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NIKE Increases Dividend by 12% Amid Improving Business Outlook

Shauvik Haldar Nov 30, 2020

NIKE Inc (NKE), the Oregon-based company, is the world’s largest seller of athletic footwear and apparel.

NIKE draws nearly 67% of its revenues from footwear, followed by nearly 30% from apparel and the remainder mostly from equipment.

NIKE operates more than 300 stores in the U.S and nearly 750 stores outside of the U.S. Naturally, NIKE draws the majority of its revenues from its international markets, with non-U.S. markets contributing nearly 60% of its revenues for FY 2020 ending May 31, 2020.

Most of the manufacturing takes place outside of the U.S., wherein NIKE has nearly 120 footwear factories across 12 countries and nearly 330 apparel factories across more than 35 countries. Vietnam and China contribute a significant chunk of this production, with both countries making up nearly 70% of footwear and 50% of apparel production for FY 2020.

Consumer Demand for Sportswear Picking Up

Due to a significant reliance on China for production, NIKE faced the impact of COVID-19 during Q3 and Q4 of 2020. Just like any other discretionary product retailer, NIKE dealt with issues of temporary store closures, reduced store timings, and reduced wholesale shipment during the second half of FY 2020.

However, by the time the company moved into Q1 2021, most of the NIKE-owned physical stores were open. That is not to say things went back to normal. On a year-over-year basis, the company’s physical retail stores still witnessed reduced traffic as social distancing measures were followed throughout the world.

During Q1 2021, NIKE direct sales grew by 13% (currency-adjusted) to $3.7 billion compared to Q1 2020. However, the highlight of the quarter was NIKE digital that grew by 83%, representing the fastest growth channel for the company. With this, the company was able to offset a nearly 20% decline in comparable-store sales caused by COVID-19-related restrictions.

On a diluted basis, NIKE was able to increase its EPS during Q1 2021 by 10% to $0.95 per share compared to that in Q1 2020. During this quarter, NIKE’s cash flow from operations also improved to $882 million compared to $394 million during Q1 2020.

Improving conditions in Q1 2021 made it easier for NIKE to increase its quarterly dividend from 24.5 cents to 27.5 cents payable to shareholders of record as on December 7, 2020.

However, to preserve liquidity, NIKE has temporarily suspended its share repurchases under its four-year $15 billion program that was approved in 2018. Up to August 31, 2020, the company repurchased nearly 45 million shares at a cost of approximately $4 billion.

Moving forward, the company intends to strengthen its digital presence and improve its product innovation pipeline.

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