NIKE, Inc. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 Direct operations, which is comprised of both NIKE-owned retail stores and sales through our digital platforms (also referred to as "NIKE Brand Digital"), to wholesale accounts and to a mix of independent distributors, licensees and sales representatives in nearly 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 strategy, we are focused on creating the marketplace of the future with more premium, consistent and seamless consumer experiences, leading with digital and our owned stores, as well as select wholesale partners. In addition, our product creation and marketing organizations are aligned to a consumer construct focused on sports dimensions through Men's, Women's and Kids', which allows us to better serve consumer needs. We continue to invest in a new Enterprise Resource Planning Platform, data and analytics, demand sensing, insight gathering and other areas to create an end-to-end technology foundation, which we believe 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. FINANCIAL HIGHLIGHTS • NIKE, Inc. Revenues for the first quarter of fiscal 2024 were $12.9 billion, an increase of 2% on both a reported and currency-neutral basis, compared to the first quarter of fiscal 2023 • NIKE Direct revenues grew 6% from $5.1 billion for the first quarter of fiscal 2023 to $5.4 billion for the first quarter of fiscal 2024, and represented approximately 43% of total NIKE Brand revenues for the first quarter of fiscal 2024 • Gross margin for the first quarter of fiscal 2024 decreased 10 basis points to 44.2%, primarily driven by higher product costs and unfavorable changes in foreign currency exchange rates, largely offset by strategic pricing actions • Inventories as of August 31, 2023, were $8.7 billion, an increase of 3% compared to May 31, 2023, primarily driven by product mix and lower inventory obsolescence reserves • We returned $1.7 billion to our shareholders in the first quarter of fiscal 2024 through share repurchases and dividends ECONOMIC CONDITIONS AND MARKET DYNAMICS • Consumer Spending: Our growth in Revenues for the first quarter of fiscal 2024 reflects ongoing demand for our products despite ongoing uncertainty in the global economy. We will continue to closely monitor macroeconomic conditions, including the potential impacts of inflation and rising interest rates on consumer behavior. • Inflationary Pressures: Inflationary pressures, including higher product costs, negatively impacted gross margin for the first quarter of fiscal 2024. The strategic pricing actions we have taken more than offset the impact of these higher product costs on gross margin in the first quarter of fiscal 2024. • Supply Chain Conditions: During the first quarter of fiscal 2024 and as of August 31, 2023, our inventory levels were healthy as we continue to experience normalized inventory transit times and flow of seasonal product. • Foreign Currency Impacts: As a global company with significant operations outside the United States, we are exposed to risk arising from changes in foreign currency exchange rates. For additional information, refer to "Foreign Currency Exposures and Hedging Practices". We continue to be confident in our brand strength. We are focused on scaling a deep, diverse and distinct product portfolio as well as deepening our consumer connections, while carefully managing the health of our most iconic product franchises. However, the operating environment could remain volatile in fiscal 2024 as the risk exists that worsening macroeconomic conditions could have a material adverse impact on our future revenue growth as well as overall profitability. 21 Table of Contents USE OF NON-GAAP FINANCIAL MEASURES Throughout this Quarterly Report on Form 10-Q, we discuss non-GAAP financial measures, which should be considered in addition to, and not in lieu of, the financial measures calculated and presented in accordance with U.S. GAAP. References to these measures 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 measures used by other companies. Management uses these non-GAAP 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. Earnings Before Interest and Taxes ("EBIT"): Calculated as Net income before Interest expense (income), net and Income tax expense in the Consolidated Statements of Income. Total NIKE, Inc. EBIT for the three months ended August 31, 2023 and 2022 are as follows: THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2023 2022 Net income $ 1,450 $ 1,468 Add: Interest expense (income), net (34) 13 Add: Income tax expense 198 360 Earnings before interest and taxes $ 1,614 $ 1,841 EBIT margin: Calculated as total NIKE, Inc. EBIT divided by total NIKE, Inc. Revenues. Our EBIT margin calculation for the three months ended August 31, 2023 and 2022 are as follows: THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2023 2022 Numerator Earnings before interest and taxes $ 1,614 $ 1,841 Denominator Total NIKE, Inc. Revenues $ 12,939 $ 12,687 EBIT margin 12.5 % 14.5 % Currency-neutral revenues: Currency-neutral revenues enhance visibility to underlying business trends, excluding the impact of translation arising from foreign currency exchange rate fluctuations. Currency-neutral revenues are calculated using actual exchange rates in use during the comparative prior year period in place of the exchange rates in use during the current period. Wholesale equivalent revenues: 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. COMPARABLE STORE SALES Comparable store sales: This key metric, which excludes NIKE Brand Digital sales, comprises revenues from NIKE-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 metric that we believe is useful information for management and investors in understanding the performance of our established NIKE-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 metrics used by other companies. 22 Table of Contents RESULTS OF OPERATIONS THREE MONTHS ENDED AUGUST 31, (Dollars in millions, except per share data) 2023 2022 % CHANGE Revenues $ 12,939 $ 12,687 2 % Cost of sales 7,219 7,072 2 % Gross profit 5,720 5,615 2 % Gross margin 44.2 % 44.3 % Demand creation expense 1,069 943 13 % Operating overhead expense 3,047 2,977 2 % Total selling and administrative expense 4,116 3,920 5 % % of revenues 31.8 % 30.9 % Interest expense (income), net (34) 13 — Other (income) expense, net (10) (146) — Income before income taxes 1,648 1,828 -10 % Income tax expense 198 360 -45 % Effective tax rate 12.0 % 19.7 % NET INCOME $ 1,450 $ 1,468 -1 % Diluted earnings per common share $ 0.94 $ 0.93 1 % CONSOLIDATED OPERATING RESULTS REVENUES THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2023 2022 % CHANGE % CHANGE EXCLUDING CURRENCY CHANGES (1) NIKE, Inc. Revenues: NIKE Brand Revenues by: Footwear $ 8,421 $ 8,114 4 % 4 % Apparel 3,388 3,434 -1 % -1 % Equipment 531 486 9 % 9 % Global Brand Divisions (2) 13 14 -7 % 1 % Total NIKE Brand Revenues 12,353 12,048 3 % 3 % Converse 588 643 -9 % -9 % Corporate (3) (2) (4) — — TOTAL NIKE, INC. REVENUES $ 12,939 $ 12,687 2 % 2 % Supplemental NIKE Brand Revenues Details: NIKE Brand Revenues by: Sales to Wholesale Customers $ 6,983 $ 6,983 0 % 1 % Sales through NIKE Direct 5,357 5,051 6 % 6 % Global Brand Divisions (2) 13 14 -7 % 1 % TOTAL NIKE BRAND REVENUES $ 12,353 $ 12,048 3 % 3 % (1) The percent change excluding currency changes represents a non-GAAP financial measure. For additional information, see "Use of Non-GAAP Financial Measures". (2) Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment. (3) Corporate revenues primarily consist of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse, but managed through our central foreign exchange risk management program. 23 Table of Contents FIRST QUARTER OF FISCAL 2024 COMPARED TO FIRST QUARTER OF FISCAL 2023 • NIKE, Inc. Revenues were $12.9 billion for the first quarter of fiscal 2024, which increased 2% compared to the first quarter of fiscal 2023 on a reported and currency-neutral basis. The increase, on a currency-neutral basis, was driven by higher revenues in Europe, Middle East & Africa ("EMEA") and Greater China, which contributed approximately 2 and 1 percentage points to NIKE, Inc. Revenues, respectively. Lower revenues in North America reduced NIKE, Inc. Revenues by approximately 1 percentage point. • NIKE Brand revenues, which represented over 90% of NIKE, Inc. Revenues, increased 3% on a reported and currency-neutral basis. This increase was primarily due to higher revenues in the Jordan Brand and Women's, partially offset by lower revenues in Men's and Kids'. • NIKE Brand footwear revenues increased 4% on a currency-neutral basis due to higher revenues in the Jordan Brand, Women's and Men's, partially offset by lower revenues in Kids'. Unit sales of footwear decreased 1%, while higher average selling price ("ASP") per pair contributed approximately 5 percentage points of footwear revenue growth. Higher ASP per pair was primarily due to higher full-price ASP, net of discounts, on a wholesale equivalent basis, and growth in the size of our NIKE Direct business, partially offset by lower NIKE Direct ASP. • NIKE Brand apparel revenues decreased 1% on a currency-neutral basis, primarily due to lower revenues in Men's, Women's and the Jordan Brand. Unit sales of apparel decreased 12%, while higher ASP per unit contributed approximately 11 percentage points of apparel revenue growth. Higher ASP per unit was primarily due to higher full-price and NIKE Direct ASPs. • NIKE Direct revenues increased 6% from $5.1 billion in the first quarter of fiscal 2023 to $5.4 billion in the first quarter of fiscal 2024. On a currency-neutral basis, NIKE Direct revenues increased 6%, driven by comparable store sales growth of 8%, the addition of new stores and NIKE Brand Digital sales growth of 2%. For additional information regarding comparable store sales, including the definition, see "Comparable Store Sales". NIKE Brand Digital sales were $2.9 billion for the first quarter of fiscal 2024 compared to $2.8 billion for the first quarter of fiscal 2023. Within NIKE Direct revenues, there were certain reclassifications made between NIKE-owned retail stores and NIKE Brand Digital in the prior period to conform to current period presentation. The reclassifications did not have a material impact on our Unaudited Condensed Consolidated Financial Statements. GROSS MARGIN THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2023 2022 % CHANGE Gross profit $ 5,720 $ 5,615 2 % Gross margin 44.2 % 44.3 % (10) bps For the first quarter of fiscal 2024, our consolidated gross margin was 10 basis points lower than the prior year primarily due to: • Higher NIKE Brand product costs, on a wholesale equivalent basis (decreasing gross margin approximately 180 basis points); • Unfavorable changes in net foreign currency exchange rates, including hedges (decreasing gross margin approximately 90 basis points); and • Lower off-price margin, on a wholesale equivalent basis (decreasing gross margin approximately 30 basis points). This was partially offset by: • Higher NIKE Brand full-price ASP, net of discounts, on a wholesale equivalent basis (increasing gross margin approximately 300 basis points) due primarily to strategic pricing actions; and • Higher margin in our NIKE Direct business (increasing gross margin approximately 10 basis points). 24 Table of Contents TOTAL SELLING AND ADMINISTRATIVE EXPENSE THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2023 2022 % CHANGE Demand creation expense (1) $ 1,069 $ 943 13 % Operating overhead expense 3,047 2,977 2 % Total selling and administrative expense $ 4,116 $ 3,920 5 % % of revenues 31.8 % 30.9 % 90 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. FIRST QUARTER OF FISCAL 2024 COMPARED TO FIRST QUARTER OF FISCAL 2023 Demand creation expense increased 13% primarily due to an increase in advertising and marketing expense. Changes in foreign currency exchange rates did not have a material impact on Demand creation expense. Operating overhead expense increased 2% primarily due to higher wage-related expenses and NIKE Direct variable costs, partially offset by lower technology spend. Changes in foreign currency exchange rates did not have a material impact on Operating overhead expense. OTHER (INCOME) EXPENSE, NET THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2023 2022 Other (income) expense, net $ (10) $ (146) 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 first quarter of fiscal 2024, Other (income) expense, net decreased from $146 million of other income, net, to $10 million of other income, net, in the current year, primarily due to a net unfavorable change in foreign currency conversion gains and losses, including hedges, as well as net favorable settlements of legal matters in the prior year. 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 $65 million on our Income before income taxes for the first quarter of fiscal 2024. INCOME TAXES THREE MONTHS ENDED AUGUST 31, 2023 2022 % CHANGE Effective tax rate 12.0 % 19.7 % (770) bps Our effective tax rate was 12.0% for the first quarter of fiscal 2024 compared to 19.7% for the first quarter of fiscal 2023, primarily due to a one-time benefit provided by the recent delay of the effective date of certain U.S. foreign tax credit regulations. For additional information, refer to Note 4 — Income Taxes within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements. 25 Table of Contents OPERATING SEGMENTS As discussed in Note 10 — Operating Segments in the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements, our operating segments are evidence of the structure of the Company's internal organization. The NIKE Brand segments are defined by geographic regions for operations participating in NIKE Brand sales activity. The breakdown of Revenues is as follows: THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2023 2022 % CHANGE % CHANGE EXCLUDING CURRENCY CHANGES (1) North America $ 5,423 $ 5,510 -2 % -1 % Europe, Middle East & Africa 3,610 3,333 8 % 6 % Greater China 1,735 1,656 5 % 12 % Asia Pacific & Latin America 1,572 1,535 2 % 3 % Global Brand Divisions (2) 13 14 -7 % 1 % TOTAL NIKE BRAND 12,353 12,048 3 % 3 % Converse 588 643 -9 % -9 % Corporate (3) (2) (4) — — TOTAL NIKE, INC. REVENUES $ 12,939 $ 12,687 2 % 2 % (1) The percent change excluding currency changes represents a non-GAAP financial measure. For additional information, see "Use of Non-GAAP Financial Measures". (2) Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment. (3) Corporate revenues primarily consist of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse, but managed through our central foreign exchange risk management program. 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 10 — 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. The breakdown of EBIT is as follows: THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2023 2022 % CHANGE North America $ 1,434 $ 1,377 4 % Europe, Middle East & Africa 930 975 -5 % Greater China 525 541 -3 % Asia Pacific & Latin America 414 500 -17 % Global Brand Divisions (1,205) (1,187) -2 % TOTAL NIKE BRAND (1) 2,098 2,206 -5 % Converse 167 209 -20 % Corporate (651) (574) -13 % TOTAL NIKE, INC. EARNINGS BEFORE INTEREST AND TAXES (1) 1,614 1,841 -12 % EBIT margin (1) 12.5 % 14.5 % Interest expense (income), net (34) 13 — TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES $ 1,648 $ 1,828 -10 % (1) Total NIKE Brand EBIT, Total NIKE, Inc. EBIT and EBIT margin represent non-GAAP financial measures. For further information, see "Use of Non-GAAP Financial Measures". 26 Table of Contents NORTH AMERICA THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2023 2022 % CHANGE % CHANGE EXCLUDING CURRENCY CHANGES Revenues by: Footwear $ 3,733 $ 3,805 -2 % -2 % Apparel 1,479 1,494 -1 % -1 % Equipment 211 211 0 % 0 % TOTAL REVENUES $ 5,423 $ 5,510 -2 % -1 % Revenues by: Sales to Wholesale Customers $ 2,772 $ 3,027 -8 % -8 % Sales through NIKE Direct 2,651 2,483 7 % 7 % TOTAL REVENUES $ 5,423 $ 5,510 -2 % -1 % EARNINGS BEFORE INTEREST AND TAXES $ 1,434 $ 1,377 4 % FIRST QUARTER OF FISCAL 2024 COMPARED TO FIRST QUARTER OF FISCAL 2023 • North America revenues decreased 1% on a currency-neutral basis, due to lower revenues in Men's, Women's and Kids', largely offset by higher revenues in the Jordan Brand. Wholesale revenues decreased 8%, reflecting our proactive decisions to manage inventory supply and prioritize marketplace health. NIKE Direct revenues increased 7%, driven by comparable store sales growth of 6%, the addition of new stores and digital sales growth of 4%. • Footwear revenues decreased 2% on a currency-neutral basis, due to lower revenues in Men's, Kids' and Women's, largely offset by higher revenues in the Jordan Brand. Unit sales of footwear decreased 10%, while higher ASP per pair contributed approximately 8 percentage points of footwear revenue growth. Higher ASP per pair was primarily due to higher full-price ASP and growth in NIKE Direct. • Apparel revenues decreased 1% on a currency-neutral basis, primarily due to lower revenues in Women's, Men's and the Jordan Brand. Unit sales of apparel decreased 11%, while higher ASP per unit contributed 10 percentage points of apparel revenue growth. Higher ASP per unit was primarily due to higher full-price and NIKE Direct ASP. Reported EBIT increased 4% reflecting lower revenues and the following: • Gross margin expansion of 240 basis points primarily due to higher full-price ASP, net of discounts, largely due to strategic pricing actions and higher margin in NIKE Direct. This was partially offset by higher product costs and a lower mix of full-price sales. • Selling and administrative expense increase of 4% driven by higher operating overhead expense. The increase in operating overhead expense was primarily due to higher wage-related expenses and NIKE Direct variable costs. Demand creation expense was flat as lower advertising and marketing expense was offset by higher digital marketing. 27 Table of Contents EUROPE, MIDDLE EAST & AFRICA THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2023 2022 % CHANGE % CHANGE EXCLUDING CURRENCY CHANGES Revenues by: Footwear $ 2,260 $ 2,012 12 % 10 % Apparel 1,137 1,153 -1 % -3 % Equipment 213 168 27 % 23 % TOTAL REVENUES $ 3,610 $ 3,333 8 % 6 % Revenues by: Sales to Wholesale Customers $ 2,379 $ 2,203 8 % 7 % Sales through NIKE Direct 1,231 1,130 9 % 6 % TOTAL REVENUES $ 3,610 $ 3,333 8 % 6 % EARNINGS BEFORE INTEREST AND TAXES $ 930 $ 975 -5 % FIRST QUARTER OF FISCAL 2024 COMPARED TO FIRST QUARTER OF FISCAL 2023 • EMEA revenues increased 6% on a currency-neutral basis due to higher revenues in Men's and Women's, partially offset by lower revenues in the Jordan Brand. NIKE Direct revenues increased 6% due to comparable store sales growth of 14% and the addition of new stores, partially offset by digital sales declines of 2%. • Footwear revenues increased 10% on a currency-neutral basis, primarily due to higher revenues in Men's and Women's. Unit sales of footwear increased 2%, while higher ASP per pair contributed approximately 8 percentage points of footwear revenue growth. Higher ASP per pair was primarily due to higher full-price and NIKE Direct ASPs. • Apparel revenues decreased 3% on a currency-neutral basis due to lower revenues in Men's, the Jordan Brand and Women's. Unit sales of apparel decreased 15%, while higher ASP per unit contributed approximately 12 percentage points of apparel revenue growth. Higher ASP per unit was primarily due to higher full-price and NIKE Direct ASPs, as well as growth in NIKE Direct. Reported EBIT decreased 5% reflecting higher revenues and the following: • Gross margin contraction of 310 basis points primarily due to unfavorable changes in standard foreign currency exchange rates, partially offset by higher full-price ASP, net of discounts, primarily due to strategic pricing actions. • Selling and administrative expense increase of 11% due to higher operating overhead and demand creation expense. Operating overhead expense increased primarily due to higher wage-related expenses, other administrative costs and unfavorable changes in foreign currency exchange rates. Demand creation expense increased primarily due to higher sports marketing expense and unfavorable changes in foreign currency exchange rates. 28 Table of Contents GREATER CHINA THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2023 2022 % CHANGE % CHANGE EXCLUDING CURRENCY CHANGES Revenues by: Footwear $ 1,287 $ 1,233 4 % 11 % Apparel 401 374 7 % 14 % Equipment 47 49 -4 % 2 % TOTAL REVENUES $ 1,735 $ 1,656 5 % 12 % Revenues by: Sales to Wholesale Customers $ 895 $ 839 7 % 14 % Sales through NIKE Direct 840 817 3 % 10 % TOTAL REVENUES $ 1,735 $ 1,656 5 % 12 % EARNINGS BEFORE INTEREST AND TAXES $ 525 $ 541 -3 % FIRST QUARTER OF FISCAL 2024 COMPARED TO FIRST QUARTER OF FISCAL 2023 • Greater China revenues increased 12% on a currency-neutral basis due to higher revenues in Women's, the Jordan Brand, Men's and Kids'. NIKE Direct revenues increased 10% due to comparable store sales growth of 7% benefiting from improved physical retail traffic post COVID-19 related disruptions, the addition of new stores and digital sales growth of 6%. • Footwear revenues increased 11% on a currency-neutral basis due to higher revenues in the Jordan Brand, Women's, Men's and Kids'. Unit sales of footwear increased 9%, 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 lower NIKE Direct ASP. • Apparel revenues increased 14% on a currency-neutral basis, primarily due to higher revenues in Women's. Unit sales of apparel decreased 2%, while higher ASP per unit contributed approximately 16 percentage points of apparel revenue growth. Higher ASP per unit was primarily due to higher NIKE Direct and full-price ASPs, as well as a higher mix of full-price sales, partially offset by lower off-price ASP. Reported EBIT decreased 3% reflecting higher revenues and the following: • Gross margin contraction of approximately 80 basis points, primarily due to higher product costs and unfavorable changes in standard foreign currency exchange rates. This was partially offset by higher full-price ASP, net of discounts, and a higher mix of full-price sales. • Selling and administrative expense increase of 6% primarily due to higher demand creation expense. Demand creation expense increased primarily due to higher advertising and marketing expense, partially offset by favorable changes in foreign currency exchange rates. Operating overhead expense was flat as favorable changes in foreign currency exchanges rates were offset by higher wage-related expenses and NIKE Direct variable costs. 29 Table of Contents ASIA PACIFIC & LATIN AMERICA THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2023 2022 % CHANGE % CHANGE EXCLUDING CURRENCY CHANGES Revenues by: Footwear $ 1,141 $ 1,064 7 % 7 % Apparel 371 413 -10 % -9 % Equipment 60 58 3 % 3 % TOTAL REVENUES $ 1,572 $ 1,535 2 % 3 % Revenues by: Sales to Wholesale Customers $ 937 $ 914 3 % 3 % Sales through NIKE Direct 635 621 2 % 3 % TOTAL REVENUES $ 1,572 $ 1,535 2 % 3 % EARNINGS BEFORE INTEREST AND TAXES $ 414 $ 500 -17 % We completed the sale of our entity in Chile and our entities in Argentina and Uruguay to third-party distributors in the first and second quarters of fiscal 2023, respectively. The impacts from closing these transactions are included within Corporate and are not reflected in the Asia Pacific & Latin America ("APLA") operating segment results. This completed the transition of our NIKE Brand businesses within our Central and South America ("CASA") marketplace, which now reflects a full distributor operating model. FIRST QUARTER OF FISCAL 2024 COMPARED TO FIRST QUARTER OF FISCAL 2023 • APLA revenues increased 3% on a currency-neutral basis due to higher revenues across most territories, led by Japan, Southeast Asia & India and Mexico, partially offset by lower revenues in CASA and Korea. Within our CASA territory, the transition of our Chile, Argentina and Uruguay entities to a third-party distributor operating model reduced APLA revenue growth by approximately 3 percentage points. Revenues increased due to overall growth in Women's, the Jordan Brand and Kids'. NIKE Direct revenues increased 3%, driven by comparable store sales growth of 12% and the addition of new stores, partially offset by digital sales declines of 3%. • Footwear revenues increased 7% on a currency-neutral basis due to higher revenues in Men's, Women's, the Jordan Brand and Kids'. Unit sales of footwear increased 7% and ASP per pair was slightly up, as higher full-price ASP was largely offset by lower NIKE Direct ASP. • Apparel revenues decreased 9% on a currency-neutral basis, primarily due to lower revenues in Men's and Women's. Unit sales of apparel decreased 17%, while higher ASP per unit contributed approximately 8 percentage points of apparel revenue growth. Higher ASP per unit was primarily due to higher full-price ASP, growth in NIKE Direct and higher off-price ASP. Reported EBIT decreased 17% reflecting higher revenues and the following: • Gross margin contraction of approximately 410 basis points primarily due to higher product costs, as well as unfavorable changes in standard foreign currency exchange rates and lower margin in NIKE Direct. This was partially offset by higher full-price ASP, net of discounts. • Selling and administrative expense increase of 14% due to higher demand creation and operating overhead expense. Demand creation expense increased primarily due to higher advertising and marketing expense as well as higher digital marketing expense. Operating overhead expense increased primarily due to higher wage-related expenses. 30 Table of Contents GLOBAL BRAND DIVISIONS THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2023 2022 % CHANGE % CHANGE EXCLUDING CURRENCY CHANGES Revenues $ 13 $ 14 -7 % 1 % Earnings (Loss) Before Interest and Taxes $ (1,205) $ (1,187) -2 % Global Brand Divisions primarily represent demand creation and operating overhead expense, including product creation and design expenses that are centrally managed for the NIKE Brand, as well as costs associated with NIKE Direct global digital operations and enterprise technology. Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment. FIRST QUARTER OF FISCAL 2024 COMPARED TO FIRST QUARTER OF FISCAL 2023 Global Brand Divisions' loss before interest and taxes increased 2% primarily due to higher demand creation partially offset by lower operating overhead expense. Higher demand creation expense was primarily due to higher advertising and marketing expense. Lower operating overhead expense was primarily due to lower technology spend. CONVERSE THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2023 2022 % CHANGE % CHANGE EXCLUDING CURRENCY CHANGES Revenues by: Footwear $ 522 $ 577 -10 % -10 % Apparel 20 20 0 % 1 % Equipment 11 8 38 % 32 % Other (1) 35 38 -8 % -8 % TOTAL REVENUES $ 588 $ 643 -9 % -9 % Revenues by: Sales to Wholesale Customers $ 329 $ 344 -4 % -5 % Sales through Direct to Consumer 224 261 -14 % -14 % Other (1) 35 38 -8 % -8 % TOTAL REVENUES $ 588 $ 643 -9 % -9 % EARNINGS BEFORE INTEREST AND TAXES $ 167 $ 209 -20 % (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 in Japan and accordingly do not earn revenues in Japan. FIRST QUARTER OF FISCAL 2024 COMPARED TO FIRST QUARTER OF FISCAL 2023 • Converse revenues decreased 9% on a currency-neutral basis as revenue declines in North America were partially offset by an increase in Asia. Combined unit sales within the wholesale and direct to consumer channels decreased 6% and ASP decreased 3%, reflecting promotional activity in digital. • Direct to consumer revenues decreased 14% on a currency-neutral basis due to reduced traffic in North America and Western Europe. • Wholesale revenues decreased 5% on a currency-neutral basis, as declines in North America were partially offset by growth in Western Europe due to supply chain normalization. Reported EBIT decreased 20% reflecting lower revenues and the following: • Gross margin contraction of approximately 200 basis points due to promotional activity and unfavorable changes in standard foreign currency exchange rates. • Selling and administrative expense was flat as lower operating overhead was offset by higher demand creation expense. Operating overhead expense decreased primarily as a result of lower professional service and administrative costs. Demand creation expense increased as a result of higher advertising and marketing as well as brand event expenses. 31 Table of Contents CORPORATE THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2023 2022 % CHANGE Revenues $ (2) $ (4) — Earnings (Loss) Before Interest and Taxes $ (651) $ (574) -13 % Corporate revenues primarily consist of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse, but managed through our central foreign exchange risk management program. 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 the NIKE 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. FIRST QUARTER OF FISCAL 2024 COMPARED TO FIRST QUARTER OF FISCAL 2023 Corporate's loss before interest and taxes increased $77 million for the first quarter of fiscal 2024, primarily due to the following: • an unfavorable change of $117 million related to the remeasurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments, as well as net favorable settlements of legal matters in the prior year, reported as a component of consolidated Other (income) expense, net; • an unfavorable change of $59 million primarily related to increased wage-related expenses and other professional services, reported as a component of consolidated Operating overhead expense; and • a favorable change of $105 million relat ed to the difference between actual foreign currency exchange rates and standard foreign currency exchange rates assigned to the NIKE Brand geographic operating segments and Converse, net of hedge gains and losses; these results are reported as a component of consolidated gross margin. FOREIGN CURRENCY EXPOSURES AND HEDGING PRACTICES OVERVIEW As a global company with significant operations outside the 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 into U.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 to NIKE, 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 months ended August 31, 2023, 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 for the fiscal year ended May 31, 2023 (the "Annual Report")" Refer to Note 3 — Fair Value Measurements and Note 7 — 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 within the Annual Report. 32 Table of Contents 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 our NIKE 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. Certain currency forward contracts used to manage the foreign exchange exposure of non-functional currency denominated monetary assets and liabilities subject to remeasurement are not formally designated as hedging instruments. Accordingly, changes in fair value of these instruments are recognized in Other (income) expense, net and are intended to offset the foreign currency impact of the remeasurement of the related non-functional currency denominated asset or liability being hedged. TRANSLATIONAL EXPOSURES Many of our foreign subsidiaries operate in functional currencies other than the U.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 into U.S. Dollars for consolidated reporting. The translation of foreign subsidiaries' non-U.S. Dollar denominated balance sheets into U.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 $57 million and $823 million for the three months ended August 31, 2023 and 2022, respectively. The impact of foreign exchange rate fluctuations on the translation of our Income before income taxes was a detriment of approximately $2 million and $253 million for the three months ended August 31, 2023 and 2022, respectively. MANAGING TRANSLATIONAL EXPOSURES To minimize the impact of translating foreign currency denominated revenues and expenses into U.S. Dollars for consolidated reporting, certain foreign subsidiaries use excess cash to purchase U.S. Dollar denominated available-for-sale investments. The variable future cash flows associated with the purchase and subsequent sale of these U.S. Dollar denominated investments at non-U.S. Dollar functional currency subsidiaries creates a foreign currency exposure that qualifies for hedge accounting under U.S. GAAP. We utilize forward contracts and/or options to mitigate the variability of the forecasted future purchases and sales of these U.S. Dollar investments. The combination of the purchase and sale of the U.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 of U.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 $65 million and $234 million in our Income before income taxes for the three months ended August 31, 2023 and 2022, respectively. 33 Table of Contents LIQUIDITY AND CAPITAL RESOURCES CASH FLOW ACTIVITY Cash provided (used) by operations was an outflow of $66 million for the first three months of fiscal 2024, compared to an inflow of $357 million for the first three months of fiscal 2023. Net income, adjusted for non-cash items, generated $1,757 million of operating cash inflow for the first three months of fiscal 2024, compared to $1,771 million for the first three months of fiscal 2023. The net change in working capital and other assets and liabilities resulted in a decrease to Cash provided (used) by operations of $1,823 million for the first three months of fiscal 2024 compared to a decrease of $1,414 million for the first three months of fiscal 2023. The net change in working capital was primarily impacted by unfavorable changes in Accrued liabilities, primarily due to net unfavorable changes in cash collateral with derivative counterparties as a result of hedging transactions. The net change in working capital was also impacted by favorable changes to Inventories due to improved lead times and flow of seasonal product in the current period. Further impacting the net change in working capital was an unfavorable change in Accounts receivable, in part due to the timing of wholesale shipments in the current period. Cash provided (used) by investing activities was an inflow of $418 million for the first three months of fiscal 2024, compared to an outflow of $214 million for the first three months of fiscal 2023, primarily driven by the net change in short-term investments. For the first three months of fiscal 2024, the net change in short-term investments (including sales, maturities and purchases) resulted in a cash inflow of $672 million compared to a cash outflow of $89 million for the first three months of fiscal 2023. Cash provided (used) by financing activities was an outflow of $1,599 million for the first three months of fiscal 2024 compared to $1,404 million for the first three months of fiscal 2023. The increased outflow in the first three months of fiscal 2024 was driven by higher share repurchases of $1,133 million for the first three months of fiscal 2024 compared to $983 million in the first three months of fiscal 2023, as well as higher dividend payments of $524 million for the first three months of fiscal 2024 compared to $480 million in the first three months of fiscal 2023. During the first three months of fiscal 2024, we repurchased a total of 10.5 million shares of NIKE's Class B Common Stock for $1,132 million (an average price of $108.12 per share) under the four-year, $18 billion share repurchase plan authorized by the Board of Directors in June 2022. As of August 31, 2023, we have repurchased 54.0 million shares at a cost of approximately $5.9 billion (an average price of $109.94 per share) under this $18 billion share repurchase 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 On July 21, 2022, we filed a shelf registration statement (the "Shelf") with the U.S. Securities and Exchange Commission (the "SEC") which permits us to issue an unlimited amount of debt securities from time to time. The Shelf expires on July 21, 2025. As of August 31, 2023, our committed credit facilities were unchanged from the information previously reported within the Annual Report. We currently have long-term debt ratings of AA- and A1 from Standard and Poor's Corporation and Moody's Investor Services, respectively. Any changes to these ratings could result in interest rate and facility fee changes. As of August 31, 2023, 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 of August 31, 2023 and May 31, 2023, no amounts were outstanding under our committed credit facilities. Liquidity is also provided by our $3 billion commercial paper program. As of and for the three months ended August 31, 2023, 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. To date, in fiscal 2024, we have not experienced difficulty accessing the capital or credit markets; however, future volatility may increase costs associated with issuing commercial paper or other debt instruments or affect our ability to access those markets. As of August 31, 2023, we had Cash and equivalents and Short-term investments totaling $8.8 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 of August 31, 2023, the weighted average days to maturity of our cash equivalents and short-term investments portfolio was 100 days. We believe that existing Cash and 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 within the Annual Report. 34 Table of Contents OFF-BALANCE SHEET ARRANGEMENTS As of August 31, 2023, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on our current or future financial condition, results of operations, liquidity, capital expenditures or capital resources. NEW ACCOUNTING PRONOUNCEMENTS Refer to Note 1 — Summary of Significant Accounting Policies within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements for recently adopted and issued accounting standards. 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 in the 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 the Annual Report 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. 35 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes from the information previously reported under Part II, Item 7A within our Annual Report on Form 10-K for the fiscal year ended May 31, 2023.