Question

Access the EDGAR database (SEC.gov) and obtain the July 2018 form 10K filing (for the year ended May 31, 2018) for NIKE, Inc. Prepare a table that reports the gross margin ratios for NIKE, using the revenues and cost of goods sold data from NIKE's income statement for each of it's most recent three years. Analyze and comment on trend in its gross margin ratio. Use complete sentences and good grammar. Feel free to access the Management Discussion and Analysis in the 10K to see if management had anything to say about the trend. Earn 10 points if you complete all elements of the assignment. You may comment on another students submission but you are not required to do so.

Answer 1

Solution:-

( $ in millions)

Particulars	2018	2017	2016
Revenues (a)	36,397	34,350	32,376
Cost of sales (b)	20,441	19,038	17,045
Gross profit (c) = (a) - (b)	15,956	15,312	14,971
Gross margin ration (c) / (a) * 100	43.8%	44.6%	46.2%

Analyze and comment on trend in its gross margin ratio:-

Fiscal 2018 Compared to Fiscal 2017

For fiscal 2018, our consolidated gross margin was 80 basis points lower than fiscal 2017, primarily reflecting the following factors:

• Unfavorable changes in net foreign currency exchange rates, including hedges (decreasing gross margin approximately 90 basis points);
• Lower NIKE Direct margin (decreasing gross margin approximately 10 basis points) reflecting higher mix of off-price sales in the first half of fiscal 2018, which was partially offset by margin expansion in the second half of fiscal 2018;
• NIKE Brand full-price ASP, net of discounts, on a wholesale equivalent basis, which was flat for fiscal 2018 as higher discounts in the first half of fiscal 2018 were offset by higher full-price ASP in the second half of the year; and
• NIKE Brand product costs, on a wholesale equivalent basis, which were flat.

Fiscal 2017 Compared to Fiscal 2016

For fiscal 2017, our consolidated gross margin was 160 basis points lower than fiscal 2016, primarily driven by the following factors:

• Higher NIKE Brand full-price ASP, net of discounts, on a wholesale equivalent basis (increasing gross margin approximately 70 basis points) aligned with our strategy to deliver innovative, premium products to the consumer;
• Higher NIKE Brand product costs (decreasing gross margin approximately 100 basis points) as an increase in the mix of higher cost products and labor input cost inflation more than offset lower material input costs;
• Unfavorable changes in net foreign currency exchange rates, including hedges (decreasing gross margin approximately 90 basis points); and
• Lower NIKE Direct margins (decreasing gross margin approximately 20 basis points) reflecting the impact of higher off-price sales.