# Nike (NKE) Financial Model

Free Excel 3-statement financial model and company analysis for Nike.

- Canonical: https://finamodel.com/companies/nike
- Industry: Consumer Goods
- Downloadable model: Yes
- Excel download: https://finamodel.com/company-models/NKE.xlsx

## Model Purpose

This model provides a comprehensive equity valuation and scenario planning tool to evaluate Nike's turnaround strategy, channel mix shift, and margin recovery under new leadership.

## Company Overview

Nike, Inc. is the world's largest designer, marketer, and distributor of authentic athletic footwear, apparel, equipment, and accessories. The company operates a globally recognised portfolio of brands, primarily the flagship Nike brand and Converse.

Business segments by product include Footwear (approximately 68% of total revenue), Apparel (approximately 27%), Equipment (approximately 3%), and Converse (approximately 2%). Geographically, the Nike Brand is split into North America (approximately 42%), Europe, Middle East, and Africa or EMEA (approximately 27%), Greater China (approximately 15%), and Asia Pacific and Latin America or APLA (approximately 14%).

Nike employs an asset-light business model, outsourcing nearly all of its footwear and apparel manufacturing to independent contractors primarily located in Asia. The company's competitive position is dominant, holding the number one global market share in athletic footwear and apparel, competing against Adidas, Puma, Lululemon, and emerging brands like On and Hoka. Recent major events include a leadership transition with Elliott Hill becoming CEO in late 2024, a strategic pivot to reinvest in wholesale partnerships after over-indexing on Direct-to-Consumer (DTC) channels, and a multi-year $2 billion cost-saving programme initiated in fiscal 2024.

## Revenue Deep Dive



### Nike Brand Footwear

- Segment name: Nike Brand Footwear
- Revenue driver formula: Volume (Pairs Sold) x Average Selling Price (ASP)
- Historical growth rate: 2% to 6% CAGR (highly volatile recently due to inventory gluts and macro headwinds)
- Key growth levers and headwinds: Innovation pipeline (e.g., Air Max, Pegasus franchises), sneakerhead culture, and macro-consumer spending. Headwinds include increased competition from niche running brands and fatigue in classic lifestyle franchises (e.g., Air Force 1, Dunk).
- Pricing dynamics: Premium pricing power, though heavily influenced by promotional environments and channel mix (full-price DTC vs. off-price wholesale).
- Revenue recognition notes: Recognised upon transfer of control, which is upon shipment for wholesale and upon delivery or store purchase for DTC.
- Seasonality: Q1 (summer/back-to-school) and Q3 (holiday season) are typically the strongest quarters.

### Nike Brand Apparel

- Segment name: Nike Brand Apparel
- Revenue driver formula: Volume (Units Sold) x Average Selling Price (ASP)
- Historical growth rate: 1% to 5% CAGR
- Key growth levers and headwinds: Growth in athleisure, women's fitness, and global football (soccer). Headwinds include intense competition from specialised yoga and activewear brands.
- Pricing dynamics: Highly competitive, requiring constant innovation in fabric technology (e.g., Dri-FIT) to maintain premium pricing.
- Revenue recognition notes: Standard transfer of control upon shipment or delivery.
- Seasonality: Higher sales in autumn and winter for fleece and outerwear products.

### Nike Brand Equipment

- Segment name: Nike Brand Equipment
- Revenue driver formula: Volume x Average Selling Price
- Historical growth rate: 0% to 3% CAGR
- Key growth levers and headwinds: Sports participation rates and licensing agreements.
- Pricing dynamics: Generally stable, lower price points compared to footwear.
- Revenue recognition notes: Standard transfer of control.
- Seasonality: Tied to specific sporting seasons and back-to-school periods.

### Converse

- Segment name: Converse
- Revenue driver formula: Volume x Average Selling Price
- Historical growth rate: Negative 5% to positive 3% CAGR (recent struggles with lifestyle footwear trends)
- Key growth levers and headwinds: Chuck Taylor franchise reliance. Headwinds include shifting fashion trends away from canvas vulcanised shoes.
- Pricing dynamics: Lower price tier than premium Nike footwear, highly sensitive to youth consumer spending.
- Revenue recognition notes: Standard transfer of control.
- Seasonality: Strong back-to-school and holiday spikes.

## Cost Structure



### Variable Costs / COGS

- Line-by-line breakdown: Inventory costs (purchased from contract manufacturers), inbound freight, logistics, tariffs, and foreign currency hedge impacts.
- Gross margin range: 43.0% to 46.5% over the last 5 years.
- Key input costs and commodity exposures: Oil (for synthetic rubber and polyester), cotton, ocean freight rates, and Asian labour costs.
- How COGS scales with revenue: Largely linear, but gross margin percentage fluctuates based on channel mix (DTC has higher gross margins than wholesale) and markdown activity.

### Operating Expenses

- Demand Creation Expense: Nike's term for marketing. Typically 7.5% to 9.0% of revenue. Covers advertising, endorsement contracts (athletes and teams), and digital marketing.
- Operating Overhead Expense: Typically 24.0% to 26.0% of revenue. Includes wage costs, administrative expenses, digital supply chain investments, and store operating costs.
- Depreciation & Amortisation: Approximately 1.5% to 2.0% of revenue, primarily related to retail store buildouts, distribution centres, and capitalised software.
- Stock-Based Compensation: Approximately 0.8% to 1.2% of revenue.
- Restructuring / one-time charges: Occasional. A recent $2 billion cost-saving plan included severance and restructuring charges in FY24 and FY25.

### Margin Profile

- Gross margin: 43.0% to 46.5%.
- EBIT margin: 11.0% to 13.5%.
- Net margin: 9.0% to 11.0%.
- Margin trend: Compressing in FY24 due to promotional activity and restructuring, with a projected recovery in FY26 as inventory levels normalise and new product cycles begin.
- Segment-level margins: Nike reports EBIT by geography (North America typically 24-26%, Greater China typically 28-30% due to higher DTC mix, EMEA 25-27%).

## Balance Sheet Structure

- Total assets: Approximately $37 billion to $39 billion.
- Key asset categories: Cash and short-term investments, Inventory, Accounts Receivable, and Property, Plant & Equipment.
- Goodwill & intangibles as % of total assets: Very low (under 1%), as Nike relies on organic brand building rather than acquisitions.
- Working capital profile:
  - Days Sales Outstanding (DSO): 30 to 38 days.
  - Days Inventory Outstanding (DIO): 95 to 110 days (inventory management is a critical metric for Nike).
  - Days Payable Outstanding (DPO): 55 to 65 days.
  - Net working capital as % of revenue: Typically 15% to 20%.
  - Is working capital positive or negative? Positive. Inventory requires significant working capital investment ahead of major selling seasons.
- PP&E: Approximately $5 billion. Consists of corporate headquarters, distribution facilities, and retail store fixtures.
- Right-of-use assets / operating leases: Material, approximately $2.5 billion to $3.0 billion, representing leased retail stores and warehouses.

## Capital Expenditure & Investment

- Capex as % of revenue: 2.0% to 3.0%.
- Maintenance capex vs. growth capex: Approximately 40% maintenance and 60% growth (investments in digital ERP systems, automated distribution centres, and new retail concepts).
- Major capex programmes underway or planned: Supply chain automation and enterprise resource planning (ERP) upgrades.
- Capitalised software / development costs: Material component of capex due to the Nike SNKRS app and digital ecosystem development.
- M&A pattern: Organic grower. Acquisitions are extremely rare (historical examples include Converse in 2003 and RTFKT in 2021).
- Typical acquisition multiple paid: Not applicable.

## Debt & Capital Structure

- Total debt: Approximately $8.5 billion to $9.5 billion in long-term debt. Net debt is typically near zero or negative (net cash position).
- Debt/EBITDA ratio: 1.0x to 1.5x (very conservative).
- Credit rating: AA- (S&P), A1 (Moody's).
- Key debt instruments: Senior unsecured notes with staggered maturities.
- Maturity profile: Well-laddered, with average maturity exceeding 10 years.
- Interest rate profile: Predominantly fixed-rate bonds. Weighted average cost of debt is approximately 3.0% to 3.5%.
- Covenants: Standard investment-grade covenants; no restrictive financial maintenance covenants.
- Share repurchase programme: Highly active. Nike frequently executes multi-year, multi-billion dollar share repurchase programmes (e.g., $18 billion programme authorised in 2022), typically buying back 1% to 3% of shares outstanding annually.
- Dividend policy: Consistent dividend grower. Payout ratio is typically 30% to 35%, yielding approximately 1.2% to 1.8%.

## Cash Flow Characteristics

- Operating cash flow conversion: 1.0x to 1.3x Net Income.
- Free cash flow margin: 8% to 11% of revenue.
- Major non-cash items that bridge net income to OCF: Depreciation, amortisation, stock-based compensation, and deferred income taxes.
- Working capital cash flow impact: Inventory swings are the largest driver of OCF volatility. A build-up in inventory consumes massive cash, while clearing inventory generates strong cash flow.
- Capex intensity: Low (2% to 3% of revenue), resulting in high free cash flow conversion.
- Cash tax rate vs. GAAP effective tax rate: Generally aligned. The effective tax rate is typically 15% to 18%, benefiting from foreign earnings taxed at lower rates and tax benefits from stock-based compensation.

## Sheet Structure

1. **Title & TOC**: Model title, company details, and hyperlinked table of contents.
2. **Assumptions**: Hardcoded inputs for revenue growth, margins, working capital days, capex, and WACC.
3. **Scenarios**: Scenario manager (Base, Bull, Bear) driving the active assumptions.
4. **Revenue Build**: Detailed build of Nike Brand (Footwear, Apparel, Equipment) and Converse revenues. Includes a secondary matrix for Geographical revenues (North America, EMEA, Greater China, APLA) to cross-check total Nike Brand revenue.
5. **Income Statement**: Historical and projected P&L, explicitly breaking out Demand Creation Expense and Operating Overhead Expense.
6. **Balance Sheet**: Historical and projected assets, liabilities, and equity.
7. **Cash Flow Statement**: Operating, investing, and financing cash flows, linking net income to ending cash.
8. **Working Capital Schedule**: Calculation of Accounts Receivable, Inventory, and Accounts Payable based on DSO, DIO, and DPO.
9. **Depreciation & Capex Schedule**: PP&E roll-forward, capital expenditure projections, and depreciation calculations.
10. **Debt & Interest Schedule**: Debt tranches, maturity roll-forward, and interest expense calculation.
11. **Equity & Shares Schedule**: Share repurchases, dividend payouts, and basic/diluted share count roll-forward.
12. **DCF Valuation**: Unlevered free cash flow calculation, WACC build, terminal value, and implied share price.
13. **Outputs & Charts**: Summary dashboard of key metrics (Gross Margin, EBIT Margin, ROIC, FCF yield).

## Key Financial Relationships

1. "Nike Brand Revenue = Nike Brand Footwear Revenue + Nike Brand Apparel Revenue + Nike Brand Equipment Revenue"
2. "Total Revenue = Nike Brand Revenue + Converse Revenue + Corporate/Unallocated Revenues"
3. "Gross Profit = Total Revenue - Cost of Sales"
4. "Gross Margin % = Gross Profit / Total Revenue"
5. "Demand Creation Expense = Total Revenue x Demand Creation % (historically 7.5% to 9.0%)"
6. "Operating Overhead Expense = Total Revenue x Operating Overhead % (historically 24.0% to 26.0%)"
7. "Total Selling and Administrative Expense = Demand Creation Expense + Operating Overhead Expense"
8. "EBIT = Gross Profit - Total Selling and Administrative Expense - Restructuring Charges"
9. "Accounts Receivable = (Total Revenue / 365) x DSO"
10. "Inventory = (Cost of Sales / 365) x DIO"
11. "Accounts Payable = (Cost of Sales / 365) x DPO"
12. "Basic Shares Outstanding = Prior Period Shares - (Share Repurchase Amount / Average Share Price)"
13. "Dividends Paid = Basic Shares Outstanding x Dividend Per Share"
14. "Unlevered Free Cash Flow = EBIT x (1 - Effective Tax Rate) + D&A - Capital Expenditures - Change in Net Working Capital"

## Cross-Sheet Dependencies

- The **Assumptions** and **Scenarios** sheets feed the **Revenue Build**, **Income Statement**, and **Working Capital Schedule**.
- The **Revenue Build** feeds the top line of the **Income Statement**.
- The **Income Statement** generates Net Income, which flows to the top of the **Cash Flow Statement** and feeds Retained Earnings on the **Balance Sheet**.
- The **Working Capital Schedule** calculates AR, Inventory, and AP, which flow to the **Balance Sheet** and dictate the Change in NWC on the **Cash Flow Statement**.
- The **Depreciation & Capex Schedule** feeds D&A on the **Income Statement** and **Cash Flow Statement**, and updates PP&E on the **Balance Sheet**.
- The **Debt & Interest Schedule** calculates interest expense for the **Income Statement** and updates debt balances on the **Balance Sheet**. Circularity risk exists here if interest expense reduces cash, which in turn affects debt paydown and subsequent interest expense. A circularity toggle must be included.
- The **Cash Flow Statement** generates the ending cash balance, which links to the **Balance Sheet** to ensure Total Assets equal Total Liabilities plus Equity.
- The **DCF Valuation** pulls EBIT and taxes from the **Income Statement**, D&A and Capex from the **Depreciation & Capex Schedule**, and Change in NWC from the **Working Capital Schedule**.

## Sign Convention

- Revenue and income items are entered and displayed as positive numbers.
- Expenses (Cost of Sales, Demand Creation, Operating Overhead, Interest Expense, Taxes) are entered as positive numbers in the assumptions but subtracted in the Income Statement formulas.
- On the Cash Flow Statement, cash inflows are positive and cash outflows (e.g., Capex, Dividends, Share Repurchases) are negative.
- Balance Sheet assets, liabilities, and equity are positive numbers. Contra-accounts (like Accumulated Depreciation) are positive numbers subtracted from gross balances.

## Things Most Likely to Go Wrong

1. "Failing to separate Demand Creation from Operating Overhead obscures management's discretionary marketing levers; these must be modelled as distinct line items."
2. "Inventory days (DIO) are highly volatile for Nike; assuming a flat historical average will miss the cash flow impact of inventory clearance cycles."
3. "Foreign currency translation heavily impacts reported revenue; the model should ideally reference constant-currency growth rates for underlying segment assumptions, though reported figures must be used for the final P&L."
4. "Endorsement contracts represent significant off-balance sheet commitments; ensure these are factored into the qualitative assessment of Operating Overhead rigidity."
5. "The shift between DTC and Wholesale channels significantly alters gross margin; a flat gross margin assumption ignores the margin degradation that occurs when Nike pushes excess inventory through off-price wholesale channels."
6. "Share repurchases are a massive use of cash; failing to model the reduction in share count will artificially depress EPS projections."
7. "Restructuring charges from the recent $2 billion cost-saving programme distort historical EBIT margins; these must be excluded to calculate a clean adjusted operating margin."
8. "Nike's effective tax rate benefits from stock-based compensation windfalls; assuming the statutory US corporate rate will understate net income."

## Validation Checks

1. "Gross margin should remain within the 43.0% to 46.5% band; flag if outside this range."
2. "Demand Creation as a percentage of revenue should not drop below 7.0%, as brand investment is critical to Nike's model."
3. "Days Inventory Outstanding (DIO) should not exceed 115 days; higher levels indicate a severe inventory glut requiring margin-destroying markdowns."
4. "Total Assets must exactly equal Total Liabilities plus Shareholders' Equity in every projected period."
5. "Operating Cash Flow should consistently exceed Net Income (conversion ratio > 1.0x)."
6. "Capex as a percentage of revenue should remain between 2.0% and 3.5%."
7. "Debt-to-EBITDA should remain below 2.0x, reflecting the company's conservative balance sheet."
8. "The sum of regional revenues (North America, EMEA, Greater China, APLA) must reconcile to total Nike Brand revenue."

## Key Assumptions (Default Values)

| Assumption | Default Value | Unit | Rationale |
|---|---|---|---|
| Nike Brand Footwear Growth | 2.5 | % | Reflects moderate recovery following recent franchise fatigue |
| Nike Brand Apparel Growth | 3.0 | % | Steady growth in athleisure and global sports apparel |
| Nike Brand Equipment Growth | 2.0 | % | Historical average for the equipment segment |
| Converse Growth | -2.0 | % | Continued near-term headwinds in lifestyle canvas footwear |
| Gross Margin | 44.8 | % | Normalised margin assuming balanced DTC and wholesale mix |
| Demand Creation % of Revenue | 8.5 | % | Required investment to support new product innovation cycles |
| Operating Overhead % of Revenue | 24.5 | % | Reflects savings from the $2 billion cost-reduction programme |
| Effective Tax Rate | 16.5 | % | Historical average reflecting global tax mix and SBC benefits |
| Days Sales Outstanding (DSO) | 35 | Days | Historical average for receivables collection |
| Days Inventory Outstanding (DIO) | 102 | Days | Normalised inventory levels post-clearance |
| Days Payable Outstanding (DPO) | 60 | Days | Standard vendor payment terms |
| Capex % of Revenue | 2.8 | % | Ongoing investment in digital supply chain and ERP |
| Dividend Payout Ratio | 32.0 | % | Consistent with management's capital return policy |
| Annual Share Repurchases | 3,500 | $ Millions | Run-rate of the current multi-year authorisation |
| Cost of Debt | 3.5 | % | Weighted average interest rate on existing senior notes |
| WACC | 8.2 | % | Based on low beta, low cost of debt, and current risk-free rate |
| Terminal Growth Rate | 2.5 | % | Aligns with long-term global GDP and inflation expectations |

## Data Sources & Benchmarks

- SEC EDGAR: Nike, Inc. 10-K and 10-Q filings.
- Nike Investor Relations: Quarterly earnings releases, supplemental financial schedules, and earnings call transcripts.
- Key peers for benchmarking: Adidas (ADDYY), Puma (PUMSY), Lululemon Athletica (LULU), Deckers Outdoor (DECK), and Under Armour (UAA).
- Industry data sources: NPD Group (Circana) for US athletic footwear market share, and Euromonitor for global sportswear trends.
- Consensus estimates: Bloomberg or FactSet for forward-looking revenue and EPS consensus.

## Sources

- Nike, Inc. Form 10-K for the fiscal year ended May 31, 2024 (SEC EDGAR).
- Nike, Inc. Form 10-Q for recent fiscal quarters (SEC EDGAR).
- Nike Investor Relations website (investors.nike.com) for supplemental revenue and margin schedules.
- Management commentary from recent earnings calls regarding the $2 billion cost-saving programme and channel mix strategy.

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## Frequently asked questions

### What does Nike, Inc. do and what are its main brands?

Nike, Inc. is the world's largest designer, marketer, and distributor of authentic athletic footwear, apparel, equipment, and accessories. The company operates a globally recognized portfolio of brands, primarily the flagship Nike brand and Converse.

### What are Nike's primary revenue drivers and business segments?

Nike's revenue is primarily driven by footwear, which accounts for approximately 68% of total revenue, followed by apparel at 27%. Geographically, North America is the largest segment, contributing about 42% of Nike Brand revenue.

### What is the assumed revenue growth rate in the Nike financial model?

The financial model for Nike assumes a revenue growth rate of approximately 6.97%. This assumption is crucial for forecasting future sales and evaluating the company's strategic initiatives.

### What is Nike's assumed capital expenditure as a percentage of revenue in the financial model?

The financial model assumes Nike's capital expenditure (Capex) as a percentage of revenue is approximately 2.17%. This reflects ongoing investments in areas such as supply chain automation and enterprise resource planning (ERP) upgrades.

### What is the purpose of the Nike financial model and what does it evaluate?

The Nike financial model serves as a comprehensive equity valuation and scenario planning tool. It is designed to evaluate Nike's turnaround strategy, channel mix shift, and margin recovery under new leadership.

### Can I download an Excel financial model for Nike, Inc.?

Yes, an Excel financial model for Nike, Inc. is available for download. This model provides a detailed framework for analyzing the company's financials and future performance from FY2026 through FY2030.

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