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 through NIKE-owned
retail stores and through digital platforms (which we refer to collectively as
our "NIKE Direct" operations), 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.
Since fiscal 2018, through the Consumer Direct Offense and our Triple Double
strategy, we have focused on doubling the impact of innovation, increasing our
speed and agility to market and growing our direct connections with consumers.
In June 2020, we announced a new digitally empowered phase of the Consumer
Direct Offense strategy: Consumer Direct Acceleration. This strategic
acceleration will focus on three specific areas. First, creating the marketplace
of the future through more premium, consistent and seamless consumer experiences
that more closely align with what consumers want and need. This strategy will
lead with NIKE Digital and our own stores, as well as through select strategic
partners who share our marketplace vision. Second, we will align our product
creation and category organizations around a new consumer construct focused on
Men's, Women's and Kids'. This approach is intended to allow us to create
product that better meets individual consumer needs, including more
specialization of our category approach, while re-aligning and simplifying our
offense to accelerate our largest growth opportunities. In particular, we expect
to reinvest in our Women's and Kids' businesses and also simplify our operating
model across the remainder of the Company to optimize effectiveness. Third, we
will unify investments in data and analytics, demand sensing, insight gathering,
inventory management and other areas against an end-to-end technology foundation
to 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.
As a result of our strategic acceleration, management announced on July 22,
2020, a series of leadership and operating model changes to streamline and speed
up our execution. These changes will result in a net reduction of our global
workforce and we expect to incur pre-tax charges of approximately $315 million,
the majority of which relate to employee termination costs and, to a lesser
extent, stock-based compensation expense. These amounts reflect the continued
evaluation and variability of our original estimate of employee termination
costs and required changes in assumptions used to calculate stock-based
compensation expense. For the first six months of fiscal 2021, we incurred
pre-tax charges of $218 million and expect all remaining actions to be
substantially complete by the end of fiscal 2021. We expect future annual
wage-related savings will be reinvested to execute against this next phase of
our strategy. For more information related to our organizational realignment and
related costs, see Note 14 - Restructuring within the accompanying Notes to the
Unaudited Condensed Consolidated Financial Statements.
COVID-19 UPDATE
The COVID-19 pandemic continues to impact our business results and operations
globally, causing us to transform the way we operate in order to better serve
our consumers. Although uncertainty due to the pandemic continues to exist, our
financial results for the second quarter and first six months of fiscal 2021
demonstrate our ability to navigate the dynamic situation. Despite physical
retail traffic being below prior year levels, Revenues grew 9% and 4% for the
second quarter and first six months of fiscal 2021, respectively, and 7% and 4%
on a currency-neutral basis. Through our intentional supply and demand
management, inventory levels have declined, and we ended the second quarter of
fiscal 2021 with Inventories down 17% compared to May 31, 2020. We reduced
discretionary spending while continuing to invest in our digital transformation.
As a result, total selling and administrative expense declined 2% for the second
quarter and 6% for the first six months of fiscal 2021. However, we expect
Demand creation expense to increase in future periods as major sporting events
and key sports moments resume following recovery from the pandemic, along with
investments in strategic areas to drive growth. Our liquidity position remains
strong and we ended the second quarter with $11.8 billion of Cash and
equivalents and Short-term investments.
Our NIKE Direct business continues to fuel our growth as we navigate through the
pandemic, leveraging our digital assets with our store footprint to connect
directly with the consumer. On a reported basis, NIKE Direct sales for the
second quarter and first six months of fiscal 2021 were $4.3 billion and $8.0
billion, respectively, growing 30% and 22%, respectively, on a currency-neutral
basis. NIKE Brand digital remained our fastest growing channel, with growth of
80% and 81% for the second quarter and first six months of fiscal 2021,
respectively. During the second quarter of fiscal 2021, we experienced temporary
store closures in geographies affected by rising COVID-19 cases; however, more
than 80% of our owned stores were open as of January 4, 2021, with some
operating on reduced hours. Despite a substantial majority of stores being open
during the quarter, we experienced a
                                                                            

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decline in comparable store sales in EMEA, North America and APLA, primarily due
to reduced physical retail traffic, in part resulting from safety-related
measures in response to COVID-19.
We continue to monitor the ongoing and evolving situation, as well as guidance
from international and domestic authorities, including federal, state and local
public health authorities and may take additional actions based on their
recommendations. In these circumstances, there may be developments outside our
control requiring us to adjust our operating plan. As such, we expect that
fiscal 2021 will continue to be a time of uncertainty across each of our
geographies and we expect each market recovery will be dynamic. While our
results for the second quarter and first six months of fiscal 2021 are positive,
there remains the risk that COVID-19 could have material adverse impacts on our
future revenue growth as well as our overall profitability and may lead to
higher than normal inventory levels in various markets, revised payment terms
with certain of our wholesale customers, higher sales-related reserves and a
volatile effective tax rate driven by changes in the mix of earnings across the
Company's jurisdictions.
SECOND QUARTER OVERVIEW
For the second quarter of fiscal 2021, NIKE, Inc. Revenues increased 9% to $11.2
billion compared to the second quarter of fiscal 2020. On a currency-neutral
basis, Revenues increased 7%. Net income was $1,251 million and diluted earnings
per common share was $0.78 for the second quarter of fiscal 2021, compared to
Net income of $1,115 million and diluted earnings per common share of $0.70 for
the second quarter of fiscal 2020.
Income before income taxes increased 17% compared to the second quarter of
fiscal 2020, primarily due to higher revenues and lower selling and
administrative expense, partially offset by a decline in gross margin. The NIKE
Brand, which represents over 90% of NIKE, Inc. Revenues, increased 9% compared
to the second quarter of fiscal 2020. On a currency-neutral basis, NIKE Brand
revenues grew 8%, driven by higher revenues across all geographies, footwear and
apparel, as well as growth in most key categories, primarily Sportswear and the
Jordan Brand. Revenues for Converse decreased 1% and 4% on a reported and
currency-neutral basis, respectively, as double-digit growth in digital and
growth in Asia were more than offset by declines in Europe and North America,
primarily due to tighter supply and strategic distribution shifts.
Our effective tax rate was 14.1% for the second quarter of fiscal 2021 compared
to 10.7% for the second quarter of fiscal 2020, primarily due to changes in the
proportion of earnings taxed in the U.S. and an increase in tax associated with
the recent finalization of U.S. tax regulations, partially offset by a more
favorable impact from stock-based compensation.
During the third quarter of fiscal 2020, we entered into definitive agreements
to sell our NIKE Brand businesses in Brazil, Argentina, Chile and Uruguay and to
shift to a distributor operating model. The transaction with Grupo SBF S.A. to
purchase substantially all of our NIKE Brand operations in Brazil closed on
December 1, 2020, subsequent to the end of the second quarter of fiscal 2021.
Additionally, subsequent to the end of the second quarter of fiscal 2021, we
mutually agreed with Grupo Axo to terminate the sale and purchase agreement for
the transition of NIKE's businesses in Argentina, Chile and Uruguay to a
distributor partnership. However, as we remain committed to selling our NIKE
Brand businesses in all three countries to third-party distributors, the assets
and liabilities of the entities will remain classified as held-for-sale on our
Unaudited Condensed Consolidated Balance Sheets. For more information see
Note 13 - Acquisitions and Divestitures within the accompanying Notes to the
Unaudited Condensed Consolidated Financial Statements.
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 Total NIKE Brand earnings before interest
and taxes (EBIT) and Total NIKE, Inc. EBIT, 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 in the United States
of America ("U.S. GAAP"). References to wholesale equivalent revenues are
intended to provide context as to the total size of our NIKE Brand market
footprint if we had no NIKE Direct operations. NIKE Brand wholesale equivalent
revenues consist of (1) sales to external wholesale customers and (2) internal
sales from our wholesale operations to our NIKE Direct operations, which are
charged at prices comparable to those charged to external wholesale customers.
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.
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 and EBIT should not be
considered in isolation or as a substitute for other financial measures
calculated and presented in accordance with U.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 NOVEMBER 30,                             SIX MONTHS ENDED NOVEMBER 30,
(Dollars in millions, except per share
data)                                           2020              2019                % CHANGE             2020              2019               % CHANGE
Revenues                                 $       11,243     $       10,326                9  %       $      21,837     $      20,986                4  %
Cost of sales                                     6,396              5,782               11  %              12,249            11,571                6  %
Gross profit                                      4,847              4,544                7  %               9,588             9,415                2  %
Gross margin                                       43.1   %           44.0  %                                 43.9   %          44.9  %
Demand creation expense                             729                881              -17  %               1,406             1,899              -26  %
Operating overhead expense                        2,538              2,443                4  %               4,836             4,753                2  %
Total selling and administrative expense          3,267              3,324               -2  %               6,242             6,652               -6  %
% of revenues                                      29.1   %           32.2  %                                 28.6   %          31.7  %
Interest expense (income), net                       70                 12                -                    135                27                -
Other (income) expense, net                          54                (41)               -                     40               (74)               -
Income before income taxes                        1,456              1,249               17  %               3,171             2,810               13  %
Income tax expense                                  205                134               53  %                 402               328               23  %
Effective tax rate                                 14.1   %           10.7  %                                 12.7   %          11.7  %
NET INCOME                               $        1,251     $        1,115               12  %       $       2,769     $       2,482               12  %

Diluted earnings per common share $ 0.78 $ 0.70


             11  %       $        1.73     $        1.56               11  %


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