformed all brand categories, with the next highest increase being sportswear at 23 percent to $15 billion.

Jordan’s women’s business nearly tripled in the fourth quarter alone, fueled by product such as the flight essentials apparel collection.

Overall, the women’s business had the highest year-over-year growth versus the men’s and kids’ categories. Women’s jumped 22 percent to $8.5 billion, men’s saw a 13 percent bump to $18.9 billion and kids’ increased 17 percent to $5.9 billion.

“We’re very bullish on the opportunity for women’s,” Friend said. “We’ve been talking about it for several years. We’re now investing in the marketplace through our Nike Live concepts, and Live stores are almost 50 percent women’s sales, which are 15 points ahead of our other stores in terms of women’s proportion of the revenue.”

Inventories for Nike were $6.9 billion, down 7 percent compared to the prior-year period, driven by strong consumer demand. Close-out inventory saw “double-digit declines,” according to Friend.

“In-transit, full-price inventory remains elevated, as we continue to experience longer end to end lead times for supply,” Friend said. “We expect supply chain delays and higher logistics costs to persist throughout much of fiscal 2022.”

Gross margin increased 850 basis points (8.5 percentage points) to 45.8 percent, primarily due to annualizing the impacts of Covid-19 including lower factory cancellation charges, lower inventory obsolescence reserves as well as the favorable rate impact of supply chain fixed costs on a higher volume of wholesale shipments. The increase in gross margin also reflects favorable margins in the company’s Nike Direct business.

Cash and equivalents and short-term investments were $13.5 billion, $4.7 billion higher than last year, primarily due to proceeds from net income partially offset by cash dividends.

Net Sales: Fourth-quarter reported revenues at Nike were $12.3 billion, up 96 percent compared to prior year and increasing 21 percent compared to the fourth quarter of 2019.

On a currency-neutral basis, revenues jumped 88 percent year over year.

For the full 2021 fiscal year, Nike saw sales grow to $44.5 billion, a 19 percent boost on a reported basis, or a 14 percent jump compared to 2019.

When breaking the fourth quarter down by segment, revenues for the Nike Brand were $11.8 billion, up 88 percent to prior year on a currency-neutral basis, driven by triple-digit growth in the company’s wholesale business and strong 73 percent growth in Nike Direct to $4.5 billion.

Revenues at Converse were $596 million, up 85 percent on a currency-neutral basis, led by strong marketplace demand in North America and Western Europe.

Regionally, North America delivered record revenues of $5.4 billion, up 141 percent on a reported basis for the fourth quarter and up 29 percent compared to the fourth quarter of 2019. This includes increased wholesale revenue due to delayed shipments from the previous quarter. As markets reopened and sports returned, North America’s digital growth continued to be strong, increasing 54 percent versus prior year and 177 percent compared to the fourth quarter of 2019.

EMEA’s fourth quarter reported revenues increased 124 percent to approximately $3 billion, up 21 percent compared to the final quarter two years ago, despite temporary Covid-19 related store closures throughout the quarter. EMEA’s digital fourth-quarter sales increased 40 percent, and 170 percent on a two-year basis.

Greater China’s reported sales growth totaled 17 percent to $1.9 billion, but the currency-neutral number is 9 percent. For the full year, China delivered its seventh-consecutive year of double-digit growth.

Net Earnings: Nike’s net income was $1.5 billion, and diluted earnings per share was 93 cents compared to a $790 million net loss for the 2020 fourth quarter and a net loss per share of 51 cents.

For the full year, net income was $5.7 billion, and diluted earnings per share was $3.56, up 123 percent from the prior year totals. 
 

CEO’s Take: Donahoe shared Nike’s long-term confidence in its growth in China despite concerns from several investors during the call, talking about the strength of the company’s partnership with Alibaba’s Tmall marketplace and other ongoing investments.

“We’re a brand of China, and for China. And the biggest asset we have in China is the consumer equity. Consumers feel a strong, deep connection to the Nike, Jordan and Converse brands in China, and it’s real, I saw that in my first week there, can’t wait to get back there,” Donahoe said. “And it’s strong. And that’s brought to life on streets all over China through the over 7,000 monobrand stores we have in China, so we have a strong consumer franchise in China, and they feel very connected to our brand.

“We’ll continue our long-term investment in China, whether it’s through the Express Lane, which allows us to have local product insights so we can design and deliver with speed and agility. We’re localizing our tech stack and we’re opening a new digital technology center in Shenzhen,” Donahoe added. “We’ve been the No. 1 sports brand on Tmall for a decade. The last month we’ve added 1 million new members, all through the 6.18 shopping holiday. We’re focusing on what we can control and are confident in our momentum position about our long-term growth in China.”