Profitability and Growth

In the fiscal year of 2020, NIKE Inc. incomes declined 4% to $37.4 billion, though there was income

development of 7% for the initial nine months of monetary 2020 and later it was counterbalanced by

a 38% decrease in the final quarter because of the effects of COVID-19. The NIKE Brand, which

speaks to over 90% of NIKE, Inc., encountered a 4% decrease, 2% down on a cash impartial

premise, and driven by decays across essentially all geologies, although balanced by 11% money

nonpartisan development in Greater China. NIKE Direct developed 8% on a money nonpartisan

premise and was driven by 49% development in computerized, with all geologies developing further

twofold digits, while discount incomes declining by 7%. Incomes for Converse declined 3% and 1%,

on a detailed and cash nonpartisan premise, separately, as income development in Asia was more

than balance by decreases in North America, Europe and licensee markets.[ CITATION BEA \l 1033 ]

 CAGR for Revenue grew by 6.51% from fiscal year 2016 to 2019 whereas it fell to 3.67% from

fiscal year 2016 to 2020

 CAGR for Net income grew by 2.33% from fiscal year 2016 to 2019 whereas it was negative

9.35% from fiscal year 2016 to 2020 (SEC ANNUAL REPORT PURSUANT TO SECTION 13

OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR

ENDED May 31, 2020)

Income before income taxes decreased 40% for fiscal 2020, primarily due to lower revenues and

gross margin resulting from the impacts of COVID-19, as well as higher selling and administrative

expense. For the first nine months of fiscal 2020, gross margin expanded 30 basis points compared to

the first nine months of fiscal 2019. However, this was more than offset by a decline of 820 basis

points in the fourth quarter of fiscal 2020, primarily due the impacts of COVID-19. For fiscal 2020,

NIKE, Inc.[ CITATION Mac \l 1033 ] gross margin decreased 130 basis points as higher full-price

average selling price (ASP), on a wholesale equivalent basis, was more than offset by higher product

costs due to incremental tariffs in the U.S., as well as factory cancellation charges, higher inventory

obsolescence reserves and the negative rate impacts of supply chain costs on a lower volume of

wholesale shipments in the fourth quarter of fiscal 2020. Selling and administrative expense

increased, due to higher operating overhead expense partially offset by lower demand creation
 expense. Operating overhead expense increased due to higher wage-related expenses, as a result of

our continued investment in end-to-end digital capabilities, and higher bad debt expense, partially

offset by lower travel and related spend. Demand creation expense decreased primarily due to lower

retail brand presentation costs and sports marketing expenses as sporting events were postponed or

cancelled and a majority of stores were closed globally during the fourth quarter of fiscal 2020.

[ CITATION Mac \l 1033 ]These decreases were partially offset by higher digital brand marketing

costs. The company calls itself a “growth company,” which is a strong message about its attitude and

intention. If Nike can live by that motto and continue with the momentum#, its investors will surely

be pleased. (Exhibit 1)[ CITATION SEC20 \l 1033 ]

Exhibit 1: Financial data of past 5 years

*Source: ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL

YEAR ENDED MAY 31, 2020

NIKE, Inc. Revenues declined 2% for fiscal 2020, driven by lower revenues in both the NIKE Brand and

Converse as the first nine months of revenue growth was offset by the impacts of lower shipments to wholesale

customers and store closures. On a currency-neutral basis, NIKE Brand footwear revenues decreased 2% for

fiscal 2020, driven by declines in nearly all key categories, primarily Running, Sportswear and Training,

partially offset by growth in the Jordan Brand. Unit sales of footwear decreased 8%, partially offset by higher

ASP per pair contributing approximately 6 percentage points. The increase in ASP was primarily due to higher
full-price and NIKE Direct ASPs, as well as the favorable impact of growth in our NIKE Direct business.

(Exhibit 2, 3 and 4)[ CITATION SEC20 \l 1033 ]

Exhibit 2: Nike brand revenue highlights for fiscal 2020

Source: ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL

YEAR ENDED MAY 31, 2020

Exhibit 3: Revenue (in million US$)

Fiscal Revenue (in

Year millions)
2010 $ 19,014.00
2011 $ 20,117.00
2012 $ 23,331.00
2013 $ 25,313.00
2014 $ 27,799.00
2015 $ 30,601.00
2016 $ 32,376.00
2017 $ 34,350.00
2018 $ 36,397.00
2019 $ 39,117.00
2020 $ 37,403.00

Exhibit 4: EBITDA vs

Net Income

graph[ CITATION

Mac \l 1033 ]
[ CITATION SEC20 \l 1033 ][ CITATION Mac \l 1033 ]

Financial Health

NIKE Inc is a large-cap stock, most investors favour these stocks due to their strong balance sheet

and high market liquidity, meaning there are an abundance of stock in the public market available for

trading. Even if there is low liquidity in the market, these firms won’t be affected much. They are

also relatively unaffected by increases in interest rates. Further stock price growth could be ahead for

the company. As we have seen Nike continues to invest in its digital capabilities, with additional

progress in this area set to generate higher sales and profitability over the medium term. It is seeking

to improve the customer experience through its NikePlus membership. This provides data on

customer preferences, and allows personalized product offerings that could lead to high conversion

rates and to meet the right target audience . Since relaunching in the latter part of 2017, NikePlus has

beaten membership targets. Used alongside the new Nike app at retail, it could offer higher

engagement and sales among existing customers.[ CITATION Str \l 1033 ]

Nike has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an

appropriate level. This is nothing less than what we would expect from such a large company such as

NIKE. Investors tend to gravitate towards these stocks purely for their stability and liquidity.

Though, there are other factors we should also consider before buying Nike, such as its valuation.

Operational Efficiency

Nike’s financial performance also looks set to improve due to its investment in creating a more

efficient business. The company is utilizing new technology in order to reduce production costs and
the time it takes to bring products through the supply chain. Since 2015 Nike is trying to introduce

more automation into the production process. This could include innovations such as laser-cutting of

materials and automate gluing being rolled-out across Nike’s manufacturing sites. The savings from

an increasing use of robotics could be large. It is estimated that utilizing automation could reduce

costs by $400 million if it was used to produce 30% of the company’s North American footwear.

Additionally, Nike is focusing on its "express lane." This reduces the amount of time between a

product’s design and it appearing on shelves from a few months to just a few weeks. The company

has also scaled seven key distribution centres around the world in the 2018 fiscal year, while a new

Rebound facility in North America focuses solely on accepting return product and getting it back into

the marketplace. Greater speed across its supply chain could lead to improving operational and

financial performance.

Nike’s focus on innovation and efficiency could act as a growth catalyst on future earnings. Nike

Plus membership has the potential to drive engagement and conversion rates higher, while innovative

stores that adapt to localized preferences could improve sales over the medium term. The company’s

focus on making its supply chain faster and more efficient could improve its financial prospects yet

further. And while competition in the athleisure segment is increasing, the marketing capabilities and

release of new products could help the stock to perform relatively well.

Overall, the company seems to have a sound strategy which could catalyse its operational and

financial performance, as well as its investment outlook to look at a diversified growth and higher

revenues year on year. Company has good return on equity and return on assets until 2019 but it took

a dip in 2020 due to the pandemic effect on the economies (Exhibit 5).

Exhibit 5: Financial ratios

*Source: ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL

YEAR ENDED MAY 31, 2020

[ CITATION UNI20 \l 1033 ]

References:

1. https://www.macrotrends.net/stocks/charts/NKE/nike/debt-equity-ratio 

2. http://www.highsnobiety.com/2015/11/11/nike-market-share

3. https://www.statista.com/statistics/241683/nikes-sales-worldwide-since-2004/

4. http://brandongaille.com/the-latest-nike-sales-statistics/ 

5. https://en.wikipedia.org/wiki/Nike

6. https://www.statista.com/statistics/241683/nikes-sales-worldwide-since-2004/