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 throughNIKE Direct operations, which is comprised of bothNIKE -owned retail stores and sales through our digital platforms (also referred to as "NIKE Brand Digital"), 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. Through the Consumer Direct Acceleration, we are focusing on creating the marketplace of the future through more premium, consistent and seamless consumer experiences, leading with digital and our owned stores, as well as select wholesale partners that share our marketplace vision. Over the last several years, as we have executed against the Consumer Direct Acceleration, we have grown ourNIKE Direct revenues to be approximately 43% and 42% of totalNIKE Brand revenues for the second quarter and first six months of fiscal 2023, respectively, and we have reduced the number of wholesale accounts globally. Additionally, we have aligned our product creation and category organizations around a new consumer construct focused on Men's, Women's and Kids' and continue to invest in data and analytics, demand sensing, insight gathering, inventory management and other areas to create an end-to-end technology foundation, which we expect will further 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.
CURRENT ECONOMIC CONDITIONS AND MARKET DYNAMICS
Ongoing supply chain challenges, macroeconomic conditions and the COVID-19 pandemic continue to create volatility in our business results and operations globally.
Our second quarter and first six months of fiscal 2023 Revenues increased 17% and 10%, respectively, due to strong demand for our product and more product available to meet this demand compared to the prior fiscal year, which was impacted by temporary factory closures due to COVID-19 and extended inventory transit times. During the first quarter of fiscal 2023, inventory transit times rapidly improved compared to fiscal 2022, and seasonal inventory that was ordered based on the extended transit times, arrived earlier than planned leading to elevated levels of inventory at the end of the first quarter of fiscal 2023. During the second quarter of fiscal 2023 we made progress on normalizing our inventory levels, as Inventories decreased 3% compared to the first quarter of fiscal 2023 as a result of strong demand for our product across our wholesale and direct to consumer channels, and increased promotional activity, specifically in apparel inNorth America .
The marketplace remains promotional, and gross margin for the second quarter and first six months of fiscal 2023 was negatively impacted by high levels of promotional activity to sell excess inventory and create capacity in the marketplace for new seasonally relevant product. We have also adjusted our inventory purchases for the remainder of fiscal 2023 as we continue to prioritize reducing excess inventory in the marketplace across our geographies.
Additionally, gross margin continues to be negatively impacted by unfavorable fluctuations in net foreign currency exchange rates, elevated freight and logistics costs as well as higher product input costs, including materials and labor. Strategic pricing increases partially offset the negative impacts on gross margin for the second quarter and first six months of fiscal 2023 which decreased 300 basis points and 260 basis points, respectively. Most of our geographies are currently operating with little to no COVID-19 related disruptions. InGreater China however, we continue to experience a higher level of store closures and reduced traffic in our retail stores due to COVID-19 related disruptions. During the second quarter of fiscal 2023, we managed through a higher number of temporary store closures inGreater China primarily due to local government restrictions. Although these restrictions were lifted InDecember 2022 , we expect the operating environment will remain volatile which could continue to cause disruptions to our operations. We expect net unfavorable changes in foreign currency exchange rates, including hedges, will have a material negative impact on reported Revenues, gross margin and Income before income taxes for the remainder of fiscal 2023. Additionally, we expect the continued combination of elevated freight and logistics costs, increased product input costs and increased promotional activity, partially offset by strategic pricing increases, will have a negative impact on gross margin for the remainder of the fiscal year.
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We also continue to closely monitor macroeconomic conditions, including consumer behavior and the potential impacts inflation could have on consumer demand for our product. While we believe our Consumer Direct Acceleration Strategy continues to drive our business toward our long-term financial goals, worsening macroeconomic conditions could affect our business, including, among other things, higher inventory levels in various markets, higher inventory obsolescence reserves, higher promotional activity, reduced demand for our products, reduced orders from our wholesale customers for our products and order cancellations. There could also be new or prolonged COVID-19 related restrictions or disruptions across our geographies. Any of these factors, among others, could have material adverse impacts on our revenue growth as well as overall profitability in future periods. SECOND QUARTER OVERVIEW For the second quarter of fiscal 2023,NIKE, Inc. Revenues increased 17% to$13.3 billion compared to the second quarter of fiscal 2022 and increased 27% on a currency-neutral basis. Net income was$1,331 million and diluted earnings per common share was$0.85 for the second quarter of fiscal 2023, compared to Net income of$1,337 million and diluted earnings per common share of$0.83 for the second quarter of fiscal 2022. Income before income taxes increased 10% compared to the second quarter of fiscal 2022 due to higher revenues, partially offset by gross margin contraction and higher Selling and administrative expense.NIKE Brand revenues, which represent over 90% ofNIKE, Inc. Revenues, increased 18% compared to the second quarter of fiscal 2022. On a currency-neutral basis,NIKE Brand revenues increased 28%, driven by higher revenues across all geographies, led by increases inNorth America and EMEA. Additionally,NIKE Brand currency-neutral revenues were higher across footwear and apparel, as well as Men's, theJordan Brand, Women's and Kids'. Revenues for Converse increased 5% and 12% compared to the second quarter of fiscal 2022, on a reported and currency-neutral basis, respectively, led by strong performance inNorth America , licensee markets andWestern Europe , partially offset by declines inAsia . Our effective tax rate was 19.3% for the second quarter of fiscal 2023, compared to 10.9% for the second quarter of fiscal 2022, due to decreased benefits from stock-based compensation and a shift in our earnings mix. OnAugust 16, 2022 , theU.S. government enacted the Inflation Reduction Act of 2022 that includes, among other provisions, changes to theU.S. corporate income tax system, including a fifteen percent minimum tax based on "adjusted financial statement income," which is effective forNIKE beginningJune 1, 2023 , and a one percent excise tax on net repurchases of stock afterDecember 31, 2022 . Based on our current analysis of the provisions, we do not expect these tax law changes to have a material impact on our financial statements; however, we will continue to evaluate their impact as further information becomes available. During the second quarter of fiscal 2023, we completed the sale of our entities inArgentina andUruguay to a third party distributor. For more information see Note 13 - Acquisitions and Divestitures within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements. Now that we have completed the shift from a wholesale and direct to consumer operating model within our Central andSouth America (CASA) territory to a distributor model, we expect consolidatedNIKE, Inc. and APLA revenue growth will be reduced due to different commercial terms. However, over time we expect the future operating model to have a favorable impact on our overall profitability as we reduce selling and administrative expenses, as well as lessen exposure to foreign exchange rate volatility. 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 TotalNIKE Brand earnings before interest and taxes (EBIT),Total NIKE, Inc. EBIT and EBIT Margin, 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 inthe United States of America ("U.S. GAAP"). References to wholesale equivalent revenues are intended to provide context as to the total size of ourNIKE Brand market footprint if we had noNIKE Direct operations.NIKE Brand wholesale equivalent revenues consist of (1) sales to external wholesale customers and (2) internal sales from our wholesale operations to ourNIKE Direct operations, which are charged at prices comparable to those charged to external wholesale customers. Additionally, 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. EBIT Margin is calculated as EBIT divided by totalNIKE, Inc. Revenues. 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, EBIT and EBIT margin should not be considered in isolation or as a substitute for other financial measures calculated and presented in accordance withU.S. GAAP and may not be comparable to similarly titled non-GAAP measures used by other companies.
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Table of Contents RESULTS OF OPERATIONS THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30, (Dollars in millions, except per share data) 2022 2021 % CHANGE 2022 2021 % CHANGE Revenues$ 13,315 $ 11,357 17 %$ 26,002 $ 23,605 10 % Cost of sales 7,604 6,144 24 % 14,676 12,696 16 % Gross profit 5,711 5,213 10 % 11,326 10,909 4 % Gross margin 42.9 % 45.9 % 43.6 % 46.2 % Demand creation expense 1,102 1,017 8 % 2,045 1,935 6 % Operating overhead expense 3,022 2,742 10 % 5,999 5,396 11 % Total selling and administrative expense 4,124 3,759 10 % 8,044 7,331 10 % % of revenues 31.0 % 33.1 % 30.9 % 31.1 % Interest expense (income), net 16 55 - 29 112 - Other (income) expense, net (79) (102) - (225) (141) - Income before income taxes 1,650 1,501 10 % 3,478 3,607 -4 % Income tax expense 319 164 95 % 679 396 71 % Effective tax rate 19.3 % 10.9 % 19.5 % 11.0 % NET INCOME$ 1,331 $ 1,337 0 %$ 2,799 $ 3,211 -13 %
Diluted earnings per common share $ 0.85 $ 0.83
2 %$ 1.77 $ 1.98 -11 %
CONSOLIDATED OPERATING RESULTS
REVENUES THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30, % CHANGE % CHANGE EXCLUDING EXCLUDING CURRENCY CURRENCY (Dollars in millions) 2022 2021 % CHANGE CHANGES(1) 2022 2021 % CHANGE CHANGES(1)NIKE, Inc. Revenues:NIKE Brand Revenues by: Footwear$ 8,504 $ 6,780 25 % 36 %$ 16,618 $ 14,498 15 % 23 % Apparel 3,794 3,648 4 % 14 % 7,228 7,098 2 % 10 % Equipment 408 382 7 % 17 % 894 847 6 % 14 % Global Brand Divisions(2) 18 6 200 % 200 % 32 13 146 % 149 % Total NIKE Brand Revenues 12,724 10,816 18 % 28 % 24,772 22,456 10 % 19 % Converse 586 557 5 % 12 % 1,229 1,186 4 % 10 % Corporate(3) 5 (16) - - 1 (37) - - TOTALNIKE, INC. REVENUES$ 13,315 $ 11,357 17 % 27 %$ 26,002 $ 23,605 10 % 18 % SupplementalNIKE Brand Revenues Details:NIKE Brand Revenues by: Sales to Wholesale Customers$ 7,287 $ 6,119 19 % 30 %$ 14,270 $ 13,062 9 % 18 % Sales through NIKE Direct 5,419 4,691 16 % 25 % 10,470 9,381 12 % 19 % Global Brand Divisions(2) 18 6 200 % 200 % 32 13 146 % 149 % TOTAL NIKE BRAND REVENUES$ 12,724 $ 10,816 18 % 28 %$ 24,772 $ 22,456 10 % 19 %
(1)The percent change excluding currency changes represents a non-GAAP financial measure. See "Use of Non-GAAP Financial Measures" for further information.
(2)Global Brand Divisions revenues include
(3)Corporate revenues primarily consist of foreign currency hedge gains and
losses related to revenues generated by entities within the
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SECOND QUARTER OF FISCAL 2023 COMPARED TO SECOND QUARTER OF FISCAL 2022 On a currency-neutral basis,NIKE, Inc. Revenues increased 27% for the second quarter of fiscal 2023, driven by higher revenues in both theNIKE Brand and Converse. Higher revenues inNorth America , EMEA and APLA contributed approximately 12, 9 and 4 percentage points toNIKE, Inc. Revenues, withGreater China and Converse each contributing approximately 1 percentage point of growth. On a currency-neutral basis,NIKE Brand footwear revenues increased 36% in the second quarter of fiscal 2023, driven by higher revenues in Men's, theJordan Brand and Women's. Unit sales of footwear increased 28%, while higher average selling price (ASP) per pair contributed approximately 8 percentage points of footwear revenue growth, primarily due to higher full-price ASP, net of discounts, on a wholesale equivalent basis. Currency-neutralNIKE Brand apparel revenues, for the second quarter of fiscal 2023, increased 14%, driven primarily by growth in Men's. Unit sales of apparel increased 10%, and higher ASP per unit contributed approximately 4 percentage points of apparel revenue growth, primarily due to higher full-price ASP.NIKE Brand wholesale revenues increased 19% and 30% compared to the second quarter of fiscal 2022, on a reported and currency-neutral basis, respectively, primarily due to increased product availability to meet demand. On a reported basis,NIKE Direct revenues represented approximately 43% of our totalNIKE Brand revenues for both the second quarter of fiscal 2023 and the second quarter of fiscal 2022.NIKE Brand Digital sales were$3.4 billion for the second quarter of fiscal 2023 compared to$2.7 billion for the second quarter of fiscal 2022. On a currency-neutral basis,NIKE Direct revenues increased 25%, driven byNIKE Brand Digital sales growth of 34%, comparable store sales growth of 11% and the addition of new stores. Comparable store sales, which excludeNIKE Brand Digital sales, comprises revenues fromNIKE -owned in-line and factory stores for which all three of the following requirements have been met: (1) the store has been open at least one year, (2) square footage has not changed by more than 15% within the past year and (3) the store has not been permanently repositioned within the past year. Comparable store sales includes revenues from stores that were temporarily closed during the period as a result of COVID-19. Comparable store sales represents a performance measure that we believe is useful information for management and investors in understanding the performance of our establishedNIKE -owned in-line and factory stores. Management considers this metric when making financial and operating decisions. The method of calculating comparable store sales varies across the retail industry. As a result, our calculation of this metric may not be comparable to similarly titled measures used by other companies. FIRST SIX MONTHS OF FISCAL 2023 COMPARED TO FIRST SIX MONTHS OF FISCAL 2022 On a currency-neutral basis,NIKE, Inc. Revenues increased 18% for the first six months of fiscal 2023, driven by higher revenues inNorth America , EMEA and APLA, partially offset by lower revenues inGreater China . Higher revenues inNorth America , EMEA and APLA contributed approximately 9, 7 and 3 percentage points toNIKE, Inc. Revenues, respectively, while lower revenues inGreater China reducedNIKE, Inc. Revenues by approximately 1 percentage point. On a currency-neutral basis,NIKE Brand footwear revenues increased 23%, driven by growth in Men's and the Jordan Brand. Unit sales of footwear increased 14%, while higher ASP per pair contributed approximately 9 percentage points of footwear revenue growth, primarily due to higher full-price ASP, as well as the favorable impact of growth in ourNIKE Direct business and higherNIKE Direct ASP. Currency-neutralNIKE Brand apparel revenues increased 10%, driven by growth in Men's. Unit sales of apparel increased 7% and higher ASP per unit contributed approximately 3 percentage points of apparel revenue growth. Higher ASP per unit was primarily due to higher full-price ASP, partially offset by lowerNIKE Direct ASP.NIKE Brand wholesale revenues increased 9% and 18% compared to the first six months of fiscal 2022, on a reported and currency-neutral basis, respectively, primarily due to increased product availability to meet demand. On a reported basis,NIKE Direct revenues represented approximately 42% of our totalNIKE Brand revenues for the first six months of fiscal 2023 and the first six months of fiscal 2022.NIKE Brand Digital sales were$6.3 billion for the first six months of fiscal 2023 compared to$5.2 billion for the first six months of fiscal 2022. On a currency-neutral basis,NIKE Direct revenues increased 19%, driven byNIKE Brand Digital sales growth of 29%, comparable store sales growth of 7%, and the addition of new stores.
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Table of Contents GROSS MARGIN THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30, (Dollars in millions) 2022 2021 % CHANGE 2022 2021 % CHANGE Gross profit$ 5,711 $ 5,213 10 %$ 11,326 $ 10,909 4 % Gross margin 42.9 % 45.9 % (300) bps 43.6 % 46.2 % (260) bps For the second quarter of fiscal 2023, our consolidated gross margin was 300 basis points lower than the prior year and primarily reflected the following factors: •Lower margin in ourNIKE Direct business, driven by higher promotional activity in the current period, largely inNorth America to liquidate excess inventory (decreasing margin approximately 160 basis points);
•Unfavorable changes in net foreign currency exchange rates, including hedges, (decreasing gross margin approximately 90 basis points); and
•Lower
•HigherNIKE Brand product costs, (decreasing margin approximately 430 basis points) primarily due to product mix, elevated inbound freight and logistics costs, and product input costs such as materials and labor; and
•Higher full-price ASP, net of discounts, (increasing gross margin approximately 410 basis points) due primarily to product mix and strategic pricing actions.
For the first six months of fiscal 2023, our consolidated gross margin was 260 basis points lower than the prior year period and primarily reflected the following factors:
•Lower margin in ourNIKE Direct business, driven by higher promotional activity in the current period, largely inNorth America to liquidate excess inventory (decreasing margin approximately 120 basis points);
•Unfavorable changes in net foreign currency exchange rates, including hedges, (decreasing gross margin approximately 80 basis points);
•Higher other costs (decreasing gross margin approximately 60 basis points); and
•NIKE Brand full-price product margins, on a wholesale equivalent basis, were flat, reflecting:
•Higher full-price ASP, net of discounts, (increasing gross margin approximately 320 basis points) due primarily to strategic pricing actions and product mix; and •HigherNIKE Brand product costs, (decreasing margin approximately 320 basis points) primarily due to product mix, elevated inbound freight and logistics costs, and product input costs.
TOTAL SELLING AND ADMINISTRATIVE EXPENSE
THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30, (Dollars in millions) 2022 2021 % CHANGE 2022 2021 % CHANGE Demand creation expense(1)$ 1,102 $ 1,017 8 %$ 2,045 $ 1,935 6 % Operating overhead expense 3,022 2,742 10 % 5,999 5,396 11 %
Total selling and administrative expense
10 %$ 8,044 $ 7,331 10 % % of revenues 31.0 % 33.1 % (210) bps 30.9 % 31.1 % (20) bps (1)Demand creation expense consists of advertising and promotion costs, including costs of endorsement contracts, complimentary products, television, digital and print advertising and media costs, brand events and retail brand presentation.
SECOND QUARTER OF FISCAL 2023 COMPARED TO SECOND QUARTER OF FISCAL 2022 Demand creation expense increased 8% for the second quarter of fiscal 2023 primarily due to an increase in advertising and marketing expenses. Changes in foreign currency exchange rates decreased Demand creation expense by approximately 7 percentage points.
Operating overhead expense increased 10% primarily due to higher wage-related expenses, higher strategic technology investments and higherNIKE Direct costs. Changes in foreign currency exchange rates decreased Operating overhead expense by approximately 5 percentage points.
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FIRST SIX MONTHS OF FISCAL 2023 COMPARED TO FIRST SIX MONTHS OF FISCAL 2022 Demand creation expense increased 6% for the first six months of fiscal 2023 primarily due to higher advertising and marketing expenses. Changes in foreign currency exchange rates decreased Demand creation expense by approximately 6 percentage points. Operating overhead expense increased 11% primarily due to an increase in wage-related expenses, higher strategic technology investments and higherNIKE Direct costs. Changes in foreign currency exchange rates decreased Operating overhead expense by approximately 4 percentage points.
OTHER (INCOME) EXPENSE, NET
THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30, (Dollars in millions) 2022 2021 2022 2021 Other (income) expense, net $ (79)$ (102) $ (225)$ (141) Other (income) expense, net comprises foreign currency conversion gains and losses from the remeasurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments, as well as unusual or non-operating transactions that are outside the normal course of business. For the second quarter of fiscal 2023, Other (income) expense, net decreased from$102 million of other income to$79 million in the current year, largely due to the loss recognized upon the completion of the sale of our entities inArgentina andUruguay to a third-party distributor, partially offset by a favorable change in foreign currency conversion gains and losses, including hedges. For the first six months of fiscal 2023, Other (income) expense, net increased from$141 million of other income to$225 million in the current year, primarily due to a favorable change in foreign currency conversion gains and losses, including hedges, and settlements of legal matters, partially offset by the loss recognized upon the completion of the sale of our entities inArgentina andUruguay to a third-party distributor and favorable activity in the prior year related to our strategic distributor partnership transition within APLA. For more information related to our distributor partnership transition within APLA, see Note 13 - Acquisitions and Divestitures within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements. We estimate the combination of the translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency-related gains and losses included in Other (income) expense, net had unfavorable impacts of approximately$174 million and$361 million on our Income before income taxes for the second quarter and first six months of fiscal 2023, respectively. INCOME TAXES THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30, 2022 2021 % CHANGE 2022 2021 % CHANGE Effective tax rate 19.3 % 10.9 % 840 bps 19.5 % 11.0 % 850 bps
Our effective tax rate was 19.3% for the second quarter of fiscal 2023, compared to 10.9% for the second quarter of fiscal 2022, primarily due to decreased benefits from stock-based compensation and a shift in our earnings mix.
Our effective tax rate was 19.5% for the first six months of fiscal 2023, compared to 11.0% for the first six months of fiscal 2022, primarily due to decreased benefits from stock-based compensation and a shift in our earnings mix.
Refer to Note 5 - Income Taxes within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.
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OPERATING SEGMENTS
Our operating segments are evidence of the structure of the Company's internal
organization. The
EachNIKE Brand geographic segment operates predominantly in one industry: the design, development, marketing and selling of athletic footwear, apparel and equipment. The Company's reportable operating segments for theNIKE Brand are:North America ;Europe ,Middle East &Africa (EMEA);Greater China ; andAsia Pacific &Latin America (APLA), and include results for theNIKE and Jordan brands. The Company'sNIKE Direct operations are managed within each geographic operating segment. Converse is also a reportable operating segment for the Company and operates predominately in one industry: the design, marketing, licensing and selling of athletic lifestyle sneakers, apparel and accessories. As part of our centrally managed foreign exchange risk management program, standard foreign currency exchange rates are assigned twice per year to eachNIKE Brand entity in our geographic operating segments and Converse. These rates are set approximately nine and twelve months in advance of the future selling seasons to which they relate (specifically, for each currency, one standard rate applies to the fall and holiday selling seasons and one standard rate applies to the spring and summer selling seasons) based on average market spot rates in the calendar month preceding the date they are established. Inventories and Cost of sales for geographic operating segments and Converse reflect the use of these standard rates to record non-functional currency product purchases into the entity's functional currency. Differences between assigned standard foreign currency exchange rates and actual market rates are included in Corporate, together with foreign currency hedge gains and losses generated from our centrally managed foreign exchange risk management program and other conversion gains and losses.
The breakdown of Revenues is as follows:
THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30, % CHANGE EXCLUDING % CHANGE EXCLUDING CURRENCY CURRENCY (Dollars in millions) 2022 2021 % CHANGE CHANGES(1) 2022 2021 % CHANGE CHANGES(1) North America$ 5,830 $ 4,477 30 % 31 %$ 11,340 $ 9,356 21 % 21 % Europe, Middle East & Africa 3,489 3,142 11 % 33 % 6,822 6,449 6 % 25 % Greater China 1,788 1,844 -3 % 6 % 3,444 3,826 -10 % -4 % Asia Pacific & Latin America 1,599 1,347 19 % 34 % 3,134 2,812 11 % 25 % Global Brand Divisions(2) 18 6 200 % 200 % 32 13 146 % 149 % TOTALNIKE BRAND 12,724 10,816 18 % 28 % 24,772 22,456 10 % 19 % Converse 586 557 5 % 12 % 1,229 1,186 4 % 10 % Corporate(3) 5 (16) - - 1 (37) - - TOTALNIKE, INC. REVENUES$ 13,315 $ 11,357 17 % 27 %$ 26,002 $ 23,605 10 % 18 %
(1) The percent change excluding currency changes represents a non-GAAP financial measure. See "Use of Non-GAAP Financial Measures" for further information.
(2) Global Brand Divisions revenues include
(3) Corporate revenues primarily consist of foreign currency hedge gains and
losses related to revenues generated by entities within the
The primary financial measure used by the Company to evaluate performance of individual operating segments is EBIT, which represents Net income before Interest expense (income), net and Income tax expense in the Unaudited Condensed Consolidated Statements of Income. As discussed in Note 11 - Operating Segments in the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements, certain corporate costs are not included in EBIT of our operating segments. 30
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The breakdown of earnings before interest and taxes is as follows:
THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30, (Dollars in millions) 2022 2021 % CHANGE 2022 2021 % CHANGE North America$ 1,497 $ 1,235 21 %$ 2,874 $ 2,669 8 % Europe, Middle East & Africa 990 806 23 % 1,965 1,681 17 % Greater China 511 569 -10 % 1,052 1,270 -17 % Asia Pacific & Latin America 485 388 25 % 985 869 13 % Global Brand Divisions (1,226) (1,071) -14 % (2,413) (2,058) -17 % TOTALNIKE BRAND (1) 2,257 1,927 17 % 4,463 4,431 1 % Converse 153 132 16 % 362 336 8 % Corporate (744) (503) -48 % (1,318) (1,048) -26 % TOTALNIKE, INC. EARNINGS BEFORE INTEREST AND TAXES(1) 1,666 1,556 7 % 3,507 3,719 -6 % EBIT margin(1) 12.5 % 13.7 % 13.5 % 15.8 % Interest expense (income), net 16 55 - 29 112 - TOTALNIKE, INC. INCOME BEFORE INCOME TAXES$ 1,650 $ 1,501 10 %$ 3,478 $ 3,607 -4 % (1) TotalNIKE Brand EBIT,Total NIKE, Inc. EBIT and EBIT margin represent non-GAAP financial measures. See "Use of Non-GAAP Financial Measures" for further information. NORTH AMERICA THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30, % CHANGE % CHANGE EXCLUDING EXCLUDING (Dollars in millions) 2022 2021 % CHANGE CURRENCY CHANGES 2022 2021 % CHANGE CURRENCY CHANGES Revenues by: Footwear$ 3,963 $ 2,852 39 % 39 %$ 7,768 $ 6,116 27 % 27 % Apparel 1,685 1,480 14 % 14 % 3,179 2,910 9 % 10 % Equipment 182 145 26 % 26 % 393 330 19 % 19 % TOTAL REVENUES$ 5,830 $ 4,477 30 % 31 %$ 11,340 $ 9,356 21 % 21 % Revenues by: Sales to Wholesale Customers$ 3,183 $ 2,327 37 % 37 %$ 6,210 $ 5,005 24 % 24 % Sales through NIKE Direct 2,647 2,150 23 % 23 % 5,130 4,351 18 % 18 % TOTAL REVENUES$ 5,830 $ 4,477 30 % 31 %$ 11,340 $ 9,356 21 % 21 % EARNINGS BEFORE INTEREST AND TAXES$ 1,497 $ 1,235 21 %$ 2,874 $ 2,669 8 %
SECOND QUARTER OF FISCAL 2023 COMPARED TO SECOND QUARTER OF FISCAL 2022
On a currency-neutral basis,North America revenues for the second quarter of fiscal 2023 increased 31%, due primarily to higher revenues in Men's.NIKE Direct revenues increased 23%, driven by strong digital sales growth of 31%, comparable store sales growth of 9% and the addition of new stores. Footwear revenues increased 39% on a currency-neutral basis, driven by higher revenues in Men's and the Jordan Brand. Unit sales of footwear increased 37%, while higher ASP per pair contributed approximately 2 percentage points of footwear revenue growth. Higher ASP per pair was primarily due to higher full-price ASP, partially offset by lowerNIKE Direct ASP, reflecting higher promotional activity, and a lower mix of full-price sales.
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On a currency-neutral basis, apparel revenues increased 14%, driven by higher revenues in Men's. Unit sales of apparel increased 15%, while lower ASP per unit reduced apparel revenues by approximately 1 percentage point. Lower ASP was primarily due to lowerNIKE Direct ASP, reflecting higher promotional activity, and a lower mix of full-price sales, partially offset by higher full-price ASP. Reported EBIT increased 21% primarily due to higher revenues, partially offset by gross margin contraction and higher selling and administrative expense. Gross margin decreased approximately 320 basis points largely driven by lower margin in ourNIKE Direct business due to higher promotional activity, higher product costs reflecting input costs and inbound freight and logistics costs, and a lower mix of full-price sales. This was partially offset by higher full-price ASP, net of discounts, driven by strategic pricing actions and product mix. Selling and administrative expense increased due to higher operating overhead and demand creation expense. Operating overhead expense increased primarily due to an increase in wage-related expenses and increasedNIKE Direct costs. The increase in demand creation expense reflected higher sports marketing expenses and an increase in digital marketing investments.
FIRST SIX MONTHS OF FISCAL 2023 COMPARED TO FIRST SIX MONTHS OF FISCAL 2022
On a currency-neutral basis,North America revenues for the first six months of fiscal 2023 increased 21%, due primarily to higher revenues in Men's and the Jordan Brand.NIKE Direct revenues increased 18%, driven by strong digital sales growth of 25%, comparable store sales growth of 6% and the addition of new stores. Footwear revenues increased 27% on a currency-neutral basis, largely driven by higher revenues in Men's and the Jordan Brand. Unit sales of footwear increased 22%, while higher ASP per pair contributed approximately 5 percentage points of footwear revenue growth. Higher ASP per pair was primarily due to higher full-price ASP, partially offset by lowerNIKE Direct ASP, reflecting higher promotional activity. On a currency-neutral basis, apparel revenues increased 10%, driven primarily by higher revenues in Men's. Unit sales of apparel increased 10%, while ASP per unit remained flat, as higher full-price ASP was offset by lowerNIKE Direct ASP, reflecting higher promotional activity. Reported EBIT increased 8% primarily due to higher revenues, partially offset by gross margin contraction and higher selling and administrative expense. Gross margin decreased approximately 390 basis points primarily due to higher product costs, reflecting higher input costs and increased inbound freight and logistics costs, lower margins in ourNIKE Direct business due to higher promotional activity, a lower mix of full-price sales and higher other costs, in part due to inventory obsolescence. This was partially offset by higher full-price ASP, net of discounts, largely due to product mix and strategic pricing actions. Selling and administrative expense increased due to higher operating overhead and demand creation expense. Operating overhead expense increased primarily as a result of higher wage-related costs, lower bad debt recoveries and increasedNIKE Direct costs. The increase in demand creation expense reflected higher sports marketing expenses and an increase in digital marketing investments, partially offset by lower advertising and marketing expense.
THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30, % CHANGE % CHANGE EXCLUDING EXCLUDING (Dollars in millions) 2022 2021 % CHANGE CURRENCY CHANGES 2022 2021 % CHANGE CURRENCY CHANGES Revenues by: Footwear$ 2,063 $ 1,806 14 % 37 %$ 4,075 $ 3,789 8 % 27 % Apparel 1,281 1,202 7 % 28 % 2,434 2,361 3 % 22 % Equipment 145 134 8 % 30 % 313 299 5 % 23 % TOTAL REVENUES$ 3,489 $ 3,142 11 % 33 %$ 6,822 $ 6,449 6 % 25 % Revenues by: Sales to Wholesale Customers$ 2,242 $ 2,112 6 % 28 %$ 4,445 $ 4,336 3 % 21 % Sales through NIKE Direct 1,247 1,030 21 % 44 % 2,377 2,113 12 % 32 % TOTAL REVENUES$ 3,489 $ 3,142 11 % 33 %$ 6,822 $ 6,449 6 % 25 % EARNINGS BEFORE INTEREST AND TAXES$ 990 $ 806 23 %$ 1,965 $ 1,681 17 % SECOND QUARTER OF FISCAL 2023 COMPARED TO SECOND QUARTER OF FISCAL 2022 On a currency-neutral basis, EMEA revenues for the second quarter of fiscal 2023 increased 33%, primarily driven by growth in Men's.NIKE Direct revenues increased 44%, driven by strong digital sales growth of 62% and comparable store sales growth of 24%, partially offset by store closures.
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Currency-neutral footwear revenues increased 37%, driven by higher revenues in Men's, the Jordan Brand and Women's. Unit sales of footwear increased 18%, while higher ASP per pair contributed approximately 19 percentage points of footwear revenue growth. Higher ASP per pair was primarily due to higher full-price ASP, as well as the favorable impact of growth in ourNIKE Direct business.
Currency-neutral apparel revenues increased 28% due primarily to higher revenues in Men's. Unit sales of apparel increased 11%, while higher ASP per unit contributed approximately 17 percentage points of apparel revenue growth, primarily due to higher full-price ASP.
Reported EBIT increased 23% primarily due to higher revenues and lower selling and administrative expenses, partially offset by gross margin contraction. Gross margin decreased approximately 70 basis points primarily due to higher product costs reflecting input costs and increased inbound freight and logistics costs, higher other costs including inventory obsolescence, lower margins in ourNIKE Direct business reflecting higher promotional activity and lower mix of full-price sales. This activity was partially offset by higher full-price ASP, net of discounts, in part due to strategic pricing actions, and higher off-price margin. Selling and administrative expense decreased due to lower demand creation and operating overhead expense. Lower demand creation expense was driven by favorable changes in foreign currency exchange rates and lower sports marketing expenses, partially offset by higher advertising and marketing expenses. Operating overhead expense decreased primarily due to favorable changes in foreign currency exchange rates, partially offset by increased wage-related expenses, increased travel and related expense and lower bad debt recoveries. FIRST SIX MONTHS OF FISCAL 2023 COMPARED TO FIRST SIX MONTHS OF FISCAL 2022 On a currency-neutral basis, EMEA revenues for the first six months of fiscal 2023 increased 25%, due primarily to higher revenues in Men's.NIKE Direct revenues increased 32% primarily due to strong digital sales growth of 55% as well as comparable store sales growth of 12%, partially offset by store closures. Currency-neutral footwear revenues increased 27%, driven by higher revenues led by Men's and the Jordan Brand. Unit sales of footwear increased 9%, while higher ASP per pair contributed approximately 18 percentage points of footwear revenue growth. Higher ASP per pair was primarily due to higher full-price andNIKE Direct ASPs, as well as the favorable impact of growth in ourNIKE Direct business. Currency-neutral apparel revenues increased 22% due primarily to higher revenues in Men's. Unit sales of apparel increased 9%, while higher ASP per unit contributed approximately 13 percentage points of apparel revenue growth, primarily due to higher full-price ASP, partially offset by lowerNIKE Direct ASP. Reported EBIT increased 17% due to higher revenues and gross margin expansion as well as lower selling and administrative expense. Gross margin increased approximately 160 basis points primarily due to higher full-price ASP, net of discounts, in part due to strategic pricing actions and higher off-price margin. This activity was partially offset by higher product costs reflecting increased inbound freight and logistics costs and higher other costs including inventory obsolescence. Selling and administrative expense decreased due to lower operating overhead expense, partially offset by higher demand creation expense. Operating overhead expense decreased primarily due to favorable changes in foreign currency exchange rates, partially offset by increased wage-related expenses, increased travel and related expense and lower bad debt recoveries. Higher demand creation expense was primarily due to higher advertising and marketing expense, partially offset by favorable changes in foreign currency exchange rates. 33
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Table of ContentsGREATER CHINA THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30, % CHANGE % CHANGE EXCLUDING EXCLUDING (Dollars in millions) 2022 2021 % CHANGE CURRENCY CHANGES 2022 2021 % CHANGE CURRENCY CHANGES Revenues by: Footwear$ 1,370 $ 1,235 11 % 21 %$ 2,603 $ 2,684 -3 % 4 % Apparel 393 564 -30 % -24 % 767 1,040 -26 % -21 % Equipment 25 45 -44 % -39 % 74 102 -27 % -23 % TOTAL REVENUES$ 1,788 $ 1,844 -3 % 6 %$ 3,444 $ 3,826 -10 % -4 % Revenues by: Sales to Wholesale Customers$ 897 $ 896 0 % 8 %$ 1,736 $ 2,010 -14 % -8 % Sales through NIKE Direct 891 948 -6 % 4 % 1,708 1,816 -6 % 1 % TOTAL REVENUES$ 1,788 $ 1,844 -3 % 6 %$ 3,444 $ 3,826 -10 % -4 % EARNINGS BEFORE INTEREST AND TAXES$ 511 $ 569 -10 %$ 1,052 $ 1,270 -17 %
SECOND QUARTER OF FISCAL 2023 COMPARED TO SECOND QUARTER OF FISCAL 2022
On a currency-neutral basis,Greater China revenues for the second quarter of fiscal 2023 increased 6%.The increase in revenues was primarily due to higher revenues in the Jordan Brand.NIKE Direct revenues increased 4% due to digital sales growth of 9% and the addition of new stores, partially offset by comparable store sales declines of 4%, in part due to reduced physical traffic as a result of COVID-19 related disruptions. Currency-neutral footwear revenues increased 21%, driven primarily by higher revenues in the Jordan Brand and Men's. Unit sales of footwear increased 15%, while higher ASP per pair contributed approximately 6 percentage points of footwear revenue growth, driven by higher full-price andNIKE Direct ASPs, as well as a higher mix of full-price sales. Currency-neutral apparel revenues decreased 24%, due primarily to lower revenues in Men's and the Jordan Brand. Unit sales of apparel decreased 28%, while higher ASP per unit contributed approximately 4 percentage points of apparel revenue growth, primarily due to higher full-price ASP and a higher mix of full-price sales, partially offset by lowerNIKE Direct and off-price ASPs. Reported EBIT decreased 10% as lower revenues and gross margin contraction more than offset lower selling and administrative expense. Gross margin decreased approximately 110 basis points, primarily due to higher product costs reflecting product mix and higher input costs, lower margins in ourNIKE Direct business, partially offset by higher full-price ASP, net of discounts, favorable changes in standard foreign currency exchange rates and a higher mix of full-price sales. Selling and administrative expense decreased due to lower demand creation and operating overhead expense. The decrease in demand creation expense was primarily due to lower retail brand presentation expense, favorable changes in foreign currency exchange rates and lower investments in digital marketing, partially offset by higher advertising and marketing expense. Operating overhead expense decreased primarily due to favorable changes in foreign currency exchange rates, partially offset by higher wage-related expenses and other administrative costs. FIRST SIX MONTHS OF FISCAL 2023 COMPARED TO FIRST SIX MONTHS OF FISCAL 2022 On a currency-neutral basis,Greater China revenues for the first six months of fiscal 2023 decreased 4%, reflecting impacts from COVID-19 related disruptions. The decrease in revenues was primarily due to lower revenues in Men's and Women's, partially offset by growth in the Jordan Brand.NIKE Direct revenues increased 1% due to the addition of new stores and a 3% increase in digital sales. This increase was partially offset by comparable store sales declines of 4% in part due to lower physical retail traffic as a result of COVID-19 related disruptions. Currency-neutral footwear revenues increased 4%, driven primarily by higher revenues in the Jordan Brand. Unit sales of footwear increased 1%, while higher ASP per pair contributed approximately 3 percentage points of footwear revenue growth, primarily due to higherNIKE Direct and full-price ASPs and a higher mix of full-price sales, partially offset by lower off-price ASP. Currency-neutral apparel revenues decreased 21%, due primarily to lower revenues in Men's. Unit sales of apparel decreased 16%, while lower ASP per unit reduced apparel revenues by approximately 5 percentage points, primarily due to lowerNIKE Direct and off-price ASPs. Reported EBIT decreased 17% due to lower revenues and gross margin contraction, partially offset by lower selling and administrative expense. Gross margin decreased approximately 80 basis points, primarily due to higher product costs reflecting product mix and higher input costs and lower margins in ourNIKE Direct business. This activity was partially offset by higher full-price ASP, net of discounts and favorable changes in standard foreign currency exchange rates. Selling and administrative
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expense decreased due to lower demand creation expense, partially offset by higher operating overhead expense. The decrease in demand creation expense was primarily due to lower retail brand presentation costs, lower investments in digital marketing and favorable changes in foreign currency exchange rates, partially offset by higher advertising and marketing expense. Operating overhead expense increased largely due to higher wage-related expenses and other administrative costs, partially offset by favorable changes in foreign currency exchange rates.
THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30, % CHANGE % CHANGE EXCLUDING EXCLUDING (Dollars in millions) 2022 2021 % CHANGE CURRENCY CHANGES 2022 2021 % CHANGE CURRENCY CHANGES Revenues by: Footwear$ 1,108 $ 887 25 % 40 %$ 2,172 $ 1,909 14 % 27 % Apparel 435 402 8 % 24 % 848 787 8 % 22 % Equipment 56 58 -3 % 8 % 114 116 -2 % 10 % TOTAL REVENUES$ 1,599 $ 1,347 19 % 34 %$ 3,134 $ 2,812 11 % 25 % Revenues by: Sales to Wholesale Customers$ 965 $ 784 23 % 37 %$ 1,879 $ 1,711 10 % 21 % Sales through NIKE Direct 634 563 13 % 30 % 1,255 1,101 14 % 30 % TOTAL REVENUES$ 1,599 $ 1,347 19 % 34 %$ 3,134 $ 2,812 11 % 25 % EARNINGS BEFORE INTEREST AND TAXES$ 485 $ 388 25 % $ 985$ 869 13 % As discussed previously, ourNIKE Brand business inBrazil transitioned to a distributor operating model during fiscal 2021. We completed the sale of our entity inChile and our entities inArgentina andUruguay to third-party distributors in the first and second quarters of fiscal 2023, respectively, and the impacts from closing these transactions are included within Corporate and are not reflected in the APLA operating segment results. This completes the transition of ourNIKE Brand businesses in these markets to a distributor operating model. Our CASA marketplace now reflects a full distributor operating model. For more information see Note 13 - Acquisitions and Divestitures within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
SECOND QUARTER OF FISCAL 2023 COMPARED TO SECOND QUARTER OF FISCAL 2022
On a currency-neutral basis, APLA revenues increased 34% for the second quarter of fiscal 2023. The increase was due to higher revenues across nearly all territories, led byJapan ,Korea andSoutheast Asia &India , which increased 42%, 37% and 61%, respectively. The transition of ourChile ,Argentina andUruguay entities to a third-party distributor operating model reduced APLA revenue growth by approximately 7 percentage points. Revenues increased primarily due to growth in Men's, Women's and the Jordan Brand.NIKE Direct revenues increased 30%, primarily due to digital sales growth of 35% and comparable store sales growth of 33% in part due to improved physical retail traffic, partially offset by stores included in the sale of ourChile ,Argentina andUruguay entities. Currency-neutral footwear revenues increased 40%, due primarily to higher revenues in Men's, Women's and the Jordan Brand. Unit sales of footwear increased 38%, while higher ASP per pair contributed approximately 2 percentage points of footwear revenue growth. Higher ASP per pair was largely driven by higher full-price ASP. Currency-neutral apparel revenues increased 24%, due primarily to higher revenues in Men's, Women's and the Jordan Brand. Unit sales of apparel increased 22%, while higher ASP per unit contributed approximately 2 percentage points of apparel revenue growth, driven by higher full-price ASP, partially offset by lowerNIKE Direct ASP. Reported EBIT increased 25% for the second quarter of fiscal 2023, as higher revenues and lower selling and administrative expense more than offset gross margin contraction. Gross margin decreased approximately 190 basis points due to higher product costs reflecting increased inbound freight and logistics costs. This was partially offset by higher full-price ASP, net of discounts, in part due to strategic pricing actions, lower other costs including warehousing and favorable changes in standard foreign currency exchange rates. Selling and administrative expense decreased due to lower demand creation expense, partially offset by higher operating overhead expense. The decrease in demand creation expense was primarily due to favorable changes in foreign currency exchange rates and lower investments in digital marketing, partially offset by higher advertising and marketing expense. Operating overhead expense increased largely due to higher wage-related costs and higher professional services expenses, partially offset by favorable changes in foreign currency exchange rates.
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FIRST SIX MONTHS OF FISCAL 2023 COMPARED TO FIRST SIX MONTHS OF FISCAL 2022 On a currency-neutral basis, APLA revenues increased 25% for the first six months of fiscal 2023. The increase was due to higher revenues across nearly all territories, led byKorea ,Southeast Asia &India ,Japan and Pacific, which increased 30%, 63%, 18% and 39%, respectively. Additionally, the transition of ourChile ,Argentina andUruguay entities to a third-party distributor operating model reduced APLA growth by approximately 4 percentage points. Revenues increased primarily due to higher revenues in Men's, Women's and theJordan Brand.NIKE Direct revenues increased 30%, primarily due to digital sales growth of 32%, comparable store sales growth of 28%, in part due to improved physical retail traffic, and the addition of new stores. Currency-neutral footwear revenues increased 27%, due primarily to higher revenues in Men's, Women's and the Jordan Brand. Unit sales of footwear increased 18%, while higher ASP per pair contributed approximately 9 percentage points of footwear revenue growth. Higher ASP per pair was driven by higher full-price andNIKE Direct ASPs, as well as the favorable impact of growth in ourNIKE Direct business. Currency-neutral apparel revenues increased 22%, due primarily to higher revenues in Men's. Unit sales of apparel increased 20%, while higher ASP per unit contributed approximately 2 percentage points of apparel revenue growth, driven by higher full-price ASP, partially offset by lowerNIKE Direct ASP. Reported EBIT increased 13% for the first six months of fiscal 2023 as a result of higher revenues, partially offset higher selling and administrative expense as well as gross margin contraction. Gross margin decreased approximately 50 basis points primarily due to higher product costs, reflecting inbound freight and logistics costs, partially offset by higher full-price ASP, net of discounts, in part due to strategic pricing actions, and favorable changes in standard foreign currency exchange rates. Selling and administrative expense increased due to higher operating overhead expense, partially offset by lower demand creation expense. The increase in operating overhead expense was primarily due to higher wage-related expenses and professional services costs, partially offset by favorable changes in foreign currency exchange rates. Demand creation expense decreased primarily due to favorable changes in foreign currency exchange rates and lower investments in digital marketing, partially offset by higher sports marketing expenses. GLOBAL BRAND DIVISIONS THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30, % CHANGE % CHANGE EXCLUDING EXCLUDING (Dollars in millions) 2022 2021 % CHANGE CURRENCY CHANGES 2022 2021 % CHANGE CURRENCY CHANGES Revenues$ 18 $ 6 200 % 200 % $ 32$ 13 146 % 149 % Earnings (Loss) Before Interest and Taxes$ (1,226) $ (1,071) -14 %$ (2,413) $ (2,058) -17 %
Global Brand Divisions primarily represent demand creation and operating
overhead expense, including product creation and design expenses that are
centrally managed for the
SECOND QUARTER OF FISCAL 2023 COMPARED TO SECOND QUARTER OF FISCAL 2022
Global Brand Divisions' loss before interest and taxes increased 14% for the second quarter of fiscal 2023 driven primarily by higher operating overhead and demand creation expense. Higher operating overhead expense was primarily due to an increase in wage-related costs. Higher demand creation expense was primarily due to higher advertising and marketing expense and increased sports marketing expenses. FIRST SIX MONTHS OF FISCAL 2023 COMPARED TO FIRST SIX MONTHS OF FISCAL 2022 Global Brand Divisions' loss before interest and taxes increased 17% for the first six months of fiscal 2023 driven by higher operating overhead and higher demand creation expense. The increase in operating overhead expense was primarily due to higher wage-related costs and strategic technology investments. The increase in demand creation expense reflected higher sports marketing expenses and an increase in digital marketing investments.
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CONVERSE THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30, % CHANGE % CHANGE EXCLUDING EXCLUDING (Dollars in millions) 2022 2021 % CHANGE CURRENCY CHANGES 2022 2021 % CHANGE CURRENCY CHANGES Revenues by: Footwear$ 517 $ 485 7 % 14 %$ 1,093 $ 1,052 4 % 11 % Apparel 21 34 -38 % -33 % 42 58 -28 % -23 % Equipment 6 5 20 % 19 % 14 14 0 % 8 % Other(1) 42 33 27 % 27 % 80 62 29 % 29 % TOTAL REVENUES$ 586 $ 557 5 % 12 %$ 1,229 $ 1,186 4 % 10 % Revenues by: Sales to Wholesale Customers$ 304 $ 303 0 % 10 % $ 647$ 672 -4 % 4 % Sales through Direct to Consumer 240 221 9 % 14 % 502 452 11 % 15 % Other(1) 42 33 27 % 27 % 80 62 29 % 29 % TOTAL REVENUES$ 586 $ 557 5 % 12 %$ 1,229 $ 1,186 4 % 10 % EARNINGS BEFORE INTEREST AND TAXES$ 153 $ 132 16 % $ 362$ 336 8 % (1)Other revenues consist of territories serviced by third-party licensees who pay royalties to Converse for the use of its registered trademarks and other intellectual property rights. We do not own the Converse trademarks inJapan and accordingly do not earn revenues inJapan .
SECOND QUARTER OF FISCAL 2023 COMPARED TO SECOND QUARTER OF FISCAL 2022
On a currency-neutral basis, Converse revenues increased 12% for the second quarter of fiscal 2023 as revenue growth inNorth America , licensee markets andWestern Europe was partially offset by declines inAsia . Direct to consumer revenues increased 14%, driven by strong digital sales growth inNorth America . Combined unit sales within the wholesale and direct to consumer channels increased 6%, primarily driven by growth inNorth America wholesale, while ASP increased 5%, driven by growth in direct to consumer. Reported EBIT increased 16%, driven by gross margin expansion and higher revenues, partially offset by higher selling and administrative expense. Gross margin increased approximately 300 basis points, driven by higher margins in direct to consumer, lower product and other costs and growth in licensee revenues. Selling and administrative expense increased due to higher demand creation and operating overhead expense. Demand creation expense increased as a result of increased marketing and advertising costs. Operating overhead expense increased as a result of higher wage-related expenses. FIRST SIX MONTHS OF FISCAL 2023 COMPARED TO FIRST SIX MONTHS OF FISCAL 2022 On a currency-neutral basis, Converse revenues increased 10% for the first six months of fiscal 2023 as revenue growth inNorth America ,Western Europe and licensee markets was partially offset by declines inAsia . Direct to consumer revenues increased 15%, driven by strong digital sales growth inNorth America . Combined unit sales within the wholesale and direct to consumer channels were flat, while ASP increased 9%, driven by growth in direct to consumer. Reported EBIT increased 8%, driven by gross margin expansion and higher revenues, partially offset by higher selling and administrative expense. Gross margin increased approximately 260 basis points driven by higher ASP, net of discounts, higher margins in direct to consumer, higher mix of full-price sales and growth in licensee revenues. Selling and administrative expense increased due to higher operating overhead and demand creation expense. Operating overhead expense increased as a result of higher professional services costs, higher wage-related expenses and lower bad debt recoveries. Demand creation expense increased due to higher marketing and advertising costs, partially offset by lower retail brand presentation costs.
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Table of Contents CORPORATE THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30, (Dollars in millions) 2022 2021 % CHANGE 2022 2021 % CHANGE Revenues$ 5 $ (16) - $ 1$ (37) - Earnings (Loss) Before Interest and Taxes$ (744) $ (503) -48 %$ (1,318) $ (1,048) -26 %
Corporate revenues primarily consist of foreign currency hedge gains and losses
related to revenues generated by entities within the
The Corporate loss before interest and taxes primarily consists of unallocated general and administrative expenses, including expenses associated with centrally managed departments; depreciation and amortization related to our corporate headquarters; unallocated insurance, benefit and compensation programs, including stock-based compensation; and certain foreign currency gains and losses. In addition to the foreign currency gains and losses recognized in Corporate revenues, foreign currency results in Corporate include gains and losses resulting from the difference between actual foreign currency exchange rates and standard rates used to record non-functional currency denominated product purchases within theNIKE Brand geographic operating segments and Converse; related foreign currency hedge results; conversion gains and losses arising from remeasurement of monetary assets and liabilities in non-functional currencies; and certain other foreign currency derivative instruments.
SECOND QUARTER OF FISCAL 2023 COMPARED TO SECOND QUARTER OF FISCAL 2022
Corporate's loss before interest and taxes increased
•an unfavorable change of$149 million related to the difference between actual foreign currency exchange rates and standard foreign currency exchange rates assigned to theNIKE Brand geographic operating segments and Converse, net of hedge gains and losses; these results are reported as a component of consolidated gross margin; •an unfavorable change of$149 million primarily related to the loss recognized upon the sale of our entities inArgentina andUruguay to a third-party distributor; these results are reported as a component of consolidated Other (income) expense, net; •a favorable change in net foreign currency gains and losses of$141 million related to the remeasurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments, reported as a component of consolidated Other (income) expense, net; and
•an unfavorable change of
FIRST SIX MONTHS OF FISCAL 2023 COMPARED TO FIRST SIX MONTHS OF FISCAL 2022
Corporate's loss before interest and taxes increased
•an unfavorable change of$289 million related to the difference between actual foreign currency exchange rates and standard foreign currency exchange rates assigned to theNIKE Brand geographic operating segments and Converse, net of hedge gains and losses; these results are reported as a component of consolidated gross margin; •a favorable change in net foreign currency gains and losses of$208 million related to the remeasurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments, reported as a component of consolidated Other (income) expense, net; •an unfavorable change of$106 million primarily related to the loss recognized upon the completion of the sale of our entities inArgentina andUruguay to a third-party distributor, partially offset by settlements of legal matters, reported as a component of consolidated Other (income) expense, net; and
•an unfavorable change of
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FOREIGN CURRENCY EXPOSURES AND HEDGING PRACTICES
OVERVIEW
As a global company with significant operations outsidethe United States , in the normal course of business we are exposed to risk arising from changes in currency exchange rates. Our primary foreign currency exposures arise from the recording of transactions denominated in non-functional currencies and the translation of foreign currency denominated results of operations, financial position and cash flows intoU.S. Dollars. Our foreign exchange risk management program is intended to lessen both the positive and negative effects of currency fluctuations on our consolidated results of operations, financial position and cash flows. We manage global foreign exchange risk centrally on a portfolio basis to address those risks material toNIKE, Inc. Our hedging policy is designed to partially or entirely offset the impact of exchange rate changes on the underlying net exposures being hedged. Where exposures are hedged, our program has the effect of delaying the impact of exchange rate movements on our Unaudited Condensed Consolidated Financial Statements; the length of the delay is dependent upon hedge horizons. We do not hold or issue derivative instruments for trading or speculative purposes. As of and for the three and six months endedNovember 30, 2022 , there have been no material changes to the Company's hedging program or strategy from what was disclosed within the Annual Report on Form 10-K. Refer to Note 4 - Fair Value Measurements and Note 8 - Risk Management and Derivatives in the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements for additional description of outstanding derivatives at each reported period end. For additional information about our Foreign Currency Exposures and Hedging Practices refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year endedMay 31, 2022 .
TRANSACTIONAL EXPOSURES
We conduct business in various currencies and have transactions which subject us to foreign currency risk. Our most significant transactional foreign currency exposures are: •Product Costs - Product purchases denominated in currencies other than the functional currency of the transacting entity and factory input costs from the foreign currency adjustments program with certain factories. •Non-Functional Currency Denominated External Sales - A portion of ourNIKE Brand and Converse revenues associated with European operations are earned in currencies other than the Euro (e.g., the British Pound) but are recognized at a subsidiary that uses the Euro as its functional currency. These sales generate a foreign currency exposure.
•Other Costs - Non-functional currency denominated costs, such as endorsement contracts, also generate foreign currency risk, though to a lesser extent.
•Non-Functional Currency Denominated Monetary Assets and Liabilities - Our global subsidiaries have various monetary assets and liabilities, primarily receivables and payables, including intercompany receivables and payables, denominated in currencies other than their functional currencies. These balance sheet items are subject to remeasurement which may create fluctuations in Other (income) expense, net within our consolidated results of operations. MANAGING TRANSACTIONAL EXPOSURES Transactional exposures are managed on a portfolio basis within our foreign currency risk management program. We manage these exposures by taking advantage of natural offsets and currency correlations that exist within the portfolio and may also elect to use currency forward and option contracts to hedge the remaining effect of exchange rate fluctuations on probable forecasted future cash flows, including certain product cost exposures, non-functional currency denominated external sales and other costs described above. Generally, these are accounted for as cash flow hedges, except for hedges of the embedded derivative components of the product cost exposures and other contractual agreements. Certain currency forward contracts used to manage the foreign exchange exposure of non-functional currency denominated monetary assets and liabilities subject to remeasurement and embedded derivative contracts are not formally designated as hedging instruments and are recognized in Other (income) expense, net.
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TRANSLATIONAL EXPOSURES
Many of our foreign subsidiaries operate in functional currencies other than theU.S. Dollar. Fluctuations in currency exchange rates create volatility in our reported results as we are required to translate the balance sheets, operational results and cash flows of these subsidiaries intoU.S. Dollars for consolidated reporting. The translation of foreign subsidiaries' non-U.S. Dollar denominated balance sheets intoU.S. Dollars for consolidated reporting results in a cumulative translation adjustment to Accumulated other comprehensive income (loss) within Shareholders' equity. The impact of foreign exchange rate fluctuations on the translation of our consolidated Revenues was a detriment of approximately$1.1 billion and$2.0 billion for the three and six months endedNovember 30, 2022 , respectively, and a benefit of approximately$63 million and$445 million for the three and six months endedNovember 30, 2021 , respectively. The impact of foreign exchange rate fluctuations on the translation of our Income before income taxes was a detriment of approximately$316 million and$569 million for the three and six months endedNovember 30, 2022 , respectively, and a benefit of approximately$12 million and$129 million for the three and six months endedNovember 30, 2021 , respectively. Management generally identifies hyper-inflationary markets as those markets whose cumulative inflation rate over a three-year period exceeds 100%. Management has concluded ourTurkey subsidiary within our EMEA operating segment is operating in a hyper-inflationary markets. As a result, beginning in the first quarter of fiscal 2023, the functional currency of ourTurkey subsidiary, changed from the local currency to theU.S. Dollar. As of and for the three and six months endedNovember 30, 2022 , this change did not have a material impact on our results of operations or financial condition, and we do not anticipate it will have a material impact in future periods based on current rates. Prior to the completion of the sale of ourArgentina entity within our APLA operating segment during the second quarter of fiscal 2023, Management concluded this subsidiary was operating in a hyper-inflationary market. As a result, beginning in the second quarter of fiscal 2019, the functional currency of ourArgentina subsidiary changed from the local currency to theU.S. Dollar. As of and for the three and six months endedNovember 30, 2022 , this change did not have a material impact on our results of operations or financial condition. MANAGING TRANSLATIONAL EXPOSURES To minimize the impact of translating foreign currency denominated revenues and expenses intoU.S. Dollars for consolidated reporting, certain foreign subsidiaries use excess cash to purchaseU.S. Dollar denominated available-for-sale investments. The variable future cash flows associated with the purchase and subsequent sale of theseU.S. Dollar denominated investments at non-U.S. Dollar functional currency subsidiaries creates a foreign currency exposure that qualifies for hedge accounting underU.S. GAAP. We utilize forward contracts and/or options to mitigate the variability of the forecasted future purchases and sales of theseU.S. Dollar investments. The combination of the purchase and sale of theU.S. Dollar investment and the hedging instrument has the effect of partially offsetting the year-over-year foreign currency translation impact on net earnings in the period the investments are sold. Hedges of the purchase ofU.S. Dollar denominated available-for-sale investments are accounted for as cash flow hedges. We estimate the combination of translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency related gains and losses included in Other (income) expense, net had an unfavorable impact of approximately$174 million and$361 million on our Income before income taxes for the three and six months endedNovember 30, 2022 .
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW ACTIVITY
Cash provided (used) by operations was an inflow of$1,358 million for the first six months of fiscal 2023, compared to$3,868 million for the first six months of fiscal 2022. Net income, adjusted for non-cash items, generated$3,367 million of operating cash inflow for the first six months of fiscal 2023, compared to$3,704 million for the first six months of fiscal 2022. The net change in working capital and other assets and liabilities resulted in a decrease to Cash provided (used) by operations of$2,009 million for the first six months of fiscal 2023 compared to an increase of$164 million for the first six months of fiscal 2022. The net change in working capital compared to the prior year was driven by higher Accounts Receivable of$1,421 million and Inventories of$1,216 million . Higher Accounts Receivable primarily resulted from an increase in sales to wholesale customers and the timing of when those sales were recognized compared to the prior year. Increased Inventories was the result of higher units, mix and input costs in the first six months of fiscal 2023 compared to a lower supply of available inventory to meet consumer demand in the first six months of fiscal 2022 as a result of supply chain constraints. Cash provided (used) by investing activities was an outflow of$23 million for the first six months of fiscal 2023, compared to$1,105 million for the first six months of fiscal 2022, primarily driven by the net change in short-term investments. For the first six months of fiscal 2023, the net change in short-term investments (including sales, maturities and purchases) resulted in a cash inflow of$423 million compared to a cash outflow of$776 million for the first six months of fiscal 2022.
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Cash provided (used) by financing activities was an outflow of$3,321 million for the first six months of fiscal 2023 compared to$1,846 million for the first six months of fiscal 2022. The increased outflow in the first six months of fiscal 2023 was driven by higher share repurchases of$2,550 million for the first six months of fiscal 2023 compared to$1,723 million in the first six months of fiscal 2022, as well as lower proceeds from stock option exercises, which resulted in a cash inflow of$260 million in the first six months of fiscal 2023 compared to$846 million in the first six months of fiscal 2022. During the first six months of fiscal 2023, we repurchased a total of 25.5 million shares ofNIKE's Class B Common Stock for$2.6 billion (an average price of$101.96 per share). InAugust 2022 , we terminated the previous four-year,$15 billion share repurchase program approved by the Board of Directors inJune 2018 . Under this program, we repurchased 6.5 million shares for a total approximate cost of$710.0 million (an average price of$109.85 per share) during the first quarter of fiscal 2023 and 83.8 million shares for a total approximate cost of$9.4 billion (an average price of$111.82 per share) during the term of the program. Upon termination of the four-year,$15 billion program, we began purchasing shares under the new four-year,$18 billion share repurchase plan authorized by the Board of Directors inJune 2022 . As ofNovember 30, 2022 , we had repurchased 19.0 million shares at a cost of approximately$1.9 billion (an average price of$99.28 per share) under this new program. We continue to expect funding of share repurchases will come from operating cash flows and excess cash. The timing and the amount of share repurchases will be dictated by our capital needs and stock market conditions.
CAPITAL RESOURCES
OnJuly 21, 2022 , we filed a shelf registration statement (the "Shelf") with theU.S. Securities and Exchange Commission (SEC) which permits us to issue an unlimited amount of debt securities from time to time. The Shelf expires onJuly 21, 2025 . As ofNovember 30, 2022 , our committed credit facilities were unchanged from the information previously reported on Form 10-K for the fiscal year endedMay 31, 2022 . We currently have long-term debt ratings of AA- and A1 from Standard and Poor's Corporation andMoody's Investor Services , respectively. Any changes to these ratings could result in interest rate and facility fee changes. As ofNovember 30, 2022 , we were in full compliance with the covenants under our facilities and believe it is unlikely we will fail to meet any of the covenants in the foreseeable future. As ofNovember 30, 2022 andMay 31, 2022 , no amounts were outstanding under our committed credit facilities. Liquidity was also provided by our$3 billion commercial paper program. As of and for the three months endedNovember 30, 2022 , we did not have any borrowings outstanding under our$3 billion program. We may issue commercial paper or other debt securities depending on general corporate needs. We currently have short-term debt ratings of A1+ and P1 from Standard and Poor's Corporation andMoody's Investor Services , respectively. To date, in fiscal 2023, we have not experienced difficulty accessing the credit markets; however, future volatility in the capital markets may increase costs associated with issuing commercial paper or other debt instruments or affect our ability to access those markets. As ofNovember 30, 2022 , we had cash, cash equivalents and short-term investments totaling$10.6 billion , primarily consisting of commercial paper, corporate notes, deposits held at major banks, money market funds,U.S. Treasury obligations and other investment grade fixed-income securities. Our fixed-income investments are exposed to both credit and interest rate risk. All of our investments are investment grade to minimize our credit risk. While individual securities have varying durations, as ofNovember 30, 2022 , the weighted average days to maturity of our cash equivalents and short-term investments portfolio was 117 days. We believe that existing cash, cash equivalents, short-term investments and cash generated by operations, together with access to external sources of funds as described above, will be sufficient to meet our domestic and foreign capital needs in the foreseeable future.
There have been no significant changes to the material cash requirements
reported in our Annual Report on Form 10-K for the fiscal year ended
OFF-BALANCE SHEET ARRANGEMENTS
As of
NEW ACCOUNTING PRONOUNCEMENTS
There have been no material changes in recently issued or adopted accounting standards from those disclosed in our Annual Report on Form 10-K for the fiscal year endedMay 31, 2022 . 41
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CRITICAL ACCOUNTING ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon our Unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America . The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We believe the assumptions and judgments involved in the accounting estimates described in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of our most recent Annual Report on Form 10-K have the greatest potential impact on our financial statements, so we consider these to be our critical accounting estimates. Actual results could differ from these estimates. We are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.
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