Nike’s higher marketing expenses contribute to US$151m drop in net income

Nike has reported a decrease of US$151 million in net income in the fourth quarter ended 31 May compared to the previous year, as “demand creation” expense went up by 5% to US$3.8 billion. The increase in expense was attributed to sports marketing investments, global brand campaigns, key sports moments and new product launches.

According to the press release, Nike’s net income for the quarter stood at US$989 million, down from US$1.14 billion a year earlier. It was driven by strong revenue growth, gross margin expansion, and a lower average share count, which were slightly offset by higher selling and administrative expense and a higher tax rate.

Meanwhile, selling and administrative expense increased 10% to US$12.7 billion, of which demand creation expense contributed US$3.8 billion. Operating overhead expense increased 13% to US$8.9 billion, driven primarily by wage-related and administrative expenses which “reflect critical investments in innovation, data and analytics, and new capabilities to accelerate our end-to-end digital transformation”, said the company.

Nike chairman, president and CEO Mark Parker added: “Financial year 2019 was a pivotal year for Nike as we continue to bring our consumer direct offense to life throughout the marketplace. Our distinctive innovation and digital advantage led to accelerated growth across our complete portfolio, while our brand fuelled deeper relationships with consumers around the globe.”

Fourth quarter revenue however, increased by 4% to US$10.2 billion. Full year revenue rose by 7% to US$39.1 billion as strategic investments in innovation and digital drove global consumer demand led by Nike direct in both periods. Key categories including Sportswear, Jordan and Running, and double-digit growth across footwear and apparel.

Nike Direct revenues were US$11.8 billion, driven by a 35% increase in digital commerce sales, 6% growth in comparable store sales as well as the addition of new stores. Sales to wholesale customers increased 10%. Revenue for the Converse brand was US$1.9 billion, driven by double-digit growth in Asia and digital, but was partially offset by declines in the U.S. and Europe.

“Reflecting on our FY19 performance, it is clear that growth is paramount at NIKE, and that our strong growth is being driven by strategic transformation,” said Andy Campion, executive vice president and CFO, Nike.

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