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 two distribution channels: NIKE Direct operations which are comprised of both NIKE-owned retail stores and sales through our digital platforms (also referred to as "NIKE Brand Digital") and to wholesale accounts, which include 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 sustainable, profitable 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. We are focused on growing the entire marketplace by increasing investment to elevate and differentiate our brand experience within our wholesale partners while also continuing to invest in our NIKE Direct operations. We have completed the implementation of a new Enterprise Resource Planning ("ERP") Platform in our Greater China and North America geographies as part of a global rollout integrating wholesale and NIKE Direct operations and enhancing supply chain and finance capabilities. As a result, beginning with the first quarter of fiscal 2025, we have removed the non-GAAP financial measure of wholesale equivalent revenues. There is no change to our reported revenues or gross margin. We will continue to invest in the global rollout of the ERP Platform in our remaining geographies to serve our consumers at speed and scale. QUARTERLY FINANCIAL HIGHLIGHTS • NIKE, Inc. Revenues for the first quarter of fiscal 2025 were $11.6 billion compared to $12.9 billion for the first quarter of fiscal 2024 • NIKE Direct revenues were $4.7 billion for the first quarter of fiscal 2025 compared to $5.4 billion for the first quarter of fiscal 2024, and represented approximately 42% of total NIKE Brand revenues • NIKE Brand wholesale revenues were $6.4 billion for the first quarter of fiscal 2025 compared to $7.0 billion for the first quarter of fiscal 2024 • Gross margin for the first quarter of fiscal 2025 increased 120 basis points to 45.4%, primarily due to lower NIKE Brand product costs, lower warehousing and logistics costs, and benefits from strategic pricing actions from the prior year • Inventories as of August 31, 2024, were $8.3 billion, an increase of 10% compared to May 31, 2024, primarily driven by an increase in units • We returned approximately $1.8 billion to our shareholders in the first quarter of fiscal 2025 through share repurchases and dividends CURRENT ECONOMIC CONDITIONS AND OTHER FACTORS IMPACTING OUR BUSINESS The operating environment could remain volatile in fiscal 2025 as the risk remains that the factors discussed below, among others, could have a material adverse impact on our future revenue growth as well as overall profitability. • Consumer Spending: During the first quarter of fiscal 2025, consumers continued to spend more cautiously as macroeconomic and geopolitical conditions remain uncertain. We will continue to closely monitor these conditions and their impacts on consumer spending behavior. • Product Portfolio Management: We are reducing the supply of certain footwear products as we scale new and innovative products across the marketplace and rebalance our footwear portfolio. This had a negative impact on our revenues in the first quarter of fiscal 2025. • Marketplace Management: We are creating a more balanced channel mix as we move product from our NIKE Direct operations to our wholesale partners to ensure our products are in the path of the consumer. In the first quarter of fiscal 2025, we experienced a decline in traffic across NIKE Brand Digital and our retail stores which negatively impacted our revenues. • 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". 19 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 Unaudited Condensed Consolidated Statements of Income. Total NIKE, Inc. EBIT for the three months ended August 31, 2024 and August 31, 2023 are as follows: THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2024 2023 Net income $ 1,051 $ 1,450 Add: Interest expense (income), net (43) (34) Add: Income tax expense 256 198 Earnings before interest and taxes $ 1,264 $ 1,614 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, 2024 and August 31, 2023 are as follows: THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2024 2023 Numerator Earnings before interest and taxes $ 1,264 $ 1,614 Denominator Total NIKE, Inc. Revenues $ 11,589 $ 12,939 EBIT margin 10.9 % 12.5 % 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. 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 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. 20 Table of Contents RESULTS OF OPERATIONS THREE MONTHS ENDED AUGUST 31, (Dollars in millions, except per share data) 2024 2023 % CHANGE Revenues $ 11,589 $ 12,939 -10 % Cost of sales 6,332 7,219 -12 % Gross profit 5,257 5,720 -8 % Gross margin 45.4 % 44.2 % Demand creation expense 1,226 1,069 15 % Operating overhead expense 2,822 3,047 -7 % Total selling and administrative expense 4,048 4,116 -2 % % of revenues 34.9 % 31.8 % Interest expense (income), net (43) (34) — Other (income) expense, net (55) (10) — Income before income taxes 1,307 1,648 -21 % Income tax expense 256 198 29 % Effective tax rate 19.6 % 12.0 % NET INCOME $ 1,051 $ 1,450 -28 % Diluted earnings per common share $ 0.70 $ 0.94 -26 % CONSOLIDATED OPERATING RESULTS REVENUES THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2024 2023 % CHANGE % CHANGE EXCLUDING CURRENCY CHANGES (1) NIKE, Inc. Revenues: NIKE Brand Revenues by: Footwear $ 7,462 $ 8,421 -11 % -10 % Apparel 3,032 3,388 -11 % -9 % Equipment 603 531 14 % 15 % Global Brand Divisions (2) 14 13 8 % 20 % Total NIKE Brand Revenues 11,111 12,353 -10 % -9 % Converse 501 588 -15 % -14 % Corporate (3) (23) (2) — — TOTAL NIKE, INC. REVENUES $ 11,589 $ 12,939 -10 % -9 % Supplemental NIKE Brand Revenues Details: NIKE Brand Revenues by: Sales to Wholesale Customers $ 6,410 $ 6,983 -8 % -7 % Sales through NIKE Direct 4,687 5,357 -13 % -12 % Global Brand Divisions (2) 14 13 8 % 20 % TOTAL NIKE BRAND REVENUES $ 11,111 $ 12,353 -10 % -9 % (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. 21 Table of Contents FIRST QUARTER OF FISCAL 2025 COMPARED TO FIRST QUARTER OF FISCAL 2024 • NIKE, Inc. Revenues for the first quarter of fiscal 2025 were $11.6 billion compared to $12.9 billion for the first quarter of fiscal 2024. On a currency-neutral basis, NIKE, Inc. revenues decreased 9%, as lower revenues in North America, Europe, Middle East & Africa ("EMEA") and Converse reduced NIKE, Inc. Revenues by approximately 5, 3 and 1 percentage points, respectively. • NIKE Brand revenues, which represented over 90% of NIKE, Inc. Revenues, decreased 10% on a reported basis and 9% on a currency-neutral basis. The decrease on a currency-neutral basis, was due to lower revenues in Men's, Women's, the Jordan Brand and Kids'. • NIKE Brand footwear revenues decreased 10% on a currency-neutral basis. Unit sales of footwear decreased 10%, while average selling price ("ASP") per pair was flat as strategic pricing actions were offset by changes in channel mix and higher discounts. • NIKE Brand apparel revenues decreased 9% on a currency-neutral basis. Unit sales of apparel decreased 12%, while higher ASP per unit contributed approximately 3 percentage points of apparel revenue growth. Higher ASP per unit was primarily due to lower discounts and strategic pricing actions. • NIKE Brand wholesale revenues decreased 8% and 7% compared to the first quarter of fiscal 2024, on a reported and currency-neutral basis, respectively. The decrease on a currency-neutral basis was driven by lower revenues in EMEA, North America and Asia Pacific & Latin America ("APLA"), partially offset by higher revenues in Greater China. • NIKE Direct revenues were $4.7 billion in the first quarter of fiscal 2025, compared to $5.4 billion for the first quarter of fiscal 2024. NIKE Brand Digital sales were $2.3 billion for the first quarter of fiscal 2025 compared to $2.9 billion for the first quarter of fiscal 2024. On a currency-neutral basis, NIKE Direct revenues decreased 12%, primarily due to NIKE Brand Digital sales declines of 20%. Comparable store sales were flat compared to the first quarter of fiscal 2024. For additional information regarding comparable store sales, including the definition, see "Comparable Store Sales". GROSS MARGIN THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2024 2023 % CHANGE Gross profit $ 5,257 $ 5,720 -8 % Gross margin 45.4 % 44.2 % 120 bps FIRST QUARTER OF FISCAL 2025 COMPARED TO FIRST QUARTER OF FISCAL 2024 For the first quarter of fiscal 2025, our consolidated gross margin was 120 basis points higher than the prior year due to: • Lower NIKE Brand product costs (increasing gross margin approximately 120 basis points), primarily due to lower ocean freight rates and lower product input costs; • Lower warehousing and logistics costs (increasing gross margin approximately 50 basis points); and • Higher NIKE Brand ASP (increasing gross margin approximately 40 basis points), primarily due to benefits from strategic pricing actions from the prior year, partially offset by changes in channel mix. This was partially offset by: • Higher other costs (decreasing gross margin approximately 60 basis points), in part due to higher inventory obsolescence reserves. 22 Table of Contents TOTAL SELLING AND ADMINISTRATIVE EXPENSE THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2024 2023 % CHANGE Demand creation expense (1) $ 1,226 $ 1,069 15 % Operating overhead expense (2) 2,822 3,047 -7 % Total selling and administrative expense $ 4,048 $ 4,116 -2 % % of revenues 34.9 % 31.8 % 310 bps (1) Demand creation expense consists of brand marketing expense, including advertising and promotion costs such as production and media costs, digital marketing expense, brand events and retail brand presentation costs, and sports marketing expense, including expenses related to endorsement contracts, complimentary product and sports marketing events. (2) Operating overhead expense consists primarily of wage and benefit-related expenses and other administrative expenses, such as research and development costs, bad debt expense, rent, depreciation and amortization and costs related to professional services, certain technology investments, meetings and travel. FIRST QUARTER OF FISCAL 2025 COMPARED TO FIRST QUARTER OF FISCAL 2024 Demand creation expense increased 15% primarily due to an increase in brand marketing expense, reflecting investment in key sports events. Changes in foreign currency exchange rates did not have a material impact on Demand creation expense. Operating overhead expense decreased 7% primarily due to lower wage-related expenses and lower other administrative costs. 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) 2024 2023 Other (income) expense, net $ (55) $ (10) 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 outside the normal course of business. For the first quarter of fiscal 2025, Other (income) expense, net increased from $10 million to $55 million of other income, net, primarily due to a net favorable change in foreign currency conversion gains and losses, including hedges. 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 an unfavorable impact of $12 million on our Income before income taxes for the first quarter of fiscal 2025. INCOME TAXES THREE MONTHS ENDED AUGUST 31, 2024 2023 % CHANGE Effective tax rate 19.6 % 12.0 % 760 bps Our effective tax rate was 19.6% for the first quarter of fiscal 2025, compared to 12.0% for the first quarter of fiscal 2024, primarily due to a one-time benefit in the first quarter of fiscal 2024 provided by the 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. 23 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) 2024 2023 % CHANGE % CHANGE EXCLUDING CURRENCY CHANGES (1) North America $ 4,826 $ 5,423 -11 % -11 % Europe, Middle East & Africa 3,143 3,610 -13 % -12 % Greater China 1,666 1,735 -4 % -3 % Asia Pacific & Latin America 1,462 1,572 -7 % -2 % Global Brand Divisions (2) 14 13 8 % 20 % TOTAL NIKE BRAND 11,111 12,353 -10 % -9 % Converse 501 588 -15 % -14 % Corporate (3) (23) (2) — — TOTAL NIKE, INC. REVENUES $ 11,589 $ 12,939 -10 % -9 % (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. 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) 2024 2023 % CHANGE North America $ 1,216 $ 1,434 -15 % Europe, Middle East & Africa 792 930 -15 % Greater China 502 525 -4 % Asia Pacific & Latin America 402 414 -3 % Global Brand Divisions (1,227) (1,205) -2 % TOTAL NIKE BRAND (1) 1,685 2,098 -20 % Converse 121 167 -28 % Corporate (542) (651) 17 % TOTAL NIKE, INC. EARNINGS BEFORE INTEREST AND TAXES (1) 1,264 1,614 -22 % EBIT margin (1) 10.9 % 12.5 % Interest expense (income), net (43) (34) — TOTAL NIKE, INC. INCOME BEFORE INCOME TAXES $ 1,307 $ 1,648 -21 % (1) Total NIKE Brand EBIT, Total NIKE, Inc. EBIT and EBIT margin represent non-GAAP financial measures. For additional information, see "Use of Non-GAAP Financial Measures". 24 Table of Contents NORTH AMERICA THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2024 2023 % CHANGE % CHANGE EXCLUDING CURRENCY CHANGES Revenues by: Footwear $ 3,212 $ 3,733 -14 % -14 % Apparel 1,331 1,479 -10 % -10 % Equipment 283 211 34 % 34 % TOTAL REVENUES $ 4,826 $ 5,423 -11 % -11 % Revenues by: Sales to Wholesale Customers $ 2,475 $ 2,772 -11 % -11 % Sales through NIKE Direct 2,351 2,651 -11 % -11 % TOTAL REVENUES $ 4,826 $ 5,423 -11 % -11 % EARNINGS BEFORE INTEREST AND TAXES $ 1,216 $ 1,434 -15 % FIRST QUARTER OF FISCAL 2025 COMPARED TO FIRST QUARTER OF FISCAL 2024 • North America revenues decreased 11% on a currency-neutral basis due to lower revenues in Men's, Women's, the Jordan Brand and Kids'. Wholesale revenues decreased 11%. NIKE Direct revenues decreased 11%, primarily due to digital sales declines of 15%, partially offset by comparable store sales growth of 1%. • Footwear revenues decreased 14% on a currency-neutral basis. Unit sales of footwear decreased 15%, while higher ASP per pair contributed approximately 1 percentage point of footwear revenue growth. Higher ASP per pair was primarily due to strategic pricing actions, partially offset by higher discounts. • Apparel revenues decreased 10% on a currency-neutral basis. Unit sales of apparel decreased 12%, while higher ASP per unit contributed approximately 2 percentage points of apparel revenue growth. Higher ASP per unit was primarily due to lower discounts and strategic pricing actions. Reported EBIT decreased 15% reflecting lower revenues and the following: • Gross margin expansion of 180 basis points primarily due to lower product costs, as well as lower warehousing and logistics costs. • Selling and administrative expense increase of 4% driven by higher demand creation expense, partially offset by lower operating overhead expense. The increase in demand creation expense was primarily due to higher brand marketing expense, reflecting investment in key sports events. The decrease in operating overhead expense was primarily due to lower wage-related expenses and other administrative costs. EUROPE, MIDDLE EAST & AFRICA THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2024 2023 % CHANGE % CHANGE EXCLUDING CURRENCY CHANGES Revenues by: Footwear $ 1,952 $ 2,260 -14 % -12 % Apparel 993 1,137 -13 % -11 % Equipment 198 213 -7 % -6 % TOTAL REVENUES $ 3,143 $ 3,610 -13 % -12 % Revenues by: Sales to Wholesale Customers $ 2,074 $ 2,379 -13 % -11 % Sales through NIKE Direct 1,069 1,231 -13 % -12 % TOTAL REVENUES $ 3,143 $ 3,610 -13 % -12 % EARNINGS BEFORE INTEREST AND TAXES $ 792 $ 930 -15 % 25 Table of Contents FIRST QUARTER OF FISCAL 2025 COMPARED TO FIRST QUARTER OF FISCAL 2024 • EMEA revenues decreased 12% on a currency-neutral basis due to lower revenues in Men's, Women's, the Jordan Brand and Kids'. Wholesale revenues decreased 11%. NIKE Direct revenues decreased 12%, due to digital sales declines of 24%, partially offset by comparable store sales growth of 2% and the addition of new stores. • Footwear revenues decreased 12% on a currency-neutral basis. Unit sales of footwear decreased 13%, while higher ASP per pair contributed approximately 1 percentage point of footwear revenue growth. Higher ASP per pair was primarily due to strategic pricing actions, partially offset by changes in channel mix and higher discounts. • Apparel revenues decreased 11% on a currency-neutral basis. Unit sales of apparel decreased 12%, while higher ASP per unit contributed approximately 1 percentage point of apparel revenue growth. Higher ASP per unit was primarily due to lower discounts. Reported EBIT decreased 15% reflecting lower revenues and the following: • Gross margin expansion of 190 basis points primarily due to lower product costs, reflecting lower ocean freight rates, and lower warehousing and logistics costs, partially offset by unfavorable changes in standard foreign currency exchange rates. • Selling and administrative expense decrease of 2% driven by lower operating overhead expense, partially offset by higher demand creation expense. The decrease in operating overhead expense was primarily due to lower wage-related expense, lower other administrative costs and favorable changes in foreign currency exchange rates. The increase in demand creation expense was primarily due to higher brand marketing expense, reflecting investment in key sports events, partially offset by lower sports marketing expense and favorable changes in foreign currency exchange rates. GREATER CHINA THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2024 2023 % CHANGE % CHANGE EXCLUDING CURRENCY CHANGES Revenues by: Footwear $ 1,246 $ 1,287 -3 % -2 % Apparel 360 401 -10 % -9 % Equipment 60 47 28 % 29 % TOTAL REVENUES $ 1,666 $ 1,735 -4 % -3 % Revenues by: Sales to Wholesale Customers $ 971 $ 895 8 % 10 % Sales through NIKE Direct 695 840 -17 % -16 % TOTAL REVENUES $ 1,666 $ 1,735 -4 % -3 % EARNINGS BEFORE INTEREST AND TAXES $ 502 $ 525 -4 % FIRST QUARTER OF FISCAL 2025 COMPARED TO FIRST QUARTER OF FISCAL 2024 • Greater China revenues decreased 3% on a currency-neutral basis, primarily due to lower revenues in the Jordan Brand. Wholesale revenues increased 10%. NIKE Direct revenues decreased 16% due to digital sales declines of 34% and comparable store sales declines of 8%, partially offset by growth in non-comparable store sales. • Footwear revenues decreased 2% on a currency-neutral basis. Unit sales of footwear decreased 1%, while lower ASP per pair reduced footwear revenues by approximately 1 percentage point. Lower ASP per pair was primarily due to changes in channel mix and higher discounts, partially offset by strategic pricing actions. • Apparel revenues decreased 9% on a currency-neutral basis. Unit sales of apparel decreased 15%, while higher ASP per unit contributed approximately 6 percentage points of apparel revenue growth. Higher ASP per unit was primarily due to strategic pricing actions. 26 Table of Contents Reported EBIT decreased 4% reflecting lower revenues and the following: • Gross margin contraction of approximately 170 basis points, largely due to unfavorable changes in standard foreign currency exchange rates, higher product costs and higher other costs, in part due to higher inventory obsolescence reserves. This was partially offset by higher ASP, primarily due to strategic pricing actions, partially offset by changes in channel mix. • Selling and administrative expense decrease of 5% primarily due to lower operating overhead expense, partially offset by higher demand creation expense. Operating overhead expense decreased due to lower other administrative costs, lower wage-related expenses and favorable changes in foreign currency exchange rates. Demand creation expense increased due to higher brand marketing expense, reflecting investment in key sports events. ASIA PACIFIC & LATIN AMERICA THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2024 2023 % CHANGE % CHANGE EXCLUDING CURRENCY CHANGES Revenues by: Footwear $ 1,052 $ 1,141 -8 % -3 % Apparel 348 371 -6 % -2 % Equipment 62 60 3 % 9 % TOTAL REVENUES $ 1,462 $ 1,572 -7 % -2 % Revenues by: Sales to Wholesale Customers $ 890 $ 937 -5 % -1 % Sales through NIKE Direct 572 635 -10 % -4 % TOTAL REVENUES $ 1,462 $ 1,572 -7 % -2 % EARNINGS BEFORE INTEREST AND TAXES $ 402 $ 414 -3 % FIRST QUARTER OF FISCAL 2025 COMPARED TO FIRST QUARTER OF FISCAL 2024 • APLA revenues decreased 2% on a currency-neutral basis due to lower revenues in Korea, Pacific, Central and South America ("CASA") and Japan, partially offset by higher revenues in Mexico. APLA revenues decreased due to lower revenues in Men's, the Jordan Brand and Women's, partially offset by higher revenues in Kids'. Wholesale revenues decreased 1%. NIKE Direct revenues decreased 4% due to digital sales declines of 15%, partially offset by comparable store sales growth of 8% and the addition of new stores. • Footwear revenues decreased 3% on a currency-neutral basis. Unit sales of footwear decreased 4%, while higher ASP per pair contributed approximately 1 percentage point of footwear revenue growth. Higher ASP per pair was primarily due to strategic pricing actions, partially offset by higher discounts and changes in channel mix. • Apparel revenues decreased 2% on a currency-neutral basis. Unit sales of apparel decreased 6%, while higher ASP per unit contributed approximately 4 percentage points of apparel revenue growth. Higher ASP per unit was primarily due to strategic pricing actions. Reported EBIT decreased 3% reflecting lower revenues and the following: • Gross margin expansion of approximately 20 basis points primarily due to higher ASP, due to strategic pricing actions, partially offset by higher discounts and changes in channel mix. This was partially offset by higher product costs, primarily due to higher product input costs. • Selling and administrative expense decrease of 11% due to lower demand creation expense and lower operating overhead expense. Demand creation expense decreased primarily due to lower brand marketing expense, lower sports marketing expense and favorable changes in foreign currency exchange rates. Operating overhead expense decreased primarily due to favorable changes in foreign currency exchange rates and lower wage-related expenses. 27 Table of Contents GLOBAL BRAND DIVISIONS THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2024 2023 % CHANGE % CHANGE EXCLUDING CURRENCY CHANGES Revenues $ 14 $ 13 8 % 20 % Earnings (Loss) Before Interest and Taxes $ (1,227) $ (1,205) -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 2025 COMPARED TO FIRST QUARTER OF FISCAL 2024 Global Brand Divisions' loss before interest and taxes increased 2% in part due to higher demand creation expense, partially offset by lower operating overhead expense. The increase in demand creation expense was primarily due to increased brand marketing expense, reflecting investment in key sports events and sports marketing expense. Lower operating overhead expense was primarily due to lower wage-related expenses. CONVERSE THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2024 2023 % CHANGE % CHANGE EXCLUDING CURRENCY CHANGES Revenues by: Footwear $ 436 $ 522 -16 % -16 % Apparel 17 20 -15 % 13 % Equipment 12 11 9 % 19 % Other (1) 36 35 3 % 5 % TOTAL REVENUES $ 501 $ 588 -15 % -14 % Revenues by: Sales to Wholesale Customers $ 275 $ 329 -16 % -16 % Sales through Direct to Consumer 190 224 -15 % -15 % Other (1) 36 35 3 % 5 % TOTAL REVENUES $ 501 $ 588 -15 % -14 % EARNINGS BEFORE INTEREST AND TAXES $ 121 $ 167 -28 % (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. FIRST QUARTER OF FISCAL 2025 COMPARED TO FIRST QUARTER OF FISCAL 2024 • Converse revenues decreased 14% on a currency-neutral basis driven by revenue declines in all territories. Unit sales decreased 11%, driven primarily by a decrease in wholesale, while ASP decreased 3% reflecting higher discounts in direct to consumer. • Wholesale revenues decreased 16% on a currency-neutral basis, as declines in Western Europe and Asia were partially offset by growth in North America. • Direct to consumer revenues decreased 15% on a currency-neutral basis due to reduced traffic in all territories and lower ASP due to higher discounts. 28 Reported EBIT decreased 28% reflecting lower revenues and the following: • Gross margin contraction of approximately 50 basis points primarily due to lower ASP, higher logistics costs and unfavorable changes in standard foreign currency exchange rates. This was partially offset by lower product costs, lower other costs and growth in licensee revenues. • Selling and administrative expense decrease of 2% primarily due to lower operating overhead expense, partially offset by higher demand creation expense. Operating overhead expense decreased primarily due to lower wage-related expenses and lower other administrative costs. Demand creation expense increased due to higher brand marketing expense. CORPORATE THREE MONTHS ENDED AUGUST 31, (Dollars in millions) 2024 2023 % CHANGE Revenues $ (23) $ (2) — Earnings (Loss) Before Interest and Taxes $ (542) $ (651) 17 % 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 2025 COMPARED TO FIRST QUARTER OF FISCAL 2024 Corporate's loss before interest and taxes decreased $109 million for the first quarter of fiscal 2025, primarily due to the following: • a favorable change of $63 million primarily related to lower wage-related expenses, reported as a component of consolidated Operating overhead expense; • a favorable change of $28 million primarily 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 • a favorable change of $18 million related 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. 29 Table of Contents 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, 2024, 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, 2024 (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. 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 Unaudited Condensed Consolidated Statements of Income. 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 within our Unaudited Condensed Consolidated Statements of Income and are intended to offset the foreign currency impact of the remeasurement of the related non-functional currency denominated asset or liability being hedged. 30 Table of Contents 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 $159 million for the three months ended August 31, 2024. The impact of foreign exchange rate fluctuations on the translation of our Income before income taxes was a detriment of approximately $40 million for the three months ended August 31, 2024. 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 $12 million on our Income before income taxes for the three months ended August 31, 2024. LIQUIDITY AND CAPITAL RESOURCES CASH FLOW ACTIVITY Cash provided (used) by operations was an inflow of $394 million for the first three months of fiscal 2025 compared to an outflow of $66 million for the first three months of fiscal 2024. Net income, adjusted for non-cash items, generated $1,358 million of operating cash inflow for the first three months of fiscal 2025, compared to $1,757 million for the first three months of fiscal 2024. The net change in certain working capital components and other assets and liabilities resulted in a decrease to Cash provided (used) by operations of $964 million for the first three months of fiscal 2025 compared to a decrease of $1,823 million for the first three months of fiscal 2024. This net change was primarily impacted by favorable changes to Accounts payable due to the timing of payments, partially offset by unfavorable changes in Inventories due to increased inventory purchases. Cash provided (used) by investing activities was an outflow of $166 million for the first three months of fiscal 2025, compared to an inflow of $418 million for the first three months of fiscal 2024, primarily driven by the net change in short-term investments (including sales, maturities and purchases). For the first three months of fiscal 2025, the net change in short-term investments resulted in a cash outflow of $46 million compared to a cash inflow of $672 million for the first three months of fiscal 2024. Cash provided (used) by financing activities was an outflow of $1,622 million for the first three months of fiscal 2025 compared to an outflow $1,599 million for the first three months of fiscal 2024. The increased outflow was driven by higher share repurchases of $1,184 million in the first three months of fiscal 2025 compared to $1,133 million in the first three months of fiscal 2024, and higher dividend payments of $558 million in the first three months of fiscal 2025 compared to $524 million in the first three months of fiscal 2024. During the first three months of fiscal 2025, we repurchased a total of 14.8 million shares of NIKE's Class B Common Stock for $1,193 million (an average price of $80.60 per share) under the four-year, $18 billion share repurchase plan authorized by the Board of Directors in June 2022. As of August 31, 2024, we have repurchased 99.7 million shares at a cost of approximately $10.2 billion (an average price of $102.78 per share) under this $18 billion share repurchase program. We continue to expect funding of share repurchases will come from operating cash flows. The timing and the amount of share repurchases will be dictated by our capital needs and stock market conditions. 31 Table of Contents 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, 2024, 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, 2024, 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, 2024 and May 31, 2024, 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, 2024, 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 2025, 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, 2024, we had Cash and equivalents and Short-term investments totaling $10.3 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, 2024, the weighted average days to maturity of our cash equivalents and short-term investments portfolio was 85 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. OFF-BALANCE SHEET ARRANGEMENTS As of August 31, 2024, 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. 32 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, 2024.