Matters:
Company announcement: on March 21, 2022, Nike disclosed the results of the third quarter of fiscal year 2022 as of February 28, 2022. The company's revenue in the third quarter was US $10.87 billion, a year-on-year increase of 5.0%; The net profit attributable to the parent company was US $1.4 billion, a year-on-year decrease of 3.7%.
Guoxin textile and clothing view: 1) performance in the third quarter of fiscal year 2021: revenue in a single quarter increased by 5% year-on-year, slightly exceeding expectations in a turbulent environment, fully verifying the operation strength; 2) By Region: the shortage of goods continued, the income of North America and APLA (Asia Pacific and Latin America) increased rapidly, and the decline of income in Greater China narrowed to 8%; 3) Business situation: the production end returns to normal and the transportation time deteriorates, but the company's situation is better than that of the industry. It is expected that the supply of goods will improve in autumn; 4) Future outlook: maintain the guidance on the number of units in the year-on-year growth of revenue in fiscal year 2022, slightly increase the guidance on gross profit margin and reduce the guidance on sales management expenses; 5) Investment suggestion: sports consumption remains prosperous and is optimistic about the core partners of China head sports brand group and international head sports brand industry chain. In terms of business in Greater China, we continue to be optimistic about the prosperity of China's sports consumption and the increase of the share of local sports brands, focusing on Li Ning, Anta sports and Tebu international. At the same time, we are optimistic about the opportunity for valuation repair of core retailers with in-depth cooperation with international brands, focusing on taobo and Baosheng international. In terms of global business, the demand for brands is strong and the supply recovery is imminent. We are optimistic about the core suppliers of international brands with strong certainty of future performance growth, and focus on Shenzhou International and Huali Industrial Group Company Limited(300979) . 6) Risk tip: the epidemic situation is repeated, the downstream demand is less than expected, the systematic risk of the market, and the international political and economic risk.
Comments:
Third quarter performance of fiscal year 2022: revenue in a single quarter increased by 5% year-on-year, slightly exceeding expectations in a turbulent environment, fully verifying the operation strength
The business environment was complex, and the revenue increased by 5% in the third quarter, mainly driven by the strong demand growth in North America. Nike's revenue in the third quarter of fiscal year 2022 was $10.87 billion, a year-on-year increase of 5.0%, and its currency neutral revenue increased by 8%, slightly higher than the company's previous expectation. By channel, nikedirect / wholesale money neutral revenue increased by 17% / 1% respectively. In terms of sub brands, Nike brand revenue was US $10.3 billion, with a year-on-year increase of 8% under currency neutral conditions, mainly driven by the 13% growth of EMEA (Europe, Middle East and Africa); Converse's revenue was $570 million, a year-on-year decrease of 1% and currency neutral revenue increased by 2% year-on-year, mainly because the strong revenue growth in North America and Europe was offset by the decline in Asia. The net profit attributable to the parent company was 14.0%, a year-on-year decrease of 3.7%.
The improvement of discount, product portfolio and favorable exchange rate promote the rise of gross profit margin and the normalization of sales. The company's gross profit margin increased by 1.0p in the third quarter p. To 46.6%, mainly due to nikedirect's improved discount, positive exchange rate impact and better product portfolio, partially offset by higher freight and logistics costs. The sales management expense rate increased by 2.3p p. To 31.6%, mainly due to strategic technology investment, normalization of brand activity investment, salary related expenses and digital marketing investment to promote the growth of digital demand. The amount of sales and management expenses increased by 13% year-on-year to US $3.4 billion, including demand creation expenses increased by 20% to US $850 million, and operation and management expenses increased by 11% to US $2.6 billion.
Roe and turnover days improved year-on-year as a whole, but the company still faces a shortage of goods. Roe was 45.7%, with a year-on-year increase of 13.1p p. , 2.2p lower than the third quarter of fiscal year 2020 p.。 The inventory amount was US $7.7 billion, with a year-on-year increase of 15.0%, and the transportation time is still increasing. In particular, 65% of goods in North America are in transit. This situation will improve in the fourth quarter of fiscal 2022. In terms of turnover days, the inventory turnover days were 104 days, flat year-on-year, 14 days slower than the third quarter of fiscal year 2020; The turnover days of accounts receivable were 29 days, a decrease of 9 days, a decrease of 11 days compared with the third quarter of fiscal year 2020; The turnover days of accounts payable were 36 days, minus 1 day, which was the same as that in the third quarter of fiscal year 2020.
By Region: the shortage of goods continued, the income of North America and APLA (Asia Pacific and Latin America) increased rapidly, and the decline of income in Greater China narrowed to 8%
North America still achieved rapid revenue growth despite high in transit inventory, while greater China fell when the epidemic and shortage of goods affected the release of new products. In addition to greater China, nikedirect grew strongly, and the wholesale business revenue in Greater China performed better than the whole. Specifically:
1) Greater China: revenue in the third quarter was US $2.16 billion (accounting for 20.9%), a year-on-year decrease of 5.2% and currency neutral revenue decreased by 8%. In terms of sub channels, due to the impact of the epidemic on retail passenger flow and the impact of supply shortage on the release of new products, nikedirect's monetary neutral income decreased by 11%, of which Nike self owned stores / Nike digital business decreased by 5% / 19% respectively; In terms of wholesale business, the company cooperates closely with two strategic partners - taobo and Baosheng in terms of digitization. The company plans to extend this cooperation model to other partners around the world. EBIT was US $780 million, a year-on-year decrease of 19%; The EBIT margin was 36.3%, with a year-on-year improvement of 6.4p p.。
2) North America: revenue in the third quarter was US $3.88 billion (accounting for 37.6%), with a year-on-year increase of 8.9%, and currency neutral revenue increased by 9%. Nike continues to promote the development momentum of various categories through key products of men's clothing, women's clothing and children's clothing, such as men's Pegasus, and the renewal of licensed products such as winflo and vomero. In terms of sub channels, nikedirect increased by 27%, of which Nike self owned store / Nike digital business increased by 16% / 33% respectively. EBIT was USD 970 million, unchanged year-on-year; The EBIT margin was 24.9%, with a year-on-year improvement of 2.3p p.。 In terms of goods supply, the inventory amount of Nike North America increased by 22% year-on-year, of which the inventory in transit at the end of the quarter accounted for 65%.
3) EMEA (Europe, Middle East and Africa): revenue in the third quarter was US $2.78 billion (accounting for 26.9%), with a year-on-year increase of 6.5% and currency neutral revenue increased by 13%. In terms of revenue channels, nikedirect's currency neutral revenue increased by 22%, mainly driven by the 44% growth of Nike's own stores, while Nike's digital business increased by 11% driven by products exclusively provided by members and apps; Wholesale business revenue increased by 10%, mainly due to the stronger growth rate of strategic customers. EBIT was US $710 million, a year-on-year increase of 34%; The EBIT margin was 25.7%, a year-on-year decrease of 6.4p p.。
4) APLA (Asia Pacific and Latin America): the revenue in the third quarter was US $1.46 billion (accounting for 14.2%), with a year-on-year increase of 11.1%, and the currency neutral revenue increased by 19%. It showed double-digit currency neutral revenue growth in South Korea, Mexico and South Colorado. By channel, nikedirect increased by 39%, of which Nike proprietary / Nike digital business increased by 61% / 17% respectively; The wholesale business increased by 9% year-on-year. EBIT was US $480 million, a year-on-year increase of 17%, a record high; The EBIT margin was 32.7%, up 1.7P p。
5) Russia Ukraine region: self owned stores and digital commerce business are still suspended in Russia and Ukraine, and the business in these two countries accounts for less than 1% of the company's total revenue.
Business situation: the production side returned to normal and the transportation time deteriorated, but the company's situation is better than that of the industry. It is expected that the supply of goods will improve in the fourth fiscal quarter
Supply chain: on the production side, all factories in Vietnam are in operation, and the total production of shoes and clothing is in line with the output before the closure and the company's forward-looking demand plan. The company's current partners are not restricted by the latest epidemic, and almost all of them operate closely with suppliers around the world. On the transportation side, taking North America as an example, the transportation time in the third quarter continued to deteriorate, about 6 weeks longer than before the epidemic and about 2 weeks longer than the same period in 2021. At present, the inventory in transit in North America accounts for 65%, but the transportation time of the company is about 4 weeks faster than the industry average. The company is actively purchasing goods in advance to cope with the longer transportation time to ensure the supply of goods in autumn. In addition, the company expects that the supply of goods will begin to normalize in the fourth quarter.
Performance guidance: maintain the guidance on the number of units in the year-on-year growth of revenue in fiscal year 2022, slightly increase the guidance on gross profit margin and reduce the guidance on sales management expenses
Fy2022 guidelines:
Revenue: the number of units in the year-on-year growth of revenue is expected to be consistent with the guidelines in the second quarter.
Gross profit margin: slightly raise the gross profit margin guidelines. It is expected that the gross profit margin will increase by at least 150bp compared with the same period of last year (guidelines for the second quarter: gross profit margin + 150bp), because strong consumer demand continues to promote high full price realization rate, low discount rate and low customer rebate. It is expected that the contribution of strategic pricing to gross profit in the fourth quarter will be partially offset by the rise in product costs, mainly due to the increase in macro input costs and supply chain costs. Even if the US dollar exchange rate has strengthened recently, the company still expects the full year exchange rate to make a positive contribution of 55bp.
Sales management expenses: it is expected that the sales management expenses will increase by double digits in the whole year (guidelines for the second quarter: medium and high double digits), mainly due to the normalization of expenses, and the company will continue to promote the digital transformation.
Income tax: the annual effective tax rate is expected to be at a low double-digit level.
Other guidelines:
North America: revenue is expected to decrease year-on-year in the fourth quarter of fiscal 2022.
Greater China: it is expected that there will be continuous improvement month on month in the fourth quarter of fiscal year 2022. At the same time, the company pays close attention to the operational impact related to the recent epidemic blockade.
Fiscal year 2023 Outlook: the company's strong products, channels and growth momentum will continue in 2023. The market demand continued to exceed the available supply. Driven by this, the supply of goods began to normalize in the fourth quarter of fiscal year 2022 (March 1 to May 31, 2022), laying the foundation for strong growth in 2023. The company will provide more specific financial guidance for fiscal year 2023 in the fourth quarter earnings conference call of 2022.
Investment suggestion: sports consumption remains prosperous and is optimistic about China head sports brand group and the core partner of international head sports brand industry chain
In terms of business in Greater China, we continue to be optimistic about the prosperity of China's sports consumption and the increase of the share of local sports brands, focusing on Li Ning, Anta sports and Tebu international. At the same time, we are optimistic about the opportunity for valuation repair of core retailers with in-depth cooperation with international brands, focusing on taobo and Baosheng international. In terms of global business, the demand for brands is strong and the supply recovery is imminent. We are optimistic about the core suppliers of international brands with strong certainty of future performance growth, and focus on Shenzhou International and Huali Industrial Group Company Limited(300979) .
Risk tips
The epidemic situation is repeated, the downstream demand is less than expected, the systemic risk of the market and the international political and economic risk.
