OVERVIEW

NIKE designs, develops, markets and sells athletic footwear, apparel, equipment,
accessories and services worldwide. We are the largest seller of athletic
footwear and apparel in the world. We sell our products through NIKE-owned
retail stores and through digital platforms (which we refer to collectively as
our "NIKE Direct" operations), to retail accounts and to a mix of independent
distributors, licensees and sales representatives in virtually all countries
around the world. Our goal is to deliver value to our shareholders by building a
profitable global portfolio of branded footwear, apparel, equipment and
accessories businesses. Our strategy is to achieve long-term revenue growth by
creating innovative, "must-have" products, building deep personal consumer
connections with our brands and delivering compelling consumer experiences
through digital platforms and at retail.
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 NIKE Digital and our owned stores, as well as select
strategic partners who share our marketplace vision. We have aligned our product
creation and category organizations around a new consumer construct focused on
Men's, Women's, Kids' and the Jordan Brand 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 will further
accelerate our digital transformation.
During fiscal 2021, we substantially completed a series of leadership and
operating model changes to streamline and speed up strategic execution of the
Consumer Direct Acceleration. For the three and six months ended November 30,
2021, we recognized an immaterial amount of related employee termination costs
and, to a lesser extent, stock-based compensation expense. During the three
months ended November 30, 2020, we recognized employee termination costs of $107
million and $30 million within Operating overhead expense and Cost of sales,
respectively, and made cash payments of $67 million. For the six months ended
November 30, 2020, we recognized employee termination costs of $145 million and
$30 million within Operating overhead expense and Cost of sales, respectively,
and made cash payments of $71 million. For all periods presented these costs
were classified within Corporate. Additionally, the related stock-based
compensation expense recorded within Operating overhead expense and Cost of
sales was $30 million and $4 million, respectively, for the three months ended
November 30, 2020, and $39 million and $4 million, respectively, for the six
months ended November 30, 2020.
For more information, see Note 13 - Restructuring within the accompanying Notes
to the Unaudited Condensed Consolidated Financial Statements.
COVID-19 UPDATE
The COVID-19 pandemic continues to create volatility in our business results and
operations globally, causing us to transform the way we operate in order to
better serve our consumers. Our second quarter and first six months of fiscal
2022 Revenues grew 1% and 8%, respectively, as we continued to manage the
ongoing impacts of supply chain challenges across each of our geographies and
Converse.
During the first quarter of fiscal 2022, the majority of NIKE Brand and Converse
contract manufacturers in Vietnam and Indonesia were subject to government
mandated shutdowns due to COVID-19. These closures have significantly impacted,
and are expected to continue to significantly impact, our previously planned
inventory production. As a result of these closures, we have lost approximately
three months of production, impacting available product supply for this fiscal
year. All impacted factories began re-opening in October and are currently
operational. We expect it will take several months from re-opening for the
factories to return to pre-closure production volumes, and there could be
further impacts, including additional closures or employee absences, as a result
of the emergence and spread of COVID-19 variants, as well as other factors
outside of our control that could continue to cause further disruption to our
planned inventory production. For fiscal 2021, 51% of NIKE Brand footwear and
30% of NIKE Brand apparel was manufactured in Vietnam, and 24% of NIKE Brand
footwear and less than 12% of NIKE Brand apparel was manufactured in Indonesia.
In addition, our product availability was also impacted by extended inventory
transit times in the second quarter and first six months of fiscal 2022, due
primarily to port congestion, transportation delays as well as labor and
container shortages. Our product availability was impacted most significantly in
our wholesale channel. We also experienced higher transportation, logistics and
fulfillment costs as a result of this dynamic environment, which partially
offset gross margin expansion in the second quarter and first six months of
fiscal 2022.
The combined impact of factory closures and extended inventory transit times
disproportionately impacted our geographies during the second quarter of fiscal
2022. North America and EMEA, located further away from our sourcing base with
longer transit times, entered the second quarter with elevated levels of
inventory available to meet consumer demand as revenues grew 12% and 6% on a
currency-neutral basis, respectively. By contrast, Greater China and APLA,
located closer to our sourcing base
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with shorter transit times, entered the second quarter with a lower supply of
available inventory, negatively impacting revenues during the second quarter of
fiscal 2022 with revenues declining by 24% and 6% on a currency-neutral basis,
respectively.
We expect the combination of factory closures and elevated transit times will
continue to impact product availability, leading to inventory supply
significantly lagging consumer demand for the remainder of the fiscal year. In
addition, we expect transportation, logistics and fulfillment costs will
continue to increase as we navigate these supply chain constraints. We also
expect product costs to increase in the second half of fiscal 2022 due to higher
input costs. To mitigate the impact across our business, our teams are
continuing to leverage our operational playbook and taking actions where we can,
including shifting production capacity to other countries, strategic use of air
freight and employing a seasonless approach to products. Despite these
short-term dynamics, our Consumer Direct Acceleration strategy continues to
drive our business towards our long-term fiscal 2025 financial goals shared in
our Annual Report on Form 10-K for the fiscal year ended May 31, 2021.
Our NIKE Direct business has continued its momentum in the second quarter,
fueling our growth as we continue to navigate through the pandemic by leveraging
our digital platforms with our store footprint to connect directly with our
consumers. Despite continued inventory constraints and supply chain challenges,
NIKE Direct grew 8% and 16% on a currency-neutral basis, for the second quarter
and first six months of fiscal 2022, respectively. NIKE Brand Digital revenues
grew 11% and 17% on a currency-neutral basis for the second quarter and first
six months of fiscal 2022, respectively. During the second quarter of fiscal
2022, we experienced an increase in comparable store sales in North America and
EMEA, partially offset by declines in Greater China and APLA due to supply chain
challenges as well as ongoing marketplace dynamics and a COVID-19 resurgence in
Greater China. As of January 3, 2022, approximately 98% of our owned stores were
open with some operating on reduced hours.
During the quarter, we continued to invest in our digital transformation and
brand campaigns as the world continues its return to sport. For the remainder of
fiscal 2022, we will maintain our multi-year investment plans in order to
transform our business for the future.
We continue to monitor the ongoing and dynamic impacts of COVID-19, as well as
guidance from international and domestic authorities, including federal, state
and local public health authorities and may take additional actions based on
their recommendations. There have been and may continue to be developments
outside of our control, including new COVID-19 variants, that require us to make
adjustments to our operating plan, such as store operating hours and the
timeline to return to normal production volumes in factories impacted by
COVID-19. Such developments and other potential impacts of COVID-19, such as new
or prolonged factory closures, higher inventory levels or inventory shortages in
various markets, other adverse impacts on the global supply chain, revised
payment terms with certain of our wholesale customers, higher sales-related
reserves, factory cancellation costs and a volatile effective tax rate driven by
changes in the mix of earnings across our jurisdictions, among other factors,
could have material adverse impacts on our revenue growth as well as our overall
profitability in future periods. As a result of these circumstances, COVID-19
related disruptions are making it more challenging to compare our performance,
including our revenue growth and overall profitability, across quarters and
fiscal years, and we expect the operating environment will remain volatile as
COVID-19 variants continue to cause disruptions to our operations.
SECOND QUARTER OVERVIEW
For the second quarter of fiscal 2022, NIKE, Inc. Revenues increased 1% to $11.4
billion compared to the second quarter of fiscal 2021 and were flat on a
currency-neutral basis. Net income was $1,337 million and diluted earnings per
common share was $0.83 for the second quarter of fiscal 2022, compared to Net
income of $1,251 million and diluted earnings per common share of $0.78 for the
second quarter of fiscal 2021.
Income before income taxes increased 3% compared to the second quarter of fiscal
2021, due to gross margin expansion and higher revenues, partially offset by
higher selling and administrative expense. The NIKE Brand, which represents over
90% of NIKE, Inc. Revenues, increased 1% compared to the second quarter of
fiscal 2021. On a currency-neutral basis, NIKE Brand revenues were flat, as
higher revenues in North America and EMEA were offset by declines in Greater
China and APLA. Additionally, NIKE Brand currency-neutral revenue growth in
apparel was offset by a decline in footwear primarily due to lower available
inventory supply resulting from COVID-19 related factory closures and extended
inventory transit times. Revenues for Converse increased 17% and 16% compared to
the second quarter of fiscal 2021, on a reported and currency-neutral basis,
respectively, led by performance in Direct to consumer in both Western Europe
and North America.
Our effective tax rate was 10.9% for the second quarter of fiscal 2022, compared
to 14.1% for the second quarter of fiscal 2021, primarily due to a change in our
earnings mix, partially offset by a less favorable impact from stock-based
compensation.
Consumer protection and data privacy laws have been coming into effect across
the world, including recently introduced laws that became effective during the
second quarter of fiscal 2022 in China, that provide for the comprehensive
regulation of data and personal data processing activities across all industries
and operations such as collecting, utilizing, processing, sharing and
transferring data and personal information in and out of China. Uncertainty
regarding the interpretation and application of these laws in practice may
impact us and could impair our ability to execute on our operating plan and have
adverse effects on our business and results of operations. Further, any
non-compliance could subject us to, among other things, fines, legal
proceedings, regulatory orders or damage to our reputation.

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During fiscal 2021, the transaction with Grupo SBF S.A. to purchase
substantially all of our NIKE Brand operations in Brazil closed. We remain
committed to selling our Argentina, Chile and Uruguay legal entities and
granting distribution rights to third-party distributors. As such, the assets
and liabilities of these entities have remained classified as held-for-sale on
the Unaudited Condensed Consolidated Balance Sheets. For more information see
Note 12 - Acquisitions and Divestitures within the accompanying Notes to the
Unaudited Condensed Consolidated Financial Statements.
USE OF NON-GAAP FINANCIAL MEASURES
Throughout this Quarterly Report on Form 10-Q, we discuss non-GAAP financial
measures, including references to wholesale equivalent revenues,
currency-neutral revenues, as well as Total NIKE Brand earnings before interest
and taxes (EBIT), 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 in the
United States of America ("U.S. GAAP"). References to wholesale equivalent
revenues are intended to provide context as to the total size of our NIKE Brand
market footprint if we had no NIKE Direct operations. NIKE Brand wholesale
equivalent revenues consist of (1) sales to external wholesale customers and (2)
internal sales from our wholesale operations to our NIKE Direct operations,
which are charged at prices comparable to those charged to external wholesale
customers. 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 total NIKE, 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 with U.S. GAAP and may not be
comparable to similarly titled non-GAAP measures used by other companies.
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RESULTS OF OPERATIONS
                                                    THREE MONTHS ENDED NOVEMBER 30,                             SIX MONTHS ENDED NOVEMBER 30,
(Dollars in millions, except per share
data)                                           2021              2020                % CHANGE             2021              2020               % CHANGE
Revenues                                 $       11,357     $       11,243                1  %       $      23,605     $      21,837                8  %
Cost of sales                                     6,144              6,396               -4  %              12,696            12,249                4  %
Gross profit                                      5,213              4,847                8  %              10,909             9,588               14  %
Gross margin                                       45.9   %           43.1  %                                 46.2   %          43.9  %
Demand creation expense                           1,017                729               40  %               1,935             1,406               38  %
Operating overhead expense                        2,742              2,538                8  %               5,396             4,836               12  %
Total selling and administrative expense          3,759              3,267               15  %               7,331             6,242               17  %
% of revenues                                      33.1   %           29.1  %                                 31.1   %          28.6  %
Interest expense (income), net                       55                 70                -                    112               135                -
Other (income) expense, net                        (102)                54                -                   (141)               40                -
Income before income taxes                        1,501              1,456                3  %               3,607             3,171               14  %
Income tax expense                                  164                205              -20  %                 396               402               -1  %
Effective tax rate                                 10.9   %           14.1  %                                 11.0   %          12.7  %
NET INCOME                               $        1,337     $        1,251                7  %       $       3,211     $       2,769               16  %

Diluted earnings per common share $ 0.83 $ 0.78 


              6  %       $        1.98     $        1.73               14  %


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