EPS of $1.03 increased by 22.4% from previous year
Gross margin of 44.6%
Net income of 1.58B
""We create innovation that pushes human potential... a great quarter for NIKE and the athletes who inspire us." - John Donahoe, President and CEO" - John Donahoe
NIKE Inc (NKE) Q2 FY 2024 Results Analysis: Resilience in a Challenging Market
Executive Summary
NIKE Inc (NKE) reported a robust performance in Q2 FY 2024, achieving revenues of $13.39 billion, reflecting a 1% year-over-year increase and a significant 21% rise in earnings per share. Despite facing challenges in a highly promotional marketplace, NIKE's strategic focus on innovation and effective market execution enabled strong growth in key areas such as the running segment and direct-to-consumer channels. Management emphasized a commitment to enhancing operational efficiencies and investing in new product innovations to sustain long-term growth amidst macroeconomic volatility. Management’s commentary illustrated confidence in the brand's ability to navigate current challenges while maintaining a strong market position.
Key Performance Indicators
Revenue
13.39B
QoQ: 3.47% | YoY:0.55%
Gross Profit
5.97B
44.60% margin
QoQ: 4.39% | YoY:4.55%
Operating Income
1.83B
QoQ: 13.78% | YoY:15.00%
Net Income
1.58B
QoQ: 8.83% | YoY:18.56%
EPS
1.04
QoQ: 9.47% | YoY:22.35%
Revenue Trend
Margin Analysis
Key Insights
Total Revenue: $13.39 billion (YoY Growth: +1%, QoQ Growth: +3.47%)\n- Gross Profit: $5.97 billion (Gross Margin: 44.6%, YoY Growth: +4.55%)\n- Operating Income: $1.83 billion (Operating Margin: 13.6%, YoY Growth: +15%)\n- Net Income: $1.58 billion (Net Margin: 11.7%, YoY Growth: +18.6%)\n- EPS: $1.03 (Diluted EPS: +21% YoY)\n- Inventory: Down 14% YoY, indicating effective inventory management amidst market challenges. \n- Current Ratio: 2.74 (indication of good short-term financial health)\n- Free Cash Flow: $2.61 billion, showcasing strong cash generation capabilities. \nManagement highlighted the importance of strategic pricing actions and effective cost control which led to a 170 basis point increase in gross margin despite rising input costs.
Financial Highlights
- Total Revenue: $13.39 billion (YoY Growth: +1%, QoQ Growth: +3.47%)\n- Gross Profit: $5.97 billion (Gross Margin: 44.6%, YoY Growth: +4.55%)\n- Operating Income: $1.83 billion (Operating Margin: 13.6%, YoY Growth: +15%)\n- Net Income: $1.58 billion (Net Margin: 11.7%, YoY Growth: +18.6%)\n- EPS: $1.03 (Diluted EPS: +21% YoY)\n- Inventory: Down 14% YoY, indicating effective inventory management amidst market challenges. \n- Current Ratio: 2.74 (indication of good short-term financial health)\n- Free Cash Flow: $2.61 billion, showcasing strong cash generation capabilities. \nManagement highlighted the importance of strategic pricing actions and effective cost control which led to a 170 basis point increase in gross margin despite rising input costs.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
13.39B
0.55%
3.47%
Gross Profit
5.97B
4.55%
4.39%
Operating Income
1.83B
15.00%
13.78%
Net Income
1.58B
18.56%
8.83%
EPS
1.04
22.35%
9.47%
Key Financial Ratios
currentRatio
2.74
grossProfitMargin
44.6%
operatingProfitMargin
13.6%
netProfitMargin
11.8%
returnOnAssets
4.24%
returnOnEquity
11.2%
debtEquityRatio
0.86
operatingCashFlowPerShare
$1.84
freeCashFlowPerShare
$1.71
dividendPayoutRatio
33.1%
priceToBookRatio
11.94
priceEarningsRatio
26.76
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Management insights during the Q2 earnings call were particularly focused on three key themes: product innovation, market execution, and operational efficiency.\n\nProduct Innovation: CEO John Donahoe stated, "We are on the offense always. When we see something that needs solving, we don't wait around, we solve it." This reflects NIKE's commitment to innovation, particularly in their running segment and lifestyle products, such as the successful launch of the Alphafly 3 shoe. \n\nMarket Execution: CFO Matt Friend noted, "NIKE Direct grew approximately 10% across North America, EMEA and APLA," highlighting the brand's successful adaptation to consumer shopping habits during peak holiday periods. \n\nOperational Efficiency: Management outlined their plan to generate $2 billion in cumulative cost savings over three years, aimed at reinvesting back into consumer-facing opportunities. Friend remarked, "Our focus is to see a reallocation of resources… that can have the kind of impact that you referenced."
"We create innovation that pushes human potential... a great quarter for NIKE and the athletes who inspire us." - John Donahoe, President and CEO
— John Donahoe
"We expect increased gross margin expansion in our second half with Q3 margins expanding 160 to 180 basis points and Q4 margins expanding 225 to 250 basis points." - Matt Friend, CFO},
— Matt Friend
Forward Guidance
Looking ahead, NIKE projects Q3 revenues to be slightly negative, reflecting the tough comparisons to significant growth in the previous year. However, expectations are for a low single-digit increase in Q4 revenues. Management remains confident that increased gross margin expansion can counter the anticipated challenges. They reiterated an outlook of approximately 1% revenue growth for the fiscal year while emphasizing aggressive innovation timelines leading into the Paris Olympics. Continuing improvements in gross margin are anticipated, with margins forecasted to expand between 160 to 250 basis points in the second half.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
NKE Focus
44.60%
13.60%
11.20%
26.76%
DECK
53.40%
20.60%
9.95%
18.74%
ONON
59.50%
8.87%
0.32%
713.03%
SKX
52.70%
10.80%
3.98%
13.36%
SHOO
42.60%
9.89%
4.19%
17.42%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Overall, NIKE presents a compelling investment case underscored by its robust financial performance, strategic focus on innovation, and proactive measures to optimize operational efficiency. Analysts and investors should monitor revenue growth trajectories, market positioning efforts, and the impact of cost savings strategies as indicators of NIKE's resilience and capability to drive long-term value. The company's established market presence and adaptive strategies in response to shifting consumer behaviors suggest potential for sustained profitability amidst a challenging economic environment.
Key Investment Factors
Growth Potential
Significant growth opportunities are seen in NIKE's Women's segment and Jordan brand, which are well-positioned to drive future revenues. NIKE has grounded these strategies in performance and cultural resonance, targeting specific consumer needs and trends, especially among younger demographics.
Profitability Risk
Potential risks include persistent macroeconomic volatility, particularly in Greater China and EMEA, where consumer demand may remain sluggish. The ongoing promotional nature of the marketplace may also affect pricing strategies and overall profitability.
Financial Position
NIKE boasts a solid financial position with total assets of $37.20 billion and total liability of $23.06 billion, resulting in a debt-to-equity ratio of 0.86. This indicates manageable leverage levels and strong equity backing, providing room for further investment and operational flexibility.
SWOT Analysis
Strengths
Leading market position in the athletic wear industry, backed by strong branding and customer loyalty.
Diversified product portfolio ranging from performance to lifestyle offerings, allowing flexibility to adapt to market trends. Validated innovation process which fosters continuous product development and relevance.
Weaknesses
Heavy reliance on key markets, such as North America and Greater China, makes NIKE susceptible to macroeconomic fluctuations.
Potential overexposure to promotional strategies may erode brand value if not managed wisely.
Opportunities
Growth potential in the Women’s segment and international markets, particularly Asia-Pacific (APLA). Increased consumer demand for sustainable and innovative products presents new market opportunities.
Exploration of the digital landscape through enhancements in e-commerce and direct-to-consumer strategies.
Threats
Intense competition from both established brands like Adidas and emerging players may squeeze market share and margins.
Ongoing global supply chain disruptions and rising input costs could compress margins and disrupt inventory management.