Grade: C — Some Red Flags, Investigate
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2025-07-17, FY ended May 31, 2025) + Yahoo Finance
Auditor: PricewaterhouseCoopers LLP — Unqualified opinion (1 critical audit matter: accounting for income taxes)
One-line verdict: Nike is in the midst of a painful revenue contraction — total revenue fell 10% to $46.3B, with declines across every geography and every major brand. Net income dropped 44% to $3.2B. The M-Score of -2.39 passes comfortably, and cash flow quality remains solid (CFFO/NI = 1.15), but accounts receivable have outpaced revenue for two consecutive years, triggering the A2 fail. SG&A/Gross Profit at 81.3% — far above the 70% threshold — reveals a cost structure that has not yet adjusted to the revenue decline. The balance sheet remains fortress-like with $9.2B in cash against $11.0B in debt and zero goodwill risk, giving Nike time to execute its turnaround under new CEO Elliott Hill. But the numbers are unmistakably deteriorating.
| Metric | Result |
|---|---|
| :x: Red Flags | **1** (AR outpaced revenue for 2 consecutive years) |
| :warning: Watch Items | **2** (SG&A ratio 81.3%, cash covers 83% of debt) |
| Checks Completed | **17/18** (1 N/A: impairment data) |
| Beneish M-Score | **-2.39** (clean; threshold is -2.22) |
| Auditor | PricewaterhouseCoopers LLP — Unqualified opinion |
Revenue Decline Across All Geographies
Per the segment data in the 10-K:
| Segment | FY2025 | FY2024 | Change | Constant Currency |
|---|---|---|---|---|
| North America | $19,572M | $21,396M | -9% | -8% |
| EMEA | $12,257M | $13,607M | -10% | -10% |
| Greater China | $6,586M | $7,545M | -13% | -12% |
| Asia Pacific & Latin America | $6,251M | $6,729M | -7% | -3% |
| **NIKE Brand** | **$44,714M** | **$49,322M** | **-9%** | **-9%** |
| Converse | $1,692M | $2,082M | -19% | -18% |
| **Total NIKE, Inc.** | **$46,309M** | **$51,362M** | **-10%** | **-9%** |
Every segment declined. Greater China fell 13%. Converse collapsed 19%. North America — the largest market at 42% of NIKE Brand revenue — fell 9%. This is not a regional hiccup; it is a global brand recession.
Profitability: Margins Compressing
| Metric | FY2025 | FY2024 | FY2023 |
|---|---|---|---|
| Revenue | $46,309M | $51,362M | $51,217M |
| Net Income | $3,219M | $5,700M | $5,140M |
| Gross Margin | 42.7% | 44.6% | 43.6% |
| Net Margin | 6.95% | 11.1% | 10.0% |
| Diluted EPS | $2.13 | $3.73 | $3.23 |
| Return on Invested Capital | 20.2% | 34.9% | — |
Gross margin compressed 180 basis points to 42.7%. The filing attributes this to "increased discounts and returns, lower revenues" and currency headwinds. ROIC collapsed from 34.9% to 20.2%.
Cash Flow: Still Positive Despite Revenue Decline
| Metric | FY2025 | FY2024 |
|---|---|---|
| Operating Cash Flow | $3,698M | $7,429M |
| Net Income | $3,219M | $5,700M |
| CFFO / Net Income | 1.15 | 1.30 |
| CapEx | $430M | $807M |
| Free Cash Flow | $3,268M | $6,622M |
| Share Repurchases | $3,015M | $5,135M |
Per the filing: "Cash provided by operating activities decreased $3,731 million. This was driven by a decrease of $2,228 million in Net income, adjusted for non-cash items, and changes in certain working capital components." CFFO halved but still exceeds net income. The Company reduced share repurchases from $5.1B to $3.0B to conserve cash.
As of May 31, 2025, Nike had repurchased 122.6 million shares at an average price of $98.00 under the $18B program — and the shares traded around $56-72 in the final quarter, meaning recent buybacks were at significant losses versus current market value.
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | :white_check_mark: | DSO 37 days, +6 days YoY |
| A2 | AR vs Revenue Growth | :x: | AR outpaced revenue for 2 consecutive years |
| A3 | Revenue vs CFFO | :white_check_mark: | Revenue -9.8%, CFFO -50.2% |
A2 — AR growing while revenue shrinks. Revenue fell 10% but accounts receivable did not decline proportionally for two consecutive years. In an environment of declining demand, this could indicate: (1) loosened credit terms to maintain relationships with retailers, (2) slower retailer payments reflecting their own financial pressure, or (3) channel inventory build-up. The filing warns that "retailers of our products have experienced severe financial difficulty, become insolvent and ceased business operations" — though this is generic risk language, it contextualizes why AR quality matters during a revenue downturn.
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory vs COGS | :white_check_mark: | Inventory -0.4% vs COGS -6.9% |
| B2 | CapEx vs Revenue | :white_check_mark: | CapEx -47.0% vs revenue -9.8% |
| B3 | SG&A Ratio | :warning: | SG&A/Gross Profit = 81.3% |
| B4 | Gross Margin | :white_check_mark: | 42.7%, -1.8pp |
B3 — SG&A consuming 81.3% of gross profit. SG&A includes demand creation expense (marketing) and operating overhead. During a revenue contraction, these costs become disproportionate. Nike needs to restructure its cost base to match the lower revenue reality, or revenue must recover.
Inventory is well-managed — essentially flat despite a 7% decline in COGS — suggesting the excess inventory crisis of 2022-2023 has been resolved.
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs Net Income | :white_check_mark: | CFFO/NI = 1.15 |
| C2 | Free Cash Flow | :white_check_mark: | FCF $3.3B, FCF/NI = 1.02 |
| C3 | Accruals Ratio | :white_check_mark: | -1.3%, low accruals |
| C4 | Cash vs Debt | :warning: | Cash $9.2B covers 83% of debt $11.0B |
Cash quality is strong. CFFO exceeds net income, accruals are negative, and FCF covers NI. The cash-to-debt ratio of 83% is a watch item but not a fail — Nike's cash and short-term investments total $10.2B against $11.0B total debt.
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | :white_check_mark: | $499M, 4% of equity |
| D2 | Leverage | :white_check_mark: | Debt/EBITDA = 2.4x |
| D3 | Soft Asset Growth | :white_check_mark: | Other assets +14.8% |
| D4 | Asset Impairment | — | No write-off data |
The balance sheet is clean: $240M in goodwill, $259M in intangible assets, and $13.2B in shareholders' equity. Debt/EBITDA of 2.4x is conservative.
Acquisition Risk
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer FCF | :white_check_mark: | FCF after acquisitions positive |
| E2 | Goodwill Surge | :white_check_mark: | Goodwill unchanged |
Manipulation Score
| # | Check | Result | Detail |
|---|---|---|---|
| F1 | Beneish M-Score | :white_check_mark: | -2.39 (clean) |
Key Risks from the 10-K
1. Revenue Decline Is Broad and Deep
Every geography declined. Every brand declined. This is not a tariff issue or a one-time event — it reflects a fundamental demand problem. The filing's risk factors warn of "intense competition" and "the relative popularity of various sports and fitness activities."
2. Tariff Exposure
The filing states: "U.S. trade policies, including the imposition of tariffs or penalties on imported goods or retaliatory measures by other countries, have negatively affected, and could in the future materially negatively affect, U.S. corporations, including NIKE." Nike manufactures entirely through third-party factories in Asia. The filing adds: "Where trade protection measures are implemented, we believe we have the ability to develop, over a period of time, adequate alternative sources of supply."
3. Greater China Decline (-13%)
Greater China fell from $7.5B to $6.6B. The filing notes "unfavorable changes in standard foreign currency exchange rates," but even on a constant currency basis the decline was 12%.
4. CEO Transition
Elliott Hill became CEO during FY2025, replacing the previous leadership. The filing references strategic changes but the full impact of the new strategy has yet to materialize in the numbers.
5. Share Buybacks at Premium Prices
Nike repurchased 122.6 million shares at an average price of $98.00 per share — $12B spent. With the stock trading in the $50-70 range by fiscal year end, significant value was destroyed on recent repurchases.
Summary
Grade: C. Revenue contraction is the dominant story, but the balance sheet provides ample runway.
Nike's one fail (AR outpacing revenue for 2 years) and two watch items (SG&A ratio, cash/debt) place it at grade C. The underlying financial quality is sound: M-Score -2.39, accruals ratio -1.3%, CFFO/NI 1.15, minimal goodwill, and conservative leverage at 2.4x Debt/EBITDA.
The problem is entirely operational. Revenue fell 10% across every geography and brand. Gross margin compressed 180bps. ROIC halved from 34.9% to 20.2%. The SG&A/Gross Profit ratio of 81.3% indicates a cost structure built for $51B in revenue that is now operating on $46B.
Nike has time — $10.2B in cash and investments, $3.3B in annual FCF — to execute a turnaround. But the books show a company in transition, not on a trajectory. Watch Q1-Q2 FY2026 for evidence that new leadership is reversing the revenue decline.
**Disclaimer**: This report is based on Nike's FY2025 10-K filed with SEC EDGAR on July 17, 2025. This is NOT investment advice.
Data: SEC EDGAR 10-K + Yahoo Finance
Auditor: PricewaterhouseCoopers LLP (Unqualified opinion, 1 critical audit matter — income taxes)
Fiscal year ended: May 31, 2025