Paul Trussell:

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE Inc.’s fiscal 2024 fourth quarter results. Joining us on today's call will be NIKE Inc. President and CEO, John Donahoe; and our CFO, Matt Friend. Before we begin, let me remind you that participants on this call will make forward-looking statements based on current expectations, and those statements are subject to certain risk and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in NIKE's reports filed with the SEC. In addition, participants may discuss non-GAAP financial measures and non-public financial and statistical information. Please refer to NIKE's earnings press release or NIKE's website, investors.nike.com, for comparable GAAP measures and quantitative reconciliations. All growth comparisons on the call today are presented on a year-over-year basis and are currency neutral, unless otherwise noted. We will start with prepared remarks and then open up for questions. We would like to allow as many of you to ask questions as possible in our allotted time, so we would appreciate you limiting your initial question to one. Thanks for your cooperation on this. I'll now turn the call over to NIKE Inc. President and CEO, John Donahoe.

Matthew Friend:

Thanks, John. And hello to everyone on the call. For NIKE, fiscal 204 was a pivotal year to get back on the offense in sport with consumers, led by an urgency to accelerate our pace of innovation and scale newness across our product line. Today, our playbook is in motion. Our teams are focused and hustling to deliver, and we're seeing positive signals from consumers and retail partners across the world. That said, this quarter we have been navigating several headwinds, which we now expect to have a more pronounced impact on fiscal 2025. Although the next few quarters will be challenging, we are confident that we are repositioning NIKE to be more competitive, with a more balanced portfolio, to drive sustainable, profitable long-term growth. Let me provide some deeper insights into the fourth quarter and the implications we see as we look forward before reviewing our financial results and our outlook. First, after double-digit growth over the past several years, our lifestyle business declined in Q4 across men's, women's, and Jordan, more than offsetting strong growth in our Sport Performance business. Second, NIKE Digital declined 10% in the quarter. Although our digital business has grown at an approximately 26% CAGR since fiscal 2019, we missed our Q4 plan on softer traffic, higher promotions, and lower sales of certain classic footwear franchises. More specifically, these franchises underperformed our overall digital business results in the quarter, especially in April and May, and continuing on into early June. This is even as these franchises continue to drive retail sales growth at high full price realization in multi-brand retail. Third, we experience meaningful shifts in consumer traffic in key markets, particularly in Greater China, where brick-and-mortar traffic declined as much as double digits versus the prior year. We also continue to see uneven trends in EMEA and other markets around the world. And last, foreign exchange headwinds worsened, creating an additional one point headwind on revenue in the quarter. In the midst of these dynamics, our goals to return to strong growth remain the same. Read and react to the consumer, maximize full-price sales across all channels, protect long-term franchise health, prioritize a healthy pull market and create marketplace capacity for new products and new stories coming in fiscal 2025. Therefore, despite continued marketplace demand, we are advancing our timelines to tighten total supply of certain classic footwear franchises at different paces, across different channels around the world. In particular, we are aggressively adjusting our forward-looking plans for these franchises on NIKE Digital, where they have their highest share of business. All told, we expect these actions to create several points of short-term headwinds on revenue in fiscal 2025. However, our past experience gives us confidence that proactively rebalancing our portfolio will strengthen our competitive position and fuel brand momentum as we take the consumer somewhere new. Let me share a few recent examples. Back in fiscal 2018, we recalibrated the supply of select Jordan brand franchises, resetting our launch business and bringing more dimension to our portfolio. Over the subsequent quarters, we turned the page from double-digit declines in the brand to the start of multiple consecutive years of strong double digit growth. And earlier this year, we moved quickly to reshape our lifestyle footwear portfolio in Japan and Korea, two of our most trend forward markets where our teams read and reacted to consumer signals. We reduced supply of some classic franchises, while scaling and creating new energy around other models in our vault. In the fourth quarter, we regained our number one position in Korea in women's lifestyle footwear and extended our lead in Japan with new momentum heading into fiscal 2025. Now, as we accelerate our pace of newness and innovation, the early response from consumers and partners are reinforcing our optimism in NIKE's path forward. First, the sharper focus on sport is creating impact. This quarter, performance grew across men's, women's, kids, and Jordan, across all channels and geographies. And we expect to build on that momentum, leading with Performance in fiscal 2025. We are seeing favorable indicators in key focus areas, including strong double-digit growth in order books with North American running specialty partners in both holiday 2024 and spring 2025. In lifestyle, fresh releases are resonating positively with consumers. For instance, new executions around retro running and field franchises such as Cortez, Killshot, and the Field General are driving strong retail sales growth as we prepare to scale these franchises in fiscal 2025. Our teams are also attacking opportunities across price points, including a refreshed lineup of new footwear products below $100. Building on this quarter's double-digit growth, we plan to scale new performance and lifestyle models in spring 2025. Added up, we expect the business contribution from new products to more than double from the start of fiscal 2024 to where we end the year in fiscal 2025. Last, we are managing expenses tightly through this product cycle transition, while reallocating resources to maximize consumer impact. This is enabled by our Safe to Invest initiative, which is creating investment capacity to fuel our next phase of growth. At the end of fiscal 2024, we have unlocked savings from initiatives up and down our P&L and across our value chain, from reducing small parcel fulfillment costs, to consolidating suppliers, optimizing technology spend, and restructuring our organization to streamline layers and support functions. In turn, we are reinvesting nearly $1 billion in consumer-facing activities in fiscal 2025, which we expect to accelerate our return to strong growth. This includes ramping up our ground game offense and running in key cities, increasing resources in design, product creation, and merchandising for our key sport dimensions, deepening our sports marketing portfolio, elevating the distinction of our brand in physical retail, and driving bigger, bolder brand campaigns, starting with EC ‘24 and the Paris Olympics. Now let me turn to our NIKE Inc. Fourth quarter results. In Q4, NIKE Inc. revenue was down 2% on a reported basis and flat on a currency neutral basis. NIKE Direct was down 7%. NIKE stores were down 2%. and NIKE Digital was down 10%. Wholesale grew 8%. Gross margins expanded 110 basis points to 44.7% on a reported basis, primarily due to strategic pricing actions, lower ocean freight rates, and improved supply chain efficiency, partially offset by lower margins in NIKE Direct, unfavorable channel mix, and net foreign exchange impact. SG&A was down 7% on a reported basis as increased investment and demand creation was more than offset by reductions in operational overhead. This includes impact from approximately $40 million in restructuring charges. Our effective tax rate was 13.1%, compared to 17.3% for the same period last year, due to changes in earnings mix, partially offset by decreased benefits from one-time items, such as stock-based compensation. Diluted earnings per share was $0.99, up 50% versus the prior year. This includes non-material impact from restructuring charges. For the full year, revenue was flat on a reported basis and up 1% on a currency neutral basis. Diluted earnings per share grew 15%. Cash flow from operations was $7.4 billion, up 27% versus the prior year on significant improvements in working capital. Inventory declined 11% versus the prior year with continued improvement in days in inventory. Now let me turn to the operating segments. In North America, Q4 revenue declined 1%. NIKE Direct was down 9%, with NIKE Digital down 11%, and NIKE stores down 5%. Wholesale grew 6%, due to accelerated shipping timing from Q1 of fiscal 2025, and EBIT grew 5% on a reported basis. This quarter, we saw softer traffic in our factory stores, highlighting increasing pressure being felt by the value consumer. That said, we saw a number of bright spots as well, including strong growth in basketball, fitness, and kids, offset by declines in lifestyle and Jordan. Kids led our results in the geography with performance dimensions of strong double digits. In women's fitness, we gained market share in footwear. In men's and women's running, fall footwear bookings are up double digits, led by the Pegasus 41. In EMEA, Q4 revenue grew 1%. NIKE Direct was down 8% as NIKE stores grew 1% and NIKE Digital declined 14%. Wholesale grew 7%. EBIT grew 2% on a reported basis. In a cautious macro environment, we are seeing performance innovation drive strong sell-through. This is partially offset by overall declines in lifestyle, with new product releases working well. Global football grew double digits across men's and kids. In women's fitness, we drove strong momentum in footwear and new apparel releases such as our Refresh NIKE Pro line. In lifestyle, our retro running franchises continue to scale and our Air Max DM launch drove energy with a full marketplace takeover. In greater China, Q4 revenue grew 7%, including several points of contribution from Tmall's earlier start to the 6/18 shopping holiday. Excluding this timing benefit, we fell short of our plan, with traffic softness persisting across all marketplace channels. NIKE Direct declined 2% with NIKE stores down 6% and NIKE Digital up 8%. Wholesale grew 15%. EBIT grew 4% on a reported basis with continued impacts from foreign exchange. Our kids business set the pace in the geography this quarter, led by running and basketball. Within men's and women's lifestyle, retro running styles and our latest Express Lane releases drove positive consumer response. And in men's and women's running, retail sales for our new releases, Structure, Vomero, and Invincible grew double digits. The China marketplace remains highly promotional, and we continue to manage both NIKE and partner inventory carefully. While our outlook for the near term has softened, we remain confident in NIKE's competitive position in China in the long term. In APLA, Q4 revenue grew 4%. NIKE Direct declined 3%, with NIKE stores up 11% and NIKE Digital down 12%. Wholesale grew 9% and EBIT grew 4% on a reported basis. Mexico and Southeast Asia and India led our growth in this geography. And across APLA, we drove strong momentum in performance with men's basketball, men's global football, and women's fitness up double digits. Jordan Brand drove energy with streetball activations in Tokyo and Manila, and market share gains in basketball footwear. Now let me turn to our fiscal 2025 financial outlook. We are managing a product cycle transition with complexity amplified by shifting channel mix dynamics. A comeback at this scale takes time. With this in mind, we've considered a number of factors and scenarios in revising our outlook for fiscal 2025. Most importantly, this includes timelines and pacing to manage marketplace supply of our classic footwear franchises, lower NIKE Digital growth, especially in the first half of the year due to lower traffic on fewer launches, plan declines of classic footwear franchises given Q4 trends, as well as reduced promotional activity, increased macro uncertainty, particularly in greater China, with uneven consumer trends continuing in EMEA and other markets around the world, and sell into wholesale partners as we scale product innovation and newness across the marketplace and finalize second half order books. Taking all of this into consideration, we now expect fiscal 2025 reported revenue to be down mid-single digits, with the first half down high single digits. Foreign exchange headwinds have also worsened and will now have a one-point translational impact on revenue in fiscal 2025. Turning to gross margin, we expect full year expansion of approximately 10 basis points to 30 basis points on a reported basis. This reflects benefits from strategic pricing actions and lower product input costs, partially offset by supply chain deleverage, channel mix shifts, and net foreign exchange impact. We expect full year SG&A growth to be up slightly versus the prior year as we increase investments in demand creation to ignite brand momentum and maximize reach and impact, while holding operating overhead largely flat. Other income and expense, including net interest income, is expected to be approximately $250 million to $300 million for the year. We expect our full year effective tax rate to be in the high teens range. Now turning to our first quarter, we expect first quarter revenue to be down approximately 10%. This reflects more aggressive actions in managing our classic footwear franchises, continuing challenges on NIKE Digital, muted wholesale order books with newness not yet at scale, a softer outlook in greater China, and a number of quarter-specific timing factors. We expect first quarter gross margins to be in line with the full year guidance. And we expect first quarter SG&A to be at mid-single digits, as we hold operating overhead flat, while investing in key brand moments, including EC ‘24 and the Paris Olympics games. For NIKE, inspiration starts with the athletes we serve. Their dreams motivate us to create the most innovative product in sport and tell stories that reach millions of people around the world. Above all, they remind us of the hard work and the hustle that is required to win. Before I close, I'd like to thank our NIKE teammates whose passion and drive are the fuel for our comeback. The heart, the focus, and the collaboration that I'm seeing from our teams today are my greatest reasons for confidence as we move forward. With that, let's open up the call for questions.

Matthew Boss:

Great, thanks. Maybe John, just to summarize and think about relative to three months back. I guess, how would you rank changes on the macro front and similarly on NIKE execution that impacted the change in your 2025 outlook today relative to three months ago? And then Matt, just on the gross margin, could you just help break apart maybe the puts and takes to consider over the course of 2025 and how best to model the cadence from a gross margin perspective?

Matthew Friend:

And just hitting the financial implications relative to 90 days ago. Last quarter we said that we thought revenue was going to be down low single digits in the first half and that included a more pronounced impact in the first quarter. We also said that we expected revenue to grow. And what we saw in the fourth quarter were really two things. One lifestyle, our lifestyle business declining more pronounced on NIKE Digital, specifically in April and in May, and those trends continuing into June. And what I highlighted in my prepared remarks is that, those specific classic franchises that we were talking about underperformed our overall digital business results in the fourth quarter. And so, when we look at our updated guidance of down mid-single digits for the full year, there's really three things that are driving the change. One, I'll start with FX, our outlook on foreign exchange and the strength of the US dollar had a one-point impact relative to 90 days ago. We've softened our outlook for greater China, and that also similarly had a level of impact for the full year guidance. And then the majority of the remainder of the change is related to the more aggressive actions that we're taking on our key franchises across the total marketplace, but really with the compounded impact on total digital. And the bigger impact of this will be in the first half of this year, but we are planning for meaningful sequential improvement in the second half of the year. And that's how I think about the revenue differences relative to -- the revenue differences relative to what we said 90 days ago. On the first quarter, the other impact was timing. And we saw the 6/18 period come earlier into May than we had in the prior year, and that had an impact on Q4's results, but also an impact on Q1's results. And we saw some favorable shipment timing in North America as we prepare to go live with our ERP and also just better general product availability. So that also had an impact on the first quarter numbers.

Operator:

Our next question will come from the line of Lorraine Hutchinson with Bank of America. Please go ahead.

John Donahoe:

Well, Lorraine, as I mentioned, we've looked at a number of different factors and scenarios as we've updated our guidance for the year. And that ranges from looking at different slopes of different curves of different products over time and developing a perspective on how we think the trends are going to play out as it relates to some of our largest franchises. But those franchises continue to drive retail sales growth and high levels of full price realization in the marketplace. And so the bigger impact on the first half are the adjustments that we're taking to manage the health of those franchises starting first with NIKE Digital. And that has a pronounced impact on revenue, which is creating a more meaningful first half impact. We want to continue to let those franchises in the multi-brand environment continue to have the impact that they're having for our partners. And one of the ways that we maintain the health of those is by reducing what we're offering to consumers through our digital channel. As it relates to the second half, we highlighted a couple of things, but we are planning for meaningful sequential improvement in the second half versus the first half. And it starts with the confidence that we have around the new products that we're bringing to market, the Peg 41, the Peg premium, the Vomero 18, the order book for Air Max DN, plus the next Air Max iteration that's going to be coming to market, plus our plans to scale the innovation and the newness that we've been discussing. And so, when we look at where we are today and the ways in which we're working to drive this plan through the balance of the fiscal year, our scaling of newness is on track. And our teams are hustling to see whether there's even opportunities to accelerate the scaling of that newness in the second half. We are confident in the indicators that we're seeing in the marketplace right now. We gave you a couple of specific numbers as it relates to running and running specialty. But what I will tell you is that, our initial read of our spring order book is in line with the guidance that we're providing. And so we feel confident that we're creating better balance across our portfolio and also building momentum with our wholesale partners.

Robert Drbul:

Hi. Just two questions for me. I guess the first one is, when you look at the visibility of the business, I think in some of your answers to Lorraine's questions. When you look at the visibility of the business today, with the shifts that are occurring, can you just talk about how you feel looking at that versus what you saw over the last 12 and 24 months, just in terms of your ability to predict? And then, just the second piece of this is, when you look at the channel shift that is going on wholesale to direct or bricks-and-mortar, the digital pieces of the business, can you just give us any more framework around how to think about the P&L impacts at a higher level?

Matthew Friend:

And I'd add to that a healthy marketplace, where it's -- channel mix is driven by consumer demand. We said we want to be where the consumer is, whether that's digital or outdoor or wholesale. And so, we're embracing a more balanced approach to growing the whole marketplace. And a couple of nice evidence points of what I think health looks like is, we've mentioned that performance grew double digits in the quarter. It grew double digits in wholesale and it grew double digits on digital. The first couple of weeks of Peg 41 sold through well in wholesale and it sold well in NIKE Direct, both digital and outdoors. And so, over time, our channel mix should be driven by consumer being -- at the consumer at the right time and given shopping occasion. And so, we think it'll settle out in a consumer-friendly way.

Adrienne Yih:

Great. Thank you very much. I was wondering if you can talk about the amount of newness that is coming down the pipeline, kind of over the next six to 12 months. Has there been another time when NIKE has historically launched this magnitude of newness? And how do you read sort of the second degree of the consumer rates as going into the wholesale channel first? How do you read the success of that at the end consumer as it goes through the wholesale pipeline? Thank you.

Matthew Friend:

Adrienne, I would just add that one element of newness is also in the lifestyle side of the business. Over the last four years, we have driven double-digit growth and created an extraordinary amount of energy. We've created iterations and dimensions to Air Force 1, to Air Jordan 1, to the Dunk business. And as a result of that, we've created extraordinary consumer demand. And so, one element of us bringing newness to the market is actually going into NIKE's vaults, what no one else has, and being able to create energy the way that we've done over the last four years to be able to move consumers on to a new place. And it's something that we can do, that we have a proven track record doing. In fiscal year 2019, the Dunk represented 0% of NIKE's business. And we’ve scaled that dramatically with strong consumer appeal and response over the last three years. And now we're managing that franchise back to continue to ensure that demand in the marketplace is greater than the supply that we're offering. And that is how we're managing these franchises. And so, on the one hand, there's certainly a performance innovation side. And what we showed in Paris and what John was highlighting in terms of what's coming, we feel great about. But there's also an element of NIKE taking advantage of its vault of assets and bringing new innovation, new stories, new partnerships to bring new products to market to capture an incredible amount of sneaker demand out in the marketplace.

Brooke Roach:

Good afternoon, and thank you for taking our question. I wanted to follow up on Adrienne's question and your comment about the franchise management that you're focused on for FY 2025. Can you contextualize the importance of these larger classic franchises in relation to NIKE's current sales in comparison to historical averages? Do you expect to be remixed to typical franchise penetration rates by the end of the year as you scale these new innovations? And then perhaps a follow up for Matt. Can you provide some additional color on how you're thinking about the gross margin bridge and the tailwinds that you expect from input cost, and pricing relative to some of the headwinds that you see? Thank you.

Operator:

Our next question will come from the line of Michael Binetti with Evercore. Please go ahead.

John Donahoe:

Well, I might just start, Michael, by saying as we get to a more -- through some of this portfolio adjustment, we still have significant tailwinds in our industry. The fact is, sport is growing. The definition of sport is growing. Healthy lifestyles is becoming embraced globally. I was in China a couple weeks ago. It was very striking, the focus on healthy lifestyles. So I think there's a structural tailwind for the industry. I also think where sport happens, it's one of the derivatives of the post-COVID environment. You don't have to go to the gym or the field. You're working out in your backyard or working out or taking a walk or -- So sports happening in many more places. And that line between sport and lifestyle is blurring with that leisure. And so, people want to look, have great style while they're doing sport, and they want to have sport inspired style when they're not doing sport. And so we view all those things as tailwinds. And you ask about lifestyle innovation, we want to be sport-based in our lifestyle innovation, both in footwear and apparel. And we think there's a tremendous opportunity to do that across men's, women's, and kids, and Jordan. Jordan Streetwear being an example of it.

Operator:

Your next question will come from the line of Aneesha Sherman with Bernstein. Please go ahead.

Matthew Friend:

Yes, no problem. So on your first question, the actions that we're taking on NIKE Direct and Digital are more aggressive. And so, the adjustments that we're making to our plan, specifically as it relates to our own channels, are going to be largely taken into consideration in the first half of this year. We will continue to manage franchises, because you can picture a curve that goes up and a curve that comes down. And as the curve comes down, it doesn't happen in a moment. It happens naturally over time as consumers react to supply coming out of the marketplace. But the actions that we're taking are also causing us to look at the broader marketplace in the second half of the year and ensure that we're reducing supply there as well to maintain a healthy marketplace and also to ensure that we've got capacity in the market to bring newness in. So I mentioned that we're planning on scaling newness, that newness is scaling as we make our way up through the year from minus 10 in the first quarter to down high single digits in the first half to finishing the year at down mid-single digits. And the largest driver of that is going to be on the full year basis, the scaling of newness that we're bringing to market. We expect to exit the year with momentum. And that means that we expect the new things that we're bringing to market to begin to outweigh the franchise management that we're navigating through in this year. And as we look forward to 2026, we'll continue to manage these franchises in line with consumer demand. But what's going to make it -- what makes that possible is the fact that we've got more new things coming that we're driving energy around that will be more than offsetting the way that we manage those franchises.

Matthew Friend:

Yes, I mean, we've been focused -- as we've been talking about, about building an operating model that with greater speed and cost productivity as we grow. And so, the actions that we've taken over the past year has enabled us the opportunity to make some bold swings in fiscal year 2025. We've reallocated a billion dollars into consumer facing activities. That includes teammates that we've invested in and product design, building out the merchandising function. To John's point, we have sport focused teams now at global and in the geographies in order to be able to execute this new offense. And we're putting more of our investment dollars in demand creation, while we're managing operating overhead tightly. We did that in fiscal year 2024. You saw even with the restructuring charge some significant effort to manage operating overhead so that we could reallocate resources, as I've referenced. And while these investments will take some time to drive a return, they're absolutely the right thing for us to do to reignite brand momentum and to get us back on the offense with consumers. And so, that's what we've done, and we will continue to manage SG&A tightly, leveraging this program and this initiative to create the capacity for us to invest, to push us forward with the consumer.

Paul Trussell:

Thank you for joining our fourth quarter fiscal 2024 call. We look forward to hosting many of you here at the headquarters for our Investor Day in late November. More details to come. This concludes our call. Good evening.

Paul Trussell:

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE, Inc.'s fiscal 2024 third quarter results. Joining us on today's call will be NIKE, Inc. President and CEO, John Donahoe; and our CFO, Matt Friend. Before we begin, let me remind you that participants on this call will make forward-looking statements based on current expectations, and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in NIKE'S reports filed with the SEC. In addition, participants may discuss non-GAAP financial measures and nonpublic financial and statistical information. . Please refer to NIKE's earnings press release or NIKE's website, investors.nike.com for comparable GAAP measures and quantitative reconciliations. All growth comparisons on the call today are presented on a year-over-year basis and are currency neutral unless otherwise noted. We will start with prepared remarks and then open up for questions. We would like to allow as many of you to ask questions as possible in our allotted time. So we would appreciate you limiting your initial questions to one. Thanks for your cooperation on this. I'll now turn the call over to NIKI, Inc., President and CEO, John Donahoe.

Matthew Friend:

Thanks, John, and hello to everyone on the call. NIKE's third quarter showcased the operating discipline of our teams as we delivered revenues up slightly on top of the prior year's double-digit growth, outperforming our expectations in North America and more than offsetting dynamic conditions in some other geographies. We executed well to recapture transitory cost headwinds and expand gross margins even in a promotional environment. Our inventory position remains healthy with total marketplace units down double digits versus the prior year and weeks of supply at their lowest levels since the pandemic. Most importantly, our teams are focused on what matters most to capture the strong growth opportunity we see in the marketplace. This means creating more value for consumers by scaling new product innovation, with greater brand impact across the full marketplace with even more inspiration through sport and our athletes. Last quarter, we highlighted that particularly in an uneven macro environment, newness and innovation are what drives brand distinction. Consumers are moving quickly to access new products. Trends are igniting in different places and rapidly spreading around the world. NIKE needs to be faster. And so we are accelerating a multiyear innovation cycle. And while our new product cycle is just getting underway, this quarter showed that we are on the right track. Since the start of this fiscal year, new and updated footwear models have grown into a majority of our top 20 growing footwear franchises in Q3. Added up, footwear products introduced over the past several quarters are on track to generate a multibillion dollar run rate on an annual basis, and we see even more opportunity ahead. On the whole, we see momentum where we are focused most. Performance footwear grew high single digits this quarter, with double-digit growth from $100-plus franchises, including Kobe and Ja in basketball, Metcon And Motiva in fitness and Structure and Vomero in running. Women's fitness footwear grew double digits and key apparel franchises such as $100-plus leggings, continued scaling with strong sell-through. New product journeys from Book 1 to Vomero 5 and V2K, to Lunar Roam and Travis Scott Jordan Jumpman Jack drove consumer energy and ahead of a new wave of Nike Air innovation, the Air Zoom Alphafly 3 debuted with a marathon world record and sellout launches across multiple markets around the world. As you heard from John, we believe the Paris Olympics will serve as a catalyst for our brands as we launch our newest Nike Air innovations for athletes. Most importantly, this is just the beginning. With a growing portfolio of new concepts, platforms and capabilities, our innovation teams are well positioned to continue driving breakthroughs in performance and lifestyle over the coming years. Now to maximize the impact of our new product cycle, we are accelerating several important actions lined up against key brand and sports moments. First, we are elevating and differentiating the consumer experience with our brands at retail, especially as consumers continue to shift back into physical stores. This includes increased investment to support strong seasonal retail marketing execution, breadth and depth of assortment and elevated service and product presentation. You heard John say that we will initially launch the Air Max Dn next week at more than 4,000 doors. We will increasingly leverage our full portfolio of thousands of physical doors to position our newest products in the path of consumers. Second, we are sharpening our brand storytelling to tell fewer, bigger stories with greater reach. We will focus our demand creation investments to elevate our brand and most distinctive products, leading with the voice of the athlete, amplifying our new innovation, and engaging consumers at the point of sale. As we look forward, we see that our Olympics Air for Athletes campaign will be the boldest expression of NIKE's brand voice in many years. Third, we are in the midst of shifting our product portfolio towards newness and innovation. Last quarter, we spoke of our intentional actions to reduce marketplace supply of certain key franchises to ensure they remain healthy and strong, while feeding and scaling new products. Given the way consumers are responding to our newest product journeys, even amidst a more promotional environment, we have decided to accelerate our actions. For example, we are pulling back supply of classics, such as the Air Force 1, and we're reducing supply of Pegasus ahead of launching new innovation in the Peg 41. We've been here before. 12 months ago, our basketball portfolio was meaningfully impacted when we exited a key signature franchise. Since then, we've more than offset that impact by scaling innovation with the GT series, introducing newness to consumers in Ja, Sabrina, Kobe and Book and returned to strong double-digit growth this quarter in basketball. Looking ahead, we expect lifecycle management of key product franchises to create some near-term headwinds, particularly on digital. However, we are confident that we are taking the right actions to fuel brand momentum and return to stronger long-term growth. Last, while we continue to bring operational discipline as we manage our business through these shifts and a multiyear period of higher cost inflation, we are also positioning NIKE for the future. This includes restructuring our organization to sharpen our focus and increase our investment on the consumer and sport, which we believe will fuel our next phase of long-term growth. This quarter, we began streamlining support and operating functions, reducing management layers and shifting more of our resources towards consumer-facing activities. In particular, we are increasing investment in areas such as design, product creation, merchandising, brand and our ground game to drive greater impact for consumers, dimensions of sport and the marketplace. Overall, our focus is on allocating our resources to drive more return while building an operating model with greater speed and better cost productivity as we grow. Now let me turn to our NIKE Inc. third quarter results. In Q3, NIKE, Inc. revenue was up slightly on a reported and currency-neutral basis with low single-digit growth in the NIKE brand, partially offset by declines at Converse. As a reminder, this follows 14% reported and 19% currency-neutral growth one year ago, as we were liquidating excess inventory in Q3 of fiscal '23. NIKE Direct was up slightly versus the prior year, with NIKE stores up 6% and NIKE Digital down 4%, wholesale grew 3%. Gross margins expanded 150 basis points to 44.8% on a reported basis, driven by strategic pricing actions, lower ocean freight rates and improvements in supply chain efficiency, partially offset by higher product input costs. This also includes 50 basis points of negative impact from restructuring charges. SG&A grew 7% on a reported basis as increased investments in demand creation was partially offset by disciplined expense management. This quarter, SG&A was also impacted by approximately $340 million in restructuring charges. Our effective tax rate for the quarter was 16.5% compared to 16% for the same period last year. Diluted earnings per share was $0.77. Excluding the impact of the restructuring charges, earnings per share would have been $0.98, up 24% versus the prior year. Now let me turn to our operating segments. In North America, Q3 revenue grew 3%. NIKE Direct grew 2% with NIKE stores up 3% and NIKE Digital up 1%. Wholesale grew 5% and EBIT grew 18% on a reported basis. This builds on extraordinary growth in the prior year, with North America revenue up 27%, including NIKE Direct up 23% and wholesale up 32% in Q3 of fiscal '23. This quarter, we exceeded our expectations in North America with strong holiday sales, lighter markdowns than our competitors and unit growth versus the prior year. Inventory is also down double digits at the end of Q3. Kids grew double digits across footwear and apparel with seasonal fleece and performance footwear resonating. We also saw positive momentum in women's lifestyle and fitness with strong growth from the Dunk, free Metcon and retro running styles. Jordan Remix and Sport Performance grew double digits. And in running, Structure, Vomero and the Invincible delivered double-digit growth. In EMEA, Q3 revenue declined 4%. NIKE Direct declined 4% as NIKE stores grew 6% and NIKE Digital declined 10%. Wholesale was down 5% and EBIT declined 6% on a reported basis. As a reminder, these results compare to tremendous growth in Q3 of fiscal '23 when EMEA revenue was up 26%, NIKE Direct was up 39% and wholesale was up 20%. However, sales in the geography fell short of our expectations this quarter as we navigated increased macro volatility and softening consumer demand. That said, newness and brand distinction continues to fuel momentum in EMEA. In running, [self] Alphafly 3's launch energized our road racing portfolio. In Lifestyle, P-6000 and Vomero 5 continue to scale, and fitness grew double digits as we activated our ground game with brand activations and our trainer network. Overall, inventory remains healthy with units down double digits versus the prior year. And as we look forward, we see the launch of Air Max Dn Euro Champs '24 and the Paris Olympics as opportunities to create near-term brand momentum despite a challenging consumer backdrop. In Greater China, Q3 revenue grew 6%, in line with our revised expectations that we shared at the end of last quarter. NIKE Direct declined 1% with NIKE stores growing 6% and NIKE Digital declining 13%. Wholesale grew 12%. EBIT grew 3% on a reported basis with multiple points of impact from foreign exchange headwinds. Chinese New Year sales grew year-over-year with our NIKE and Jordan Year of the Dragon Express Lane collections driving excellent sell-through. And retail sales with our partners grew double digits in Q3 versus the prior year. Kids led our growth in the quarter with performance dimensions up strong double digits. In basketball, Book 1, Kobe and G.T. Cut 3 launch with strong sell-through. In running, the Structure, the Invincible and the Vomero drove strong growth this quarter. And the Jordan brand delivered double-digit growth in women's and kids with consumer anticipation building ahead of this week's opening of Jordan World of Flight Beijing, which will be the brand's first pinnacle retail concept in China. In APLA, Q3 revenue grew 4%. NIKE Direct grew 4% with NIKE stores up 18% and NIKE Digital declining 6%. Wholesale grew 3% and EBIT declined 3% on a reported basis. In Central and South America, we delivered double-digit growth and improved return on sales in the first full year of our shift to a distributor model. In Mexico, we gained brand strength and momentum with strong growth in football. And in Japan, running grew double digits. Across the APLA, football and basketball grew double digits, fueled by the Mercurial, LeBron and the GT series. And women's holistic fitness grew across all channels with Motiva and statement leggings, in particular, resonating. Now let me turn to our financial outlook. As we look forward, we are driving earnings growth and offsetting softer second half revenue with strong gross margin execution, disciplined cost controls and healthy and more productive inventory levels across the marketplace. Excluding restructuring charges, we expect to deliver on the full year earnings outlook that we communicated at the beginning of this fiscal year. More specifically, for the full year, we continue to expect revenue to grow approximately 1%. We now expect Q4 revenue to be up slightly reflecting some shipment timing benefits in Q3 and lower digital growth due to franchise lifecycle management. Q4 also has one point of negative impact on reported revenue from a stronger U.S. dollar. Moving down the P&L. I will note that our guidance includes restructuring charges of approximately $450 million in our second half, with $403 million incurred in the third quarter. This primarily impacts SG&A with approximately 15 basis points of impact to full year gross margins. We expect Q4 gross margins to expand approximately 160 to 180 basis points. This guidance continues to reflect benefits from strategic price increases, lower ocean freight rates, lower product input costs and improved supply chain efficiency. Our outlook is now partially offset by higher markdowns, reduced benefits from channel mix due to franchise lifecycle management and worsening foreign exchange headwinds. For the full year, this translates into gross margins expanding approximately 120 basis points, including approximately 60 basis points of impact from foreign exchange headwinds. We now expect Q4 SG&A to be down slightly versus the prior year, including restructuring charges, reflecting improvement versus our prior guidance. For the full year, this translates into SG&A growing low single digits, including restructuring charges, also reflecting improvement versus our prior guidance. Excluding the impact of restructuring charges, we expect full year SG&A to be roughly flat. Our guidance for other income and expense and our effective tax rate remain unchanged. Additionally, given the strategic actions we walked through earlier, I want to share some early thoughts on how we are planning for our next fiscal year. First, we expect revenue and earnings to grow versus the prior year, with operating margins expanding, excluding the impact of the restructuring charges in fiscal '24. However, we are prudently planning for revenue in the first half of the fiscal year to be down low single digits. As I mentioned earlier, this reflects near-term headwinds from lifecycle management of our key product franchises, more than offsetting the scaling of new products as we shift our product portfolio toward newness and innovation. This also continues to reflect the subdued macro outlook around the world. Most importantly, we are focused on amplifying brand strength and consumer impact, which is the foundation for how we drive sustainable long-term growth. Looking ahead, we are confident in our product pipeline for fiscal '25 and the momentum that we will build throughout the year, moment-by-moment, creating brand impact and deep consumer connection through sport. With that, let's open up the call for questions.

Jay Sole:

Great. Thank you so much. Maybe just to start, Matt, I want to ask you about the fiscal '25 commentary you made. You're talking about low single-digit growth for the first half year. You said operating margin, I think you said grow, actually restructuring charges and EPS growth. Can you give a little bit more to mention around what you expect for operating margin next year, like what kind of growth you expect? Will growth on the reported numbers from this year or will it be sort of below that? And then, I guess just a bigger picture, if we could take a step back. Just talk about the operating model. The company switched to a men's-women's-kids construct a couple years ago, away from the category offense. How has that changed? How have you perceived that change? Has it been what you expected it to be? Does NIKE plan to make any changes to the operating model? Thank you so much.

Matthew Friend:

And Jay, the way I think about fiscal '25, is that we are taking our product portfolio through a period of transition. We talked about this last quarter, in terms of our focus on scaling newness and innovation, and the green shoots that we were seeing in terms of the way the consumer, is responding to the newness that we're bringing to market. And this quarter only gave us more confidence that that is where we need to focus and how we will continue to create greater impact, and distinction from a brand point of view. And so this quarter, we saw a majority of our top 20 growing footwear products, be new products that have been created this year. And those products are on a trajectory to deliver multi-billions of annual run rate of incremental revenue. And that's where our focus is. At the same time, we're managing some of our largest lifestyle franchises, and some of our performance franchises back, to make space for the newness. And that's going to have a corresponding offsetting impact. And because we've been missing some product newness at scale in our portfolio over the last several seasons, these actions are resulting in a decline of low single-digits, is how we're thinking about the first half of the year. But we believe we will inflect in the second half, and grow next year on the top line. And when we step back and think about the importance of newness and innovation, and not just to drive the top line, but to create consumer impact at scale, that's the foundation for us driving long-term growth.

Matthew Boss:

Great. Thanks. So John, could you elaborate on the new multi-year innovation cycle and how best to think about the timeline for transition to the next chapter of growth that you cited? And maybe Matt staying on that topic, high level, any material changes to consider with the top line growth profile, or your high teens margin target, as we think about this next chapter of growth?

Matthew Friend:

And I'll just, I'll hit on the question, Matt. On the timeline of transition, I'll just reiterate what I just said, which is we believe that transition is going to occur in the second half of fiscal '25. You will continue to hear us talking about the way we're scaling newness and innovation from this point forward. The products that are already out in the market, we expect to continue to scale. And then John's referenced the DN, the Peg 41, and we've got other things that are coming in the first half of this year. And so that's what we're excited about, offset by the way we're managing some of our franchises. When I think about your question about material changes to the long-term, I'm going to hit on maybe a couple of points here. I think the first one I'd say is that, while our strategy over the last few years has been consumer-led. What I would say is that the - last year or so, we've been more focused on trying to achieve mix of marketplace targets than we have serving consumer demand where the consumer is shopping. And so, there's been more focus on trying to achieve the 40% digital metric or the 60% direct metric when that was always a consumer-focused strategy. The consumer is still clearly shopping in multi-brand retail. And we need to elevate our brand and our positioning, to be able to serve the consumer and to have the maximum impact, from the new innovations that we're bringing to market. And so, those measures are not measures that are guiding our forward-looking plans, okay. The second I'd say is that when we look at the industry and step back overall, stepping back from being in a moment of transitioning our product portfolio. We continue to see strong growth potential in our sector. We think we continue to have industry tailwinds, consumer interest in sport, more people participating in running events and marathons, to more people focused on fitness and living a healthy lifestyle. There are natural consumer tailwinds that are going to continue, to drive growth in our sector, and we expect to grow and to take share like we always have. As it relates to our long-term margin target, I think this quarter and this year, has been a great proof point on us, recapturing some of the transitory cost headwinds that have been in our face the last couple of years. But also showing how we can execute to deliver gross margin expansion, and be disciplined in the way we're managing costs, while we're investing in the consumer. When I look forward, I think we can continue to drive more profitable growth, and the margins that we've discussed and the opportunity for margin expansion is still significant within our model, but having a strong brand is the foundation for us to be able to drive long-term growth and profitability. And we're focused on what it takes through this flow of innovation - being authenticated in sport, and elevating our presence across the marketplace. And if we can do this, we think we can drive attractive growth and high profitability. And when we get to Investor Day later this year, what we'll do is we will update our algorithm and our expectations, over the next five-year period.

Brooke Roach:

Good afternoon. And thank you for taking our question. I was hoping to get your updated thoughts on the pricing power of the NIKE brand and the markdown opportunities that you see as you build into this new multi-year innovation cycle. Are there any near-term or medium-term offsets that we should contemplate as you work through franchise management and the current macro? And how are you thinking about the most important drivers of operating margin expansion into next fiscal year? Thank you.

Operator:

Our next question will come from the line of Michael Binetti with Evercore ISI. Please go ahead.

John Donahoe:

Yes, Matt, why don't I take the first part of that, you take the second. So, Michael, on China, interestingly, Angela Dong and her team and all of our top partners, were here for the last week. As you know, we have 6,000 model brand doors. They were here for innovation. And a couple of things are clear. Sport is strong in China and NIKE's strong in China. Our growth in Q3 was 6%, which was in line with our plan. And we're gaining share. We're gaining share certainly against the global brands, and we're gaining share against the local brands. So, NIKE's brand is strong in its back. With regard to channel mix in your specific question, part of what's driving that is the consumers back on the street. And so, I would say that the physical retail channel in China is stronger than digital. And then within digital, Tmall, which was historically the biggest digital driver, is experiencing less growth. We're still the number one sports brand on Tmall. And social commerce, Douyin is growing. And we're not yet on Douyin. We're just getting on Douyin. And so, you'll see us expanding our growth into social commerce, which is the growing digital channel in China. But I can tell you, Matt and I had a chance and Craig Williams and others to meet with our partners from China. They came away seeing our innovation pipeline that I've been talking about, Matt and I have been talking about on this call, what we've got in store coming. And they, it was the first time they'd been on our campus in four years since COVID. And they came away excited, leaning in. And so, we are very optimistic about the future in China. And we will grow across multi-channels to grow the market. It's probably the area of the world we do that the best.

Operator:

Our next question will come from the line of Alex Straton with Morgan Stanley. Please go ahead.

Matthew Friend:

Okay. John, why don't I take the first part and then I'll start the second one

Matthew Friend:

If you want to jump in on that and go for it. So, Alex, I think the only thing I would say at this point, is the way that we're thinking about the geography splits, is we're not assuming that economic conditions in the international markets in particular get better. It assumes a status quo, relative to where we are today. And next quarter, I'll provide more tangible insights into not only the first half, but our full year growth over fiscal '25. On the wholesale side, what I would say is that I think the biggest thing to take away, is that we don't like the way our brand is showing up in wholesale. And we own that. And we need to focus, on elevating the experience for consumers, when they come into interaction with our brand. If you segment our marketplace by dimension and by, where we sell our units, our seasonal units on a full price basis. Our wholesale partners represent three quarters of the market, from a unit perspective. And so, the importance of being able to elevate, and to position our brand correctly and to tell stories about the products that, we're bringing to market in that environment, is an absolutely critical way not only, to help consumers fall in love with the products we have, but to also give consumers that tangible ability, to come into real life connection with the NIKE brand. And so, what we're focused on, beginning with the DN, is we're going to see and you'll feel the DN launch in 4,000 doors initially across the marketplace. And then when we look at the way we're going to scale that innovation over the next several seasons through product journeys with different partners, telling different stories in different parts of the marketplace, we continue to. We're very excited about the impact that that could have on the market. And we know that it's what we need to do. And so, the investments will be in things like seasonal marketing campaigns, elevating the presentation of our product, investing in the breadth and depth of the assortment, including color, so the consumer gets more choice off of the products that we care about the most, in order to be able to create that kind of impact across the market. We think we've got the right partners, but our strategy and our approach to the marketplace is constantly evolving, based on where the consumer is, based on where the consumer is shopping, and who's connecting most with the consumers. So, apart from some of the areas that we've been talking about where we need to create new distribution, because we see growth opportunities that don't line up with our current partners. Our focus is on our current partners right now and elevating the experience of our brand with them.

Operator:

Our final question will come from the line of Bob Drbul with Guggenheim Securities. Please go ahead.

John Donahoe:

Bob, as I mentioned earlier, we've had a chance to be with Heidi and her teams on looking at the running pipeline, the everyday running pipeline. And there are clearly already some early green shoots. The Vomero 17 and the Structure 25 out in the market today, both growing double digits to very strong reception. As I mentioned earlier, the Peg family, starting with Peg 41, Peg Premium, Peg Trail coming in the second half of the year, the order book is looking good. We're also, in direct answer to your question, investing in our ground game, with more focus and specificity around running than before. That includes being where runners are. So, being at the marathons, at the local races, at the local runs. We had a strong presence of the LA Marathon and activations there with very positive response. In fact, we had a shoe exchange effort that went crazy, with so many people switching over to NIKE, because we're there with them. We'll continue to do that. And then in the RSG channel, as you mentioned, we've increased our focus and penetration and RSG's and other new partners that authenticate our brand. And we've doubled our EKINs. And as you know, our EKINs are the experts who provide our partners with even greater NIKE expertise and personal engagement. So, if you take the combination of strong, innovative product portfolio and pipeline with more ground game and presence where runners are. Combined with a greater marketplace distribution, including RSG's and with our EKINs in the field, we feel like we're already seeing some green shoots of progress in everyday running. And we'll continue to see that quarter-after-quarter. It won't happen overnight, but we're already seeing momentum in North America. And we believe that will continue around the world.

Operator:

And that does conclude our conference for today. We thank you all for joining. You may now disconnect your lines.

Paul Trussell:

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE Inc's Fiscal 2024 Second Quarter Results. Joining us on today's call will be NIKE, Inc. President and CEO, John Donahoe; and our CFO, Matt Friend. Before we begin, let me remind you that participants on this call will make forward-looking statements based on current expectations and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in NIKE's reports filed with the SEC. In addition, participants may discuss non-GAAP financial measures and non-public financial and statistical information. Please refer to NIKE's earnings press release or NIKE's website, investors.nike.com, for comparable GAAP measures and quantitative reconciliations. All growth comparisons on the call today are presented on a year-over-over basis and are currency neutral, unless otherwise noted. We will start with prepared remarks and then open up for questions. We would like to allow as many of you to ask questions as possible in our allotted time. So, we would appreciate you limiting your initial question to one. Thanks for your cooperation on this. I'll now turn the call over to NIKE, Inc. President and CEO, John Donahoe.

Matthew Friend:

Thanks, John, and hello to everyone on the call. NIKE's second quarter financial performance reflected our proactive marketplace management and disciplined execution with tremendous delivery by our teams in a dynamic environment. Revenue was up slightly versus the prior year growing 1% on a reported basis as we compare to 17% reported and 27% currency-neutral revenue growth one year ago. Gross margins expanded despite a highly promotional marketplace. And combined with disciplined SG&A management, earnings per share and free cash flow accelerated. As I said last quarter, we believe we are turning the corner and driving more profitable and sustainable growth. At the same time, there were a number of puts and takes in the quarter. So before I walk through our financial results, let me share some perspective on our performance in light of current macro and consumer trends as well as additional insight into our business direction. Now, as you recall, we moved proactively in the prior year to liquidate excess inventory and reduce wholesale sell-in for the first half of fiscal '24. And while this dampened our reported revenue growth through Q2, total retail sales in the quarter grew across the marketplace on top of double-digit growth in the prior year. ASPs were up across both footwear and apparel and AURs grew across channels. Average order values among NIKE members increased versus the prior year. Our higher-priced products, in particular, have been resilient with our $100 plus footwear models, driving strong growth in units sold across the marketplace. And overall, we have maintained lower markdown rates than many of our competitors. In the most impactful consumer shopping moments, NIKE's brand strength created even greater separation. We delivered market-leading results in Greater China and Double Eleven. And over the Black Friday and Cyber Week period, NIKE Direct grew approximately 10% across North America, EMEA and APLA. In Q2, NIKE Direct once again led our growth and wholesale shipments exceeded our expectations. Having said that, we are seeing indications of more cautious consumer behavior around the world in an uneven macroenvironment. Total retail sales across the marketplace fell short of our expectations with softer demand outside of the key consumer moments. While NIKE's store traffic continued to grow, we saw softness in digital traffic and higher levels of promotional activity across the marketplace. As a result, we are adjusting our channel growth plans for the remainder of the year. Looking to our product portfolio, our top franchises continue to drive strong full-price sales, but we intentionally manage the lifecycle of these models across the marketplace for long-term value. Given the promotional environment and the cautious consumer behavior that we're seeing, we are stepping up our plans to reduce marketplace supply of our key franchises. Our goal is to focus NIKE's brand heat and energy on what is new as we accelerate our product innovation cycle. We have seen encouraging signs from recent consumer activations around some of NIKE's latest innovations and newness and we intend to accelerate our pace through the Paris Olympics and beyond. While this will initially take some time, we are confident in our pipeline and the product journeys, stories and consumer energy to come. Now, as you heard from John, our priority is to drive sustainable and profitable long-term growth while building a faster, more efficient NIKE. Since fiscal '19, our investments in accelerating NIKE's Consumer Direct vision, have created new operating capabilities, added tens of millions of new members to our member base and delivered a return of more than $12 billion of incremental revenue. However, we have also added complexity and inefficiency. In this competitive environment, we need to accelerate our pace of innovation, elevate our marketplace experiences, maximize the impact of our storytelling and increase our speed and responsiveness, all in service of the consumer. To do this, we are creating investment capacity to fuel NIKE's next phase of innovation, growth and profitability. We are identifying opportunities across the company to deliver up to $2 billion in cumulative cost-savings over the next three years, both up and down our P&L and across our value chain. Some examples include simplifying our product assortment, improving supply-chain efficiency, leveraging our scale to lower the marginal cost of operations, increasing automation and speed from data and technology, streamlining our organizational structure, reducing management layers and enhancing our procurement capabilities. And as we look to drive greater efficiency and productivity, we will reallocate and invest the majority of these savings to deliver the greatest consumer impact on our largest growth opportunities. Ultimately, we believe that building a faster and more efficient NIKE will accelerate future growth and innovation and deliver long-term profitability, creating value for years to come. We will continue sharing updates over the coming quarters. Now let me turn to our NIKE, Inc.'s second quarter results. In Q2, NIKE, Inc. revenue was up 1% on a reported basis and down 1% on a currency-neutral basis following our strong topline growth one year ago. NIKE Direct grew 4% with NIKE stores up 9% and NIKE Digital up 1% while wholesale declined 3%. Gross margins expanded 170 basis points to 44.6% on a reported basis, driven by strategic pricing actions, lower ocean freight rates, improved supply-chain efficiency and modest markdown improvements, partially offset by higher product input costs. This included impact from approximately 60 basis points of unfavorable changes in net foreign currency exchange rates. SG&A grew 1% on a reported basis, favorable to our expectations through disciplined expense management and some shifts in timing of spending. Our effective tax rate for the quarter was 17.9% compared to 19.3% for the same period last year. Diluted earnings per share was $1.03, up 21% year-over-year. NIKE inventory dollars are down 14% versus the prior year and down high-single-digits versus the prior quarter. In total, NIKE inventory dollars are down over $1.5 billion from the peak at the end of Q1 in the prior year with days in inventory continuing to improve. Total footwear and apparel inventory units across the marketplace are down double-digits versus the prior year. Now let me turn to our operating segments. In North America, Q2 revenue declined 3% with wholesale down 9% versus the prior year. NIKE Direct grew 3% with NIKE stores up 4% and NIKE Digital up 2%. EBIT grew 2% on a reported basis. This follows extraordinary growth in Q2 of fiscal '23 with North America revenue up 31%, NIKE Direct up 23%, NIKE Digital up 31% and wholesale up 37%. This quarter we saw mid-single-digit retail sales growth with key partners including Dick's Sporting Goods, JD Finish Line and Hibbett. Jordan and Women's led our momentum in the marketplace with Jordan Remix footwear grew double-digits and the AJ 11 Gratitude release delivered the brand's largest shock drop ever. Within Women's, Dunk, Free Metcon and our $100 plus statement leggings delivered strong growth. In addition, Structure 25 and Vomero 17, our latest updates for everyday runners, drove positive response from consumers and running specialty partners. In EMEA, Q2 revenue declined 3% with wholesale down 8%. NIKE Direct was up 7% as NIKE stores grew 8% and NIKE Digital grew 7%. EBIT declined 6% on a reported basis. As a reminder, this also compares to tremendous growth in Q2 of fiscal '23 with EMEA revenue up 33%, NIKE Direct up 44%, NIKE Digital up 62% and wholesale up 28%. Against the backdrop of increased macro headwinds, we saw strong consumer response to newness and premium innovation. Our winterized running products drove positive sell-through along with strong growth from Invincible, Vaporfly and Ultrafly. Mercurial and Phantom and Tiempo grew double-digits. And our retro running styles including V2K, P-6000 and Shocks continue to energize the marketplace. In Greater China, Q2 revenue grew 8% and wholesale grew 19%. NIKE Direct declined 4% with NIKE stores growing 16% and NIKE Digital declining 22%. EBIT grew 1% on a reported basis with multiple points of impact from foreign exchange. On the whole, we are seeing a highly promotional marketplace with increased macro headwinds, especially on Digital. That said, Q2 was another strong quarter in brick-and-mortar with continued improvement in full-price sales and sales in NIKE owned and partner doors growing mid-teens versus the prior year. We also continue to see strong momentum with key strategic partners, including Topsports and Pou Sheng. And NIKE continues to strengthen its lead as Chinese consumers number one cool and favorite brand. Turning to our product portfolio, performance outpaced lifestyle this quarter with innovation and hyper-local storytelling resonating with consumers. We saw strong momentum in basketball, fitness, retro running footwear and winterized apparel. Locally inspired express lane collections including our street dance inspired Dunk and hyper-local Pegasus releases were top choices for consumers. And overall, our inventory remains healthy with units down and improved markdown rates versus the prior year. Looking ahead, we continue to closely monitor the operating environment. However, we remain confident in NIKE's brand strength, our deep consumer connections and our foundation for long-term growth in China. In APLA, Q2 revenue grew 10% and wholesale grew 7%. NIKE Direct grew 15% as NIKE stores grew 17% and NIKE Digital grew 14%. EBIT grew 7% on a reported basis. Southeast Asia and India, Korea and Mexico grew double-digits, leading a record quarter for the geography. Our Flipkart and Myntra platforms drove strong growth in India. Korea led record member days sales in the geography. And Mexico accelerated its digital momentum over the Buen Fin shopping holiday. We saw strong momentum across our portfolio led by Jordan & Kids. Jordan brand delivered strong growth in Remix footwear, AJ1 essentials and Signature basketball. In kids, lifestyle and global football grew double-digits with positive momentum from all kids' Fleece, Court Borough and the Mercurial. All told, our team executed with tremendous focus and agility to deliver our Q2 results, while managing through volatility. Last quarter, as I provided guidance, I highlighted a number of risks in our operating environment, including the effects of a stronger US dollar on foreign currency translation, consumer demand over the holiday season and our second half wholesale order books. Looking forward, the impact of these risks is becoming clear. And as a result, we are adjusting our full-year financial outlook. Looking through the balance of the year, we expect Q3 reported revenue to be slightly negative as we again compare to double-digit growth in the prior year and Q4 reported revenue to be up low-single digits with full-year reported revenue now growing approximately 1%. This new outlook reflects increased macro headwinds, particularly in Greater China and EMEA, adjusted digital growth plans based on recent digital traffic softness and higher marketplace promotions, lifecycle management of key product franchises and a stronger US dollar that has negatively impacted second half reported revenue versus 90 days ago. I will also remind you that there are approximately 400 basis points of headwinds from supply disruptions and accelerated liquidation in the prior year. We expect increased gross margin expansion in our second half with Q3 margins expanding 160 to 180 basis points and Q4 margins expanding 225 to 250 basis points. We continue to expect full year gross margins to expand 140 to 160 basis points. This reflects benefits from strategic price increases, improved ocean freight rates and supply chain efficiency, partially offset by higher product input costs and approximately 60 basis points of impact from foreign exchange headwinds. We expect full year SG&A growth to improve to low-single digits, excluding restructuring charges as we continue to tightly manage expenses and improve productivity and efficiency. Specifically, we expect SG&A dollars in both Q3 and Q4 to be modestly above our first half run-rate, excluding the charge. We anticipate a restructuring charge of $400 million to $450 million in our second half, primarily related to severance costs, which will be recognized largely in the third quarter. We expect full year SG&A including the restructuring charge to grow mid-single digits. We now expect other income and expense, including net interest income to be $275 million to $325 million for the full year. We continue to expect our full year effective tax rate to be in the high-teens range. Taken altogether, strong gross margin execution and disciplined cost controls are enabling us to offset softer second half revenue and drive earnings growth. Excluding restructuring charges, we expect to deliver on our prior full-year earnings outlook. While we expect the operating environment to remain dynamic, we have been here before and we know that moments like this are when NIKE operates and execute at its best. We will stay on the offense, manage risk, optimize opportunity and leverage our strengths to create even further competitive separation. As we move forward, our focus is building a faster, more efficient NIKE and embracing the opportunities in front of us to accelerate sustainable and more profitable growth. So with that, let's open up the call for questions.

Matthew Boss:

Great. Thanks. So two part question. John, could you maybe elaborate on the structural changes that you cited that maybe in the pivot to the front foot on innovation? Just the structural changes that you see supporting that. And what that means for the product pipeline as we think to next year? And then Matt, maybe footing that portion of the press release relative to the commentary around the second half. Just how best to foot this? And could you help break down the change in your second quarter revenue -- your second half revenue outlook between retail and wholesale?

John Donahoe:

You want to go first, Matt. All right.

John Donahoe:

And Matt, the first part of your question regarding the structural changes. You know, as you know, six months ago, we realigned our entire organization under Heidi O'Neill and Craig Williams as our co-Presidents. And it is making a huge difference in our focus and ability to execute. And as you know, we're single mindedly focused on aligning our entire team to drive what NIKE does best, innovative product combined with distinctive storytelling, combined with unique marketplace experiences. And as Matt just said, we have a real focus, Heidi, Craig and teams, a real focus on newness and driving our next product innovation cycle, which will elevate our entire portfolio, right. This is what NIKE does best. And we're doing it with consistency and scale where we want to break through. That's our focus. And so you're seeing some, you know, I'll maybe pick one example where you're seeing some early results. Look at what's happening in basketball right now, right? We are bringing fresh, innovative product at scale. So the past six months, we've launched Sabrina 1, LeBron 21, Tatum 1, Luka 2, the Ja 1. You saw Ja come back two nights ago, the Ja 1 on Christmas Day. And so that's creating huge momentum in basketball with great innovation. And in the next three months, we add to that GT Cut which is one of our most innovative shoes to date, the Book 1 which we think has great appeal on and off the court. And, of course, Kobe, which we think has huge potential on an ongoing basis. And so this is driving momentum both on the court through performance, like Nike does, innovation and performance and off the court. And that translates into lifestyle. You may have seen LeBron was wearing the Lunar Roam walking into his game the other night and Lunar Roam sold on in sneakers the day we launched it, two days ago. And so what you're seeing is when we focus our guns on driving performance innovation, translating that into lifestyle, we can cut through, drive, scale and consistency like no one else can. So as we look ahead, we're excited about 10th anniversary of Air Max Day. That's coming up in March. The Air Max DN is our best Air Max product in years. You'll see us really get behind it. That will be, I think, both a successful shoe, but more importantly, can help lift the Air Max portfolio. With running, we'll be focusing on calendar '24 will be the year of Pegasus for us with the Peg 41 and the Peg Family Refresh. And then we're getting excited and gearing up for the Olympics, right, in Paris this summer. That's when NIKE shines its best. You'll see us really using Air as a source of innovation, both in performance and in lifestyle. And so our -- you called it a pivot, I just think it's an acceleration -- an alignment and an acceleration of speed and focus is distinct and we feel it.

Michael Binetti:

Hey guys, thanks for taking our questions here and thanks for all the detail today, particularly around some of the longer term thinking in the business. Some of the longer-term commentary is pretty helpful. I'm just wondering if we can help true up the margin story for the next few years. I guess, would you -- is the $2 billion in cost savings, we said the majority will be reinvested. If I try to think back to the longer-term target of getting the business to the high teens margins, this should go a long way. Do you -- is your feeling that the net amount of these efficiencies takes us to that multi-year target? And then considering, Matt, the commentary on the second half revenues here, a lot of it sounds like it's macro in China. You know, maybe kind of help thinking about as we look past '24, do you have visibility yet to say, hey, we've got the controllables to help us offset some of the macro pressures that we see to make '25 an algorithm revenue year?

Operator:

Your next question comes from the line of Gabriella Carbone from Deutsche Bank. Please go ahead. Your line is open. Gabriella, your [Technical Difficulty]

John Donahoe:

Yeah, Gabriella, we've made running a key priority. We talked about three areas we're really getting behind where we see huge growth opportunity that being Women's, Jordan and running. And as you said, in running, we tend to break it into three categories. You know -- and for us, it starts with road racing. That's the pinnacle, that's the peak. And as you know, in the past three to six months, we are dominating it through the Alphafly 3, which debuted in Chicago marathon. Kelvin Kiptum, as I mentioned in my remarks, set a world record. It's dominating the podiums for both men and women. And that'll actually be launching available to the public in Q3. And as we see people going into racing into the -- to the Olympics, both marathon and otherwise, our performance running for racing is unmatched. And then as trail, as you mentioned, that's the fastest growing segment, grew 20% for us. And we do what we do. It's innovations driving it. So, the Ultrafly trail, which is the first trail shoe with a carbon fiber plate, that's again very NIKE, very classic NIKE innovation, performance innovation, along with Peg Trail and Zegama, trail is growing fast partly because trail running is growing. But increasingly, trail shoes are becoming lifestyle shoes. They're being worn on the streets, particularly in EMEA and in Europe, but also around the world. So, we'll continue to invest in great product there as well as, as I said in my remarks, at our ground game. And then in the road running or every day running category, this is the area where we have the most work. And so we have good product. We had some nice wins in the quarter, the Structure 25 and the Vomero 17, which were our latest updates for everyday runners, they had positive response from consumers and specialty runners, but we're very focused on building out our ground game with everyday runners. And that means getting into the RSGs, back into the RSGs and being present where runners are, whether it's -- not just at the marathons where the elite runners are, but the everyday races in the key cities around the world and the running communities. And you'll see us, we are steadily investing in that and building our presence there. And as we look forward in terms of driving scale in everyday running, as I mentioned earlier, we're focused on Pegasus. That's our largest franchise, one of the largest franchises in running history period. And we're very excited about Peg 41 and updates across the Peg family which are coming in calendar '24. So, a lot of focus. And we'll report, you know, in road every day running. It's going to be quarter by quarter. Steady progress, steady progress, steady progress toward our goal.

Operator:

Your next question comes from the line of Lorraine Hutchinson from Bank of America. Please go ahead, your line is open.

John Donahoe:

Well, Lorraine, let me first just step back and look at how we see China for a minute and then we'll talk about margin because if you don't have a great business, it's hard to have great margins. And, you know, the fact is we feel very good about our position in China and our ability to compete. And that has not changed from 90 days ago. In China, sport is back. The China consumer is back out on the street with a real focus on active and healthy lifestyles. You see the government encouraging sport and healthy lifestyles and Gen Z is the most active generation ever. So that's a tailwind for our industry. And so even in the face of macro uncertainty, our brand is continuing to resonate. And we're doing what NIKE does so well, which is taking global products, global innovations, global brand, global athletes and powerfully combining them and connecting them to local culture and local sport and local consumer moments. And a wonderful example last quarter is that Eliud Kipchoge, the world's best marathoner, did a tour through China right before the China -- the Shanghai marathon. As you know, we sponsored the Shanghai marathon. And sure enough, we dominated shoe counts in the top hundred. We swept the women's podium. And that's bringing energy and running and the lifestyle of running. And it's growing the market. I mean, I think we're in a great percent. We, yes, there's some macro headwinds, but we feel very good about our position and our ability to compete.

Operator:

Your next question comes from the line of John Kernan from TD Cowen. Please go ahead, your line is open.

Matthew Friend:

Yeah, I mean, John, when we think about the safe to invest plan and the value it will create and the capacity it will create for us to be able to invest, invest at the biggest growth opportunities we see. We don't envision that as being people. We envision that as being consumer facing investment, bringing product innovation to market and having maximum impact with the consumer. And so our goal here is to see a reallocation of resources through this program, so that more of our dollars are going towards consumer facing activities that can have the kind of impact that you referenced. And we believe when we look at the size of the market and our position against some of the categories that John referenced and/or the way the consumer is continuing to encourage us to bring them new and interesting things from a Jordan perspective, we see opportunity to continue to grow our business and that's where our focus is. So I think we're going to -- we're focused on driving more profitable growth. That should mean that there's some leverage in SG&A, but you should also expect to see us reinvesting some of the resources that we're taking out of the business back in things that are consumer facing that have an impact on sport and that continue to enable us to maximize the impact of the stories that we want to tell.

Operator:

Your next question comes from the line of Ike Boruchow from Wells Fargo. Please go ahead, your line is open.

Matthew Friend:

Sure. Well, so in the quarter, we did see growth in retail sales in North America versus the prior year. Remember, it wasn't a lot of growth because we were comping some very significant growth rates in the prior year. The actions that we've taken on inventory are significant. And our inventory units are down strong double-digits in North America. That's the biggest market where we've seen the biggest movement in our inventory. When we look at the level of inventory in our partners relative to their current level of retail sales, we feel good about the weeks of supply that we have there. And what I would tell you in the large majority of our partners, we also are seeing the highest mix of current season inventory that we've seen in many, many seasons. And so we feel great that our partners are positioned to put our newest and our -- and most relevant product in front of the consumer. We are watching the marketplace closely because my comments around the big consumer moments and the in between periods applied to North America as well. And so we are watching cautious consumer behavior there. But at this point, we feel great about our inventory. And that's why we're so focused on newness and innovation, because that's what's going to pull us through a promotional marketplace like we have. And so there's definitely a lot of inventory in the market across brands, but we feel great about where we are. And newness and innovation is what will enable us to earn open to buy in our partners and will enable us to re-accelerate the top line.

Paul Lejuez:

Hey, thanks guys. I'm curious if you could talk about and quantify the cumulative freight drag that you've seen over the past two years and the timing of how you will recapture that freight drag in F'24 versus F'25 just based on your recent freight contracts? And what are the offsets as we think about potential puts and takes on the gross margin line '24, '25? Thanks.

Operator:

Thank you, everyone. This concludes today's conference call. Thank you for your participation and you may now disconnect.

Paul Trussell:

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE, Inc.'s fiscal 2024 first quarter results. Joining us on today's call will be NIKE, Inc. President and CEO, John Donahoe; and our CFO, Matt Friend. Before we begin, let me remind you that participants on this call will make forward-looking statements based on current expectations, and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in NIKE's reports filed with the SEC. In addition, participants may discuss non-GAAP financial measures and nonpublic financial and statistical information. Please refer to NIKE's earnings press release or NIKE's website, investors.nike.com, for comparable GAAP measures and quantitative reconciliations. All growth comparisons on the call today are presented on a year-over-year basis and are currency neutral unless otherwise noted. We will start with prepared remarks and then open up for questions. We would like to allow as many of you to participate as possible in our allotted time, so we would appreciate you limiting your initial question to one. Thanks for your cooperation. I'll now turn the call over to NIKE, Inc. President and CEO, John Donahoe.

Matt Friend:

Thanks, John, and hello to everyone on the call. NIKE's first quarter results demonstrated the impact of staying on the offense when we drove a quicker return to a healthy marketplace in fiscal '23 and leading with operational discipline as we begin the new fiscal year. We delivered Q1 results in line with our guidance. Retail sales across NIKE Direct and Wholesale continue to grow on top of extraordinary sales this past year. Both Nike inventory and our total marketplace inventory are healthy. Working capital efficiency is improving with a normalized supply chain. Gross margins are expanding on an operational basis, excluding the effects of foreign exchange and transitory headwinds are abating. In short, we are building on a strong foundation for sustainable and more profitable long-term growth. Before reviewing our financial results, let me first speak to what we are seeing from our consumer in the marketplace and where we are driving focus and attention to unlock even greater potential ahead. In Q1, retail sales across NIKE Direct and Wholesale grew mid-single digits versus the prior year. Our top franchises are driving strong full price sales and our newest product offerings across Nike, Jordan and Converse are generating positive consumer reception. Looking at inventory. We continue to feel very good about our position. NIKE inventory dollars are down 10% versus the prior year. Our total inventory units across the marketplace, including NIKE and our wholesale partners, are down double digits versus the prior year. Partner-owned inventory units are in line with the previous year, with levels planned to remain lean through our second quarter, a meaningful accomplishment after higher levels of wholesale sell-in during fiscal '23. On the whole, we are very comfortable with the level of inventory in the marketplace in relation to the retail sales that we're seeing as we begin increasing levels of wholesale sell-in in our second half. And overall, we're confident in the health and shape of our marketplace. NIKE Direct continues to lead our growth, up 6% versus the prior year. As we deliver on our strategy to elevate the marketplace through premium physical and digital retail experiences, we continue to see that consumers want to connect directly and personally with our brands. And in fact, member engagement within our direct business is up double digits versus the prior year, with increasing average order values. Our stores delivered in an especially strong quarter, with traffic up double digits from last year and members driving an increasing share of our business as consumers shifted from our digital to physical channels. This is similar to what we are seeing across the industry. And after seeing this trend build in early July or in early June, our team was nimble in transitioning inventory to capture higher full price sales across our entire store fleet. NIKE Digital grew 2% with nonlinear comparisons to the prior year, including liquidation actions and a higher number of product launches on the SNKRS app in fiscal '23. Looking through all that. What stands out are the underlying consumer trends we see in our digital business. This includes sustained momentum on the NIKE mobile app with growth in traffic and increasing member buying frequency. We continue to see a growing structural advantage as more consumers start their shopping journeys with us on mobile. Meanwhile, within wholesale, we see largely positive results from our most important strategic partners. Specifically, we were pleased to see high single-digit to low double-digit retail sales growth and strong inventory management with many of our key partners, including DICK's Sporting Goods and city specialty partners in North America, JD, Zalando and Sports Direct in EMEA and Topsports and Pou Sheng in Greater China. We continue the reset of our business with Foot Locker, planning for near-term sales declines as they invest in consumer-right concepts for the future. Ultimately, we have a segmented portfolio of strong partners across price points and channels with no single partner representing more than a mid-single digit of NIKE's total business. And looking across the entire marketplace, we are confident in our brand momentum as we accelerate direct consumer connections, elevate our brands and create capacity for long-term growth. Looking ahead, our priorities start with our product pipeline. And over the coming seasons, we will build on the market share gains that we have accelerated in recent years, by scaling newness and innovation across our portfolio, while carefully managing the health of our most iconic product franchises. This year, for example, we will build on the consumer momentum around running and modern comfort with performance and lifestyle franchises such as Infinity, Motiva, Invincible, Vomero 5, V2K and the Air Max 1. We will refresh our basketball portfolio across Nike and Jordan through innovation and style and grow the Kobe brand. We will ignite the next chapters of Pegasus, the Jordan Game shoe and Tech Fleece while continuing to grow powerhouses like Dunk and Metcon. And as we look towards the second half of this fiscal year and beyond from the tenth anniversary of Air Max Day to the Paris Olympic Games, we will introduce our next wave of Nike Air innovation. This will bring our most comprehensive evolution of the Air platform in years, one that we expect to catalyze both our brand and business. We will deliver pinnacle performance innovation to athletes while also scaling into new lifestyle franchises over the next several years. Ultimately, we are focused on scaling a deep, diverse and distinct product portfolio, not just for one quarter or one season, but for years to come. Last, we are turning the corner in driving more profitable growth while also recovering on transitory cost headwinds. This includes structural improvements in profitability in areas such as supply chain, with reduced digital switch shipments and improved digital fulfillment costs enabled by investments in our regional service centers, and a new transportation management system. In addition, NIKE Brand ASPs are up across footwear and apparel across all geographies as we focus on the price value of our products. And in Greater China, consecutive quarters of double-digit growth, healthy inventory and sequential improvement in full price sales will enable us to begin rebuilding towards higher profitability in the geography. Finally, we are focused on improving our marginal cost of growth with more modest increases in operating overhead this fiscal year, following two consecutive years of double-digit growth. We are doing this by unlocking speed and productivity as we transform our operating model to build a faster and more efficient Nike. Now let me turn to our NIKE, Inc. first quarter results. In Q1, NIKE, Inc. revenue grew 2% on a reported and currency-neutral basis. NIKE Direct grew 6%, with NIKE stores growing 12% and NIKE Digital up 2%. Wholesale grew 1%, reflecting our proactive decisions to restrain inventory supply and prioritize marketplace health, particularly in North America. Gross margin declined 10 basis points to 44.2% on a reported basis, primarily driven by higher product costs, and approximately 90 basis points of unfavorable changes in net foreign currency exchange rates, almost completely offset by strategic pricing actions. SG&A grew 5% on a reported basis, primarily due to increased demand creation expenses around World Cup and more moderate increases in operating overhead benefiting from shifts in timing of technology investments for the remainder of the year. Our effective tax rate for the quarter was 12% compared to 19.7% for the same period last year. primarily due to a onetime benefit provided by the recent delay of the effective date of U.S. foreign tax credit regulations. Diluted earnings per share was $0.94. Now let me turn to our operating segments. In North America, Q1 revenue declined 1%, with wholesale down 8%, in line with our expectations following our restrained sell-in of marketplace supply. NIKE Direct was up 7% as NIKE stores grew 11% and NIKE Digital grew 4%. EBIT grew 4% on a reported basis, primarily due to strong gross margin expansion. In a competitive environment, our retail sales momentum grew throughout the quarter across NIKE Direct and wholesale. NIKE's back-to-school performance outpaced the broader industry with strong sales from our top franchises and clear consumer excitement around newness. Infinity 4 drove strong full price sales as we partnered with key running specialty accounts to host community activations. Our newest generation of Tech Fleece amplified by strong investment from key marketplace partners drove retail sales up double digits from last year across NIKE Direct and wholesale. Zenvy, Go and Universa fueled double-digit growth in statement leggings with Dunk and Free Metcon driving strong sell-through. And the Jordan brand continued its momentum with double-digit growth, led by Jordan Women's and kids as well as performance basketball. In EMEA, Q1 revenue grew 6%, with NIKE Direct also up 6%. NIKE stores grew 17% and NIKE Digital declined 2%. EBIT declined 5% on a reported basis. Global Football and fitness grew double digits and women's outpaced our total growth in the geography this quarter. New innovation and styles are resonating with Phantom Luna driving strong sell-through, Metcon up double digits and Motiva, our new walking shoe, off to a great start in creating a new performance category for NIKE. Pegasus, Invincible and Vomero also delivered strong results in the quarter. In addition, statement leggings in shorts grew double digits with integrated brand and retail experiences. And as we deepen our focus on serving all segments of the running community, trail running footwear grew double digits with new product innovation and brand activations. In Greater China, Q1 revenue grew 12%. NIKE Direct grew 10%, with NIKE stores up 12% and NIKE Digital up 6%. EBIT declined 3% on a reported basis. Throughout the quarter, we saw incredible energy around the return of sport, with thousands of young runners joining in our back-to-school kids race, players across cities taking part in our Jordan Flight basketball tournament and historical highs in social engagement with our neighborhood accounts as consumers joined in hyper local community experiences to celebrate our newest Kobe release. Retail sales across NIKE Direct and Wholesale grew double digits with another quarter of strong sell-through. In a highly promotional marketplace, we outperformed industry trends with improvement in full price sales. Our performance dimensions led growth with consumer excitement around G.T. Jump, Sabrina 1 and Invincible. And in lifestyle, Vomero and other retro running styles are gaining momentum as we prepare to scale over the coming seasons. In APLA, Q1 revenue grew 3%. NIKE Direct was up 3% with NIKE stores up 10% and NIKE Digital declining 3%. EBIT declined 17% on a reported basis. Japan, Southeast Asia, India and Mexico led our growth this quarter as we accelerate our momentum in international markets. In particular, store traffic in Japan is returning to pre-COVID levels. Sales through our new Myntra partnership in India are already exceeding plan, and Mexico's digital business delivered double-digit growth. Kids led our growth in the geography, up double digits with strong growth from Mercurial, Court Borough and Fleece. We also saw market share gains in women's lifestyle with positive consumer response to Air Max Koko, V2K and Gamma Force. In addition, Jordan continues its global growth with Luca and Tatum fueling strong momentum in Performance Basketball, and our new streetwear footwear franchise is resonating with consumers. Now let me turn to our financial outlook. As we look forward, we are confident in NIKE's new product innovation pipeline, brand strength, deep consumer connections and the health and shape of our marketplace. Our Q1 results reaffirm our expectation for healthy profitable growth this fiscal year. For the full year, we continue to expect reported revenue to grow mid-single digits. At the same time, we are closely monitoring the operating environment, including foreign currency exchange rates, consumer demand over the holiday season and our second half wholesale order book. As a reminder, this growth outlook includes approximately 4 points of headwinds from accelerated liquidation and higher wholesale sell-in during the prior year as we sold roughly five seasons of supply within four financial quarters. Therefore, quarterly comparisons across marketplace channels and in the aggregate, will be nonlinear. We continue to expect gross margins to expand 140 to 160 basis points on a reported basis, which includes 50 basis points of negative impact from foreign exchange headwinds. We are cautiously planning for modest markdown improvements for the balance of the year given the promotional environment. We continue to expect SG&A to slightly outpace revenue growth. more specifically at the high end of mid-single digits. We continue to expect other income and expense, including net interest income to be $225 million to $275 million for the year and we continue to expect our effective tax rate to be in the high teens range. Now let me provide some additional color on our second quarter. We expect second quarter reported revenue growth to be up slightly versus the prior year, as we faced our most challenging comparisons from fiscal '23. We expect second quarter gross margins to expand approximately 100 basis points versus the prior year, reflecting benefits from strategic pricing, improved markdowns and lower ocean freight rates partially offset by higher product input costs. We continue to expect a negative impact from 50 basis points of foreign exchange headwinds. We expect second quarter SG&A to grow mid- to high single digits. We expect our second quarter effective tax rate to be in the high teens range. For NIKE, being on the offense means competing to win now and over the long term. We are confident in our strategy, our leadership position and our ability to create even greater opportunity ahead. With that, let's open up the call for questions.

Robert Drbul:

Hi. Good afternoon. Thanks for taking the question. I guess the first question really is, when you talk about the innovation pipeline for fall of '24. Can you just expand a little bit more in terms of the focus or the categories or really sort of what you see driving the business that you laid out at the most recent meeting? And I have a follow-up.

Robert Drbul:

Got it. Thanks,. And I just have a question. In North America, I guess, in the current quarter, what's the bigger tailwind to the business right now? Is it the Travis Kelce jerseys or the Colorado football merchandise?

Matt Friend:

We love the NFL and we continue to see a lot of momentum with Coach Prime, so both.

Operator:

Up next is Adrienne Yih, Barclays.

Matt Friend:

All right. Well, John, why don't I start on marketplace. So Adrienne, when we look at our performance this quarter, I'd be remiss to not just reiterate what I said on the call, which is we saw very strong retail sales in the marketplace up mid-single digits. And in particular, we're very pleased with the performance across a range of our most important wholesale partners, delivering growth high single digit to low double digit. What I said last quarter in terms of the way that I was thinking about channel growth for this year, I said that NIKE Direct would lead our growth. And it did this quarter, and we do expect NIKE Direct to continue to lead our growth throughout the remainder of this fiscal year. The period that we're heading into in Q2 and Q3 is really the higher levels of sell-in that we did last year as we proactively focused on returning our marketplace to a more healthy level. As an example, you might recall our Q2 wholesale revenue last year was up 30% versus the prior year. And so as we face those comparisons, we do expect that NIKE Direct will be the best indication of the growth that we're driving in the marketplace, while we comp those nonlinear comparisons in the prior year. But we feel very good about the health and the shape of our overall marketplace, including in North America. And we're continuing to focus on driving growth across dimensions, across channels, up and down price points and are very focused on building a product pipeline to enable us to do that over the coming years.

Matt Friend:

Yes. And I would just say that I think that the retail sales growth that we referenced in our two biggest wholesale partners is a great indication of the health of our inventory and our ability, especially in this first quarter to flow a complete assortment and season into our retail stores in the marketplace. And that's NIKE at best. Our most premium elevated retail experiences, high levels of seasonal assortments where we can tell stories and really bring the breadth and the dimension to consumers. And we saw that momentum building throughout the quarter. So we feel really good about the decision we made to move fast. And even though the marketplace is promotional, we're on our front feet in terms of the way we're able to present our brand and our stories and our products to consumers in that market right now.

Alex Straton:

Perfect. Thanks so much. I just wanted to focus on kind of the running innovation that you guys highlighted a number of times on the call across areas. I think you had said you launched some running in the last few years, but perhaps it didn't connect as much as you wanted or you wanted to scale it more effectively. So could you just touch on maybe what changed in NIKE's approach in the last few years? And then what you plan to do differently to kind of reignite that? Thanks a lot.

Matt Friend:

There's also a meaningful opportunity as running influences, lifestyle and sneakers. And as we've had tremendous success from a Classics perspective over the last couple of years, we have a rich heritage of products in our pipeline related to running for decades. And so one of the things that we're also doing is accelerating our opportunity in running lifestyle with some of our best franchises and capturing on that trend and also the consumer shift to modern comfort. And we feel like that one, two punch, as John mentioned, innovation, performance and lifestyle is really going to position us well to take greater to greater - take a greater attack at the running marketplace holistically.

Matthew Boss:

Great. Thanks. So John, maybe could you speak to underlying demand trends as the first quarter progressed? Or any early fall trends that you're seeing in both North America and China. And then multiyear, I'm curious what you see as the next leg of the Consumer Direct Acceleration strategy or just any initiatives that you see to drive further market share gains as we look forward.

Matt Friend:

Sure. Well, Matt, as I referenced, we saw mid-single-digit retail sales growth this quarter. And this quarter, we have a unique dynamic because we saw a difference in what we're reporting or what we're communicating from a retail sales perspective versus where NIKE's reported revenue is, and that's because of the restriction of sell-in that we put into place the last couple of quarters of last year. We do expect that to continue as we go into the second quarter. And so we are planning for retail sales growth to be in line with what we delivered this quarter from a mid-single-digit perspective. When we look at the big consumer moments this quarter, 618 seems like so long ago at this point in time, but 618 in Greater China, we were the number 1 sports brand on Tmall and saw impressive double-digit growth over that time horizon. And within back-to-school, we outperformed the industry. And when you look at our performance over the quarter, we saw momentum building throughout the quarter, heading into back-to-school. And so we were encouraged by what we were seeing from a consumer perspective. I mentioned that we saw high single digit to low double-digit growth in our most important partners and strong growth in NIKE Direct this quarter given what we're anniversarying in the prior year. So we continue to see consumer demand for our brands and for our products to be very, very strong. Sport is growing and the consumer is proving to be resilient. There are some dynamics in terms of shifting that's happening from channels. We saw it in our partners a couple of years ago. And this quarter, we are seeing consumers spending more time in brick-and-mortar locations. But 90% of their shopping journeys are starting with digital. And so we continue to believe that our digital and physical strategy of serving consumers at the right strategy to serve demand as we look forward.

Operator:

Jay Sole from UBS has the next question.

Matt Friend:

Sure, Jay. Well, we remain confident in our ability to drive our long-term financial goals. And we still believe those long-term goals of profitability are achievable. But the timing is difficult to predict. But the reason why I emphasized what I emphasized this quarter is that I feel - I really feel strongly that fiscal year '24 is a turning point for us and a proof point for NIKE to drive more profitable growth. The structural things that I referenced, the structural drivers, I should say that I referenced, it starts with creating value for the consumer and our products. And we continue to see benefits in our gross margin through strategic pricing and managing the price value of our products with ASPs across the NIKE brand across all geos up this quarter. One of the opportunities we continue to see, and we saw some benefit of it this quarter is lowering our supply chain costs. We've increased the size of our supply chain in the last few years to be able to address the growth that we've seen in our business, both overall and in digital. And now our teams are very focused on driving greater efficiency in the way that we serve consumer demand across channels. And I mentioned a couple of examples like reducing digital split shipments so that a consumer doesn't get two boxes for the same order, the way that we're lowering our outbound fulfillment costs through the investment in regional service centers that are closer to where consumer demand is. And so those are just a couple of examples that we continue to see. And then, of course, we do expect that while the ultimate landing spot of digital and direct isn't as clear, we do believe we're going to be a more direct at a more digital company and a more profitable company. And there's a channel mix and channel profitability opportunity that comes with that as well. So we continue to believe these goals are achievable. And based on our gross margin plans for this year, our performance in the first quarter, we believe we're turning the corner on starting to climb to greater profitability as a company and as a brand.

Piral Dadhania:

Hi. Evening. Thank you for taking my question. Most have been answered. So maybe I could just ask a follow-up, a clarification. Matt, I think you said that in Q1, your partners registered a high single-digit to low double-digit sales growth in the period. I just wanted to understand whether that was their sell-out number or whether that was your sell-in number. Any clarification there would be very helpful.

Operator:

We'll take our next question from Jonathan Komp, Baird.

Matt Friend:

Sure. Well, as it relates to the second quarter, what I said was that we expect our growth to be up slightly versus the prior year. I did answer Matt's question just and I'll connect the two together, but we are expecting retail sales to sell out to the consumer to be in line with the mid-single digit that we delivered this quarter across the full marketplace. And the second quarter is really the last season that we've managed the sell-in to a more restricted level so that we could ensure that the marketplace was set right as we look towards the remainder of this year. As far as the comparisons go, Q2, and I think I referenced the wholesale number earlier, but we're comping about 27% currency-neutral growth in Q2, but what we're much more focused on is the quality and the health of the growth that we're delivering in the quarter. And so as you see our gross margins expanding in the second quarter on an operational basis, excluding the impact of FX, we're up 150 basis points and are really encouraged as we think about what we delivered in the first quarter, the improvements we're guiding to and believe we can deliver in the second quarter and then the way that will accelerate through the balance of the year. So as we get into the second half of this year and we think about our gross margins, we're going to start to see even more impact from ocean freight because those are rolling in midway through this quarter. We're expecting to see lower product costs in the second half and our FX headwinds are going to abate a little bit as we get into the back half of this year. And so some of those elements will drive increasing margin expansion as we carry through the balance of the year. I think the last part of your question was on China and profitability. What I would just say is that we know from a long history of managing this business that when you have a healthy marketplace and you're driving full price sales and you are driving productivity in your retail formats, you're -- you've created the environment that's ripe to drive profitability improvement. And as we look at the momentum that we're seeing in Greater China, another quarter of double-digit growth, we're increasingly confident that we're going to begin to rebuild towards higher profitability in that marketplace. That's on the product and marketplace side. And then also I referenced an example where we're lowering our supply chain costs in Greater China. And so we feel we feel quite good with that as well. Our reported numbers in China are going to be challenging for the next couple of quarters because of foreign exchange headwinds. And so we'll continue to try to highlight the opportunities and what we're driving from a profitability perspective, but that's one of the reasons why our EBIT was down this quarter in Greater China as foreign exchange headwinds as a result of the strength of the U.S. dollar, definitely has created a bit of pressure in the short term. But that's - we're focused on what we can control and continuing to drive a healthy, profitable business in that market and believe the fundamentals for long-term growth and profitability are strong for NIKE.

Aneesha Sherman:

Thank you. So as a result of your direct-to-consumer strategy, you've shifted, I guess, more than 20 points of sales mix from Wholesale to NIKE Digital over the last seven or so years. You're seeing shoppers returning to stores this year. You did make some adjustments to adding physical distribution points. Do you feel like you are in enough physical retail doors today to appeal to a rebalancing of shopping habits? And then a quick follow-up on overheads. You talked about lowering some of the specific costs of direct split shipments and fulfillment costs. Can you give us more color on the investment cycle are on the investment cycle to support the direct business as well as centralized investments like ERP and kind of where you are this fiscal year and next fiscal year? Thank you.

Matt Friend:

Yes. And I think I would just add maybe one point and then I'll hit the last part. When I think about the momentum that we've seen over the last several years from a digital perspective. You're right, we have shifted our channel mix, and that's been a consumer-led and a consumer-driven shift based on the consumers' desire to want to connect with NIKE, both through our digital apps and through our stores What we saw this quarter wasn't unexpected for us. And when we look underneath the momentum that we saw in our NIKE mobile app, we saw a strong growth, high single-digit growth in traffic. We saw member activity continue to increase both in terms of engagement and buying behavior and a higher basket size, a higher AOV. And so we continue to be focused on creating the best personalized experience for our members from a digital perspective. And we believe that that's going to continue to fuel growth in our digital business over the long term. I do think this year, the comparisons are going to not be linear as we go quarter-to-quarter channel to channel, given what transpired last year. But what we're seeing from a consumer perspective doesn't shift our dimensionality in terms of needing to do something different in order to serve consumer demand. As John said, we've got the biggest, deepest breadth of distribution of anyone and have the right partners to be able to serve the marketplace. As it relates to overhead, the numbers that I referenced actually impact our gross margins, our lower digital fulfillment cost that sits in our gross margins. And it's something that we've been focused on for some time. We started investing a couple of years ago in regional service centers in North America and in Europe and in pickup points closer to the consumer in Europe, all with the intention of building a supply chain that enables us to serve demand closer to consumers. It's more sustainable because we don't have to put product on airplanes, and leveraging our store footprint through O2O capabilities. And so we've been investing for a few years in developing and scaling those capabilities to be able to serve consumer demand. And as I look forward from here, our investments will be aligned with the way that we grow the business. In other words, we've invested to - and now we're learning to operationalize and take advantage of these capabilities. We are implementing our ERP in North America. We went live with our retail business in the first quarter, and everything has gone well. And we're focused on bringing the second part of our North America business, the wholesale side of our North America business online and our new ERP later this year. So that is our largest investment in transformation of our supply chain and enabling us to operate like a retailer. And I couldn't be more excited about the opportunity that it presents for us to really modernize the way we work and to serve consumers at speed across the marketplace.

Paul Trussell:

Thank you, operator. Hello everyone, and thank you for joining today to discuss NIKE, Inc.'s fiscal 2023 fourth quarter results. Joining us on today's call will be NIKE, Inc. President and CEO, John Donahoe; and our Chief Financial Officer, Matt Friend. Before we begin, let me remind you that participants on this call will make forward-looking statements based on current expectations, and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in NIKE’s reports filed with the SEC. In addition, participants may discuss non-GAAP financial measures and non-public financial and statistical information. Please refer to NIKE’s earnings press release or NIKE’s website investors.nike.com for comparable GAAP measures and quantitative reconciliations. All growth comparisons on the call today are presented on a year-over-year basis and our currency neutral unless otherwise noted. We will start with prepared remarks and then open up for questions. We would like to allow as many of you to ask questions as possible in our allotted time, so we would appreciate you limiting your initial question to one. Thanks for your cooperation on this. I will now turn the call over to NIKE, Inc., President and CEO, John Donahoe.

Matt Friend:

Thanks, John and hello to everyone on the call. NIKE is a growth company and fiscal 2023 demonstrated our ability to deliver strong growth in the midst of rapidly changing market conditions. Throughout the year, we drove competitive separation by doing what NIKE does best. Serve athletes with product innovation, and rich storytelling, amplify our brand voice through key sport and consumer moments, deepen consumer connections across our portfolio, and actively manage the marketplace to drive sustainable profitable growth. For the full-year, we delivered mid-teens revenue growth with accelerating momentum in our performance business and sustained strength and lifestyle. We added $7 billion of revenue in total on a currency neutral basis, which included adding $3 billion to North America, our largest most mature market. In addition, our top franchises drove strong full price sales with mid-single-digit price increases, and we grew units and ASP across both product engines. In Q4, we saw another quarter of strong consumer demand, with traffic growing online and in our stores and total retail sales across the marketplace up double-digits versus the prior year. Beyond driving strong top line growth, we finished the year with a significantly improved marketplace position, with total marketplace inventory units, including NIKE and our wholesale partners, down year-over-year. We feel very good about the results driven by our decisive actions over this past year, as well as the sales momentum that we continue to see from NIKE Direct and our top strategic partners, including DICK'S Sporting Goods, JD, Sports Direct, and our city specialty partners. To go a little deeper on inventory, NIKE Inc. inventory dollars are flat versus the prior year, with units down double-digits across both footwear and apparel. Apparel units are down more than 20% versus the prior year. Our mix of in-transit inventory has normalized, and days in inventory show improvement versus the prior quarter and the prior year. Closeout mix is in-line with pre-pandemic levels, with improvements in the average age of our closeout inventory versus the prior year. And from a geography perspective, both North America and Greater China have inventory dollars down high-single-digit versus the prior year, with units being down double-digits. All told, we are entering fiscal 2024 on our front foot, ready to navigate any uncertainty that may be ahead of us, and ready to compete from a position of strength. Now as we move forward, we are building on a strong foundation for future growth. Our confidence is grounded in the power of NIKE's portfolio. Deeply connected to the consumer, centered in sport and youth culture, fueling authenticity and distinction, unrivaled in breadth and depth. Our strength begins with our scale from our investment in innovation, to our sports marketing portfolio, our digital platforms and membership, and our global reach. We create value for consumers around the world, leveraging NIKE's scale and competitive advantages, to drive sustainable growth and strong returns to shareholders over the long-term. And today NIKE's opportunity to grow is as large as it's ever been. Consumer interest around the world in sport, health, and wellness has never been greater and what excites us most is the potential still ahead. Let me share just a few examples. First, one of NIKE's greatest competitive advantages is our relentless pace of innovation. We innovate to make athletes better, to serve more athletes, and to make the world better for athletes everywhere. And right now, in our LeBron James Innovation Center, we are creating new concepts, new platforms, and new capabilities to fuel NIKE's next 50 years of innovation and growth. We will continue to increase investment in innovation to create value for athletes, and this gives me confidence we can drive long-term growth for NIKE. We have some great opportunities over this next fiscal year to showcase our latest innovations on the global sports stage. Second, we're accelerating direct consumer relationships across our digital platforms. By better knowing and serving the consumers who love our brands, we are also unlocking strategic and financial benefits for NIKE. For example, we have partnered with Adobe to enable 1-to-1 member personalization, driving gains in member retention, click through rates, and conversion, resulting in higher demand per member and returns on digital ad spend. We're only beginning to operationalize these new capabilities and consumer experiences on our digital platforms and we see even greater opportunity to come. Third, we see meaningful growth potential in our international markets. This includes Korea, one of our most digitally connected markets, Central and South America, a region with a deep love of sport, Southeast Asia and India, with one of the world's largest youth populations. And, of course, China, where young consumers are seeking our top product innovation, and Gen Z is coming of age as the country's most active generation ever. Last, we can now see around the corner on the transitory cost headwinds that pressured profitability in fiscal 2022 and 2023. When combined with our structural opportunities to improve profitability as we grow, we are confident that we will deliver above average margin improvement in fiscal 2024 with many of the drivers continuing into fiscal 2025. Now, let me turn into our NIKE, Inc. fourth quarter results. In Q4 NIKE, Inc. revenue grew 5% on a reported basis and 8% on a currency neutral basis. NIKE Direct grew 18% with 14% growth in NIKE Digital, and 24% growth in NIKE Stores. Wholesale grew 2%, moderating as planned, as we tightened supply to normalize marketplace inventory levels. Gross margins declined a 140 basis points to 43.6% on a reported basis, primarily due to higher product input costs and elevated freight and logistics expenses. Higher markdowns, and 100 basis points of unfavorable changes in net foreign currency exchange rates, partially offset by strategic pricing actions and lapping higher inventory obsolescence reserves in Greater China in the prior period. SG&A grew 8% on a reported basis, primarily due to wage related expenses, variable NIKE direct costs, and increased demand creation expenses. Our effective tax rate for the quarter was 17.3%. Diluted earnings per share was $0.66. Now, let me turn to our operating segments. In North America, Q4 revenue grew 5%. NIKE Direct was up 15%, and NIKE Digital grew 17%. Wholesale declined 3%, following reduced spring and summer sell-in to proactively manage marketplace inventory. EBIT declined 6% on a reported basis. For another consecutive quarter, strong consumer demand drove total retail sales up double-digits across the marketplace, enabling us to drive a quicker return to healthy marketplace inventory levels. Member engagement grew on all-digital platforms and buying frequency was at an all-time high. NIKE's store traffic and revenue grew double-digits surpassing industry trends. We saw strong brand momentum across our portfolio. Performance dimensions delivered strong growth with LeBron and Giannis at double-digits. Free Metcon extended its lead as our top women's performance franchise. And the Jordan brand delivered another dominant quarter with women's leading growth. Luka and Tatum highlighting momentum and performance, and iconic franchises inspiring the next generation. In fact, this quarter's AJ 1's Spider-Verse launch drove our largest ever kids shock drop on the sneakers app. With a robust product pipeline, a healthy mix of inventory, and a normalizing supply chain, we are confident in NIKE's ability to set the pace in North America as we look ahead. In EMEA, Q4 revenue grew 7%. NIKE Direct was up 28%, and NIKE Digital grew 24%. EBIT declined 13% on a reported basis. EMEA's fourth quarter results demonstrated the strength of our complete offense as NIKE increased market share in performance and lifestyle. Digital continues to power growth with traffic up double-digits and conversion rates expanding. Brick-and-mortar traffic in key countries also remain strong. NIKE's authenticity in sport and culture continues to create separation. Vaporfly and Alphafly top shoe counts, at the Paris and London marathons, while Pegasus and Invincible drove strong sell-through. We channeled the energy of Air Max Day into positive momentum for Air Max Pulse and Air Max 1. And we closed out our biggest football year ever, up double digits with strong full price sales, led by Mercurial and Phantom, and balanced growth across men's, women's, and kids. In Greater China, Q4 revenue grew 25%. NIKE Direct grew 19% with NIKE Digital declining 12% as consumer buying continues to over index in brick-and-mortar versus the prior year. EBIT grew 70% on a reported basis. This quarter left no doubt. Sport is back. Consumer confidence is rebounding, and NIKE's brand momentum is growing. We celebrated the return of sport with full marketing activations around the Chinese high school basketball league, Air Max Day, and Super Brand Day. And we extended that energy into our strongest product sell-through in eight seasons with full price momentum accelerated by our healthy inventory position. Running grew double-digits, fueled by newness in hyperlocal storytelling, including strong express lane executions for Invisible 3 and community activations around Pegasus 40. Basketball grew double-digits, led by the GT Cut. And we saw exceptional sell-through for our GT jump players edition inspired by longtime NIKE athlete, NIKE athlete, Ijen Leon. Earlier this month, our 6/18 results surpassed last year's record breaking performance with sales up double-digits. And next week, we will build on that momentum as we kick-off NIKE's first athlete tour in China since the pandemic by welcoming Giannis to Beijing. As we look forward, we are confident in the strength of our consumer connections and confident in NIKE's ability to drive sustainable long-term growth in China. In APLA, Q4 revenue grew 6%, including approximately 6 percentage points of a headwind due to the impact of our shift to a distributor model in Central and South America. NIKE Direct was up 9% with NIKE Digital growing 9%. EBIT declined 16% on a reported basis. This quarter highlighted our balanced growth in the region. Jordan Brand continued its international expansion with strong double-digit growth as our new world of flight doors in Tokyo and Seoul create local brand energy. We also saw strong growth in women's lifestyle and men's performance with positive momentum from Cortez and Vamiro 5 and sustained strength from Pegasus and Invincible 3. In global football, we drove double-digit growth across men's, women's, and kids with excitement building ahead of this summer's women's world cup. We finished the year in APLA with new milestones and new opportunities in the region. In Southeast Asia and India, we grew our business by over 40% this year, reinforcing the potential that we see in the market. In Korea, our NIKE app launch drove 2.5 million downloads and $100 million in incremental demand within its first quarter, showing how elevated local digital experiences can accelerate consumer demand. And across the region, we continue investing to grow. From launching argentina.com and peru.com to introducing NIKE's first direct digital footprint in India. Now, let me turn to our fiscal 2024 financial outlook. We enter the new year with clear advantages, strong consumer momentum, a robust product innovation pipeline, healthy inventory, and a normalized flow of supply. That said, we are closely monitoring the macro environment, consumer behavior, and retail trends. Our priority for fiscal 2024 is to drive healthy full price growth, while unlocking speed, agility, and efficiency in our operating model. We are focused on what we can control as we position NIKE to compete at its best. We are taking a balanced approach to planning our business, building on our proactive decisions more than six months ago to [tighten buys] [ph]. We expect this to translate into an improved marginal cost of growth, expanding profitability and higher returns on invested capital. We have also taken into account several non-count factors from the prior year that will impact overall rates of growth, as well as quarterly comparisons. For the full-year, we expect fiscal 2024 reported revenue to grow mid-single-digits, led by NIKE Direct. This includes approximately four points of headwinds from the prior year from wholesale shipment timing and accelerated liquidation activities. In addition, based on current spot rates, we do not expect any material translation impact on revenue in fiscal 2024. We expect gross margins to expand a 140 basis points to a 160 basis points on a reported basis, which translates to approximately 200 basis points of operational gross margin expansion, excluding 50 basis points of negative impact from foreign exchange headwinds. This reflects the beginning of recovery from transitory headwinds, including more favorable ocean freight rates starting halfway through the second quarter and a modest improvement in markdowns versus the prior year. We also expect continued structural gains from our focus on price value, including low-single-digit price increases in fiscal 2024, plus ongoing benefits from our shift to a more direct business. We expect this to be partially offset by higher product costs with inflation causing higher labor and fulfillment expenses in parts of our supply chain. We expect SG&A to grow slightly above revenue as we increase investment in demand creation to support key global sports moments and product launches and invest in capabilities to transform NIKE's operating model for greater speed and effectiveness. We will continue to manage SG&A to remain below pre-pandemic levels as a percentage of revenue. Our other income and expense, including net interest income, is expected to be 225 million to 275 million of income the year, and we expect our effective tax rate to be similar to fiscal 2023. Now, let me provide a few important insights into our first quarter. We expect first quarter revenue growth to be flat to up low-single-digits, reflecting our decision to tighten first half buys and restrain marketplace inventory. We expect another quarter of sequential improvement in gross margin, down 50 basis points to 75 basis points on a reported basis, which translates to 25 basis points to 50 basis points of operational gross margin expansion, excluding the negative impact of a 100 basis points of foreign exchange headwinds. We expect SG&A to grow low double digits on a reported basis, driven by increased demand creation investments around the women's World Cup and transformational investments to drive efficiency including the activation of the next stages of our ERP implementation in North America. Looking ahead, we will remain agile and on the offense, leveraging our experience, and the capabilities that we have developed to lead through times of uncertainty, while investing to capture the growth opportunities in front of us. For NIKE, creating the future always starts with serving athletes and sport. As we look to fiscal 2024, we have an incredible year of sport ahead of us from this summer's World Cup to the road to the Paris Olympic Games, it will be a year to remember, and just like the athletes we serve, NIKE will be ready to bring our best. With that, let's open up the call for questions.

Tom Nikic:

Hi everybody. Thank you very much for taking my question. I want to ask about North America and specifically the wholesale channel. And I think, you know, there's been some news recently about maybe some wholesale partners that you had either exited or deemphasized and now you're going back into some of those retailers. What drove that decision? And I guess, kind of what changed in your mindset that maybe a year or two ago, you saw – the [SW] [ph] was not somebody you wanted to partner with, but now you do and Macy's, et cetera? So just any insight or color there would be really helpful. Thanks.

Operator:

And next up is Matthew Boss, JPMorgan.

John Donahoe:

Thanks, Matt. And Matt Friend, I'll take the first. So Matt Boss, we see the same structural tailwinds you just described. We are blessed with structural tailwinds around an expanding definition of sport, particularly around health and wellness and a related structural tailwind around this movement toward athleisure. And our marketplace strategy is simply geared to expand, leverage our competitive advantages to not only gain share, but also grow the market by being where consumers are. And again, as I said a minute ago, to give them when they want, how they want it. Two examples come to mind. One is just digital. I cannot tell you how important it is, our mobile apps. In fact, in Q4, our four mobile apps, SNKRS, the NIKE Mobile App, NTC and NRC had over 500 million visitors within the quarter, and that's just in the U.S. or North America, APLA, and EMEA, doesn’t even count in China. So, there's no one else in the industry that has anything close to that. And what that means is, we are in – we're in the privileged position of being in consumers' pockets and on their home screens of their phones. That's cherish real estate. So, our mobile apps give us a huge advantage because it creates shopping occasions when they're browsing on SNKRS. It creates shopping occasions when they're working out. It connects us to consumers globally and will help us both grow the market and gain share. A second example will be around health and wellness in women's, and we talked in my remarks about the NIKE Well Collective. And what this really is, is, [Amy Montagne] [ph] is leading our women's team and just doing a fabulous job. Amy and her team have sharp consumer insight around through the eyes of the women consumer, the female consumer, this intersection of sport, wellness, community and it's all infused with style. The distinction of style and performance for women is a much more nuanced and integrated thing. And so, NIKE Well Collective is both a branding and a way that our voice to her and our storytelling to her will come to life, but also our retail doors. And we have been opening Nike Live Doors, as you know. We'll rebrand those NIKE Well Collective. I will tell you the NIKE Live doors, which are largely focused on women consumers, are performing very strongly around women's performance product, around women's fitness, leggings and bras, around lifestyle as well. And so in that way, we're expanding our access to women consumers. And so, we'll continue in our marketplace strategy. It really reiterates what I said a minute ago of being aggressive to be where the consumer is, so that we're there when they want us, where they want us and how they want us.

Operator:

And Jim Duffy from Stifel is up next.

John Donahoe:

Sure. Well, Jim, I would say, in general, the marketplace remains highly promotional. And when we step back and look at the actions that we took last year, we're very happy with where we finished the year. In fact, our inventory levels are ahead of our plan and ahead of the competition. We saw total marketplace inventory units down versus the prior year. And when we look at NIKE-owned inventory in particular, we feel incredibly good about where we are and the plans that we have going into the first half of next year. The large majority of our strategic partners have also done a beautiful job moving through the inventory and balancing the trade-offs of investing in consumer connections, elevating the retail environment, and moving through inventory. And so, we feel great about where we are, but we recognize that next year, the environment is going to continue to be promotional and that even puts pressure on our wholesale partners in terms of how they think about managing through the first half of the year. And so, we believe that the right focus and attention for NIKE is to focus on recovering a higher level of full price growth in fiscal year 2024, profitable growth, full price growth. The mid-single-digit guide does reflect four points, as I mentioned, of non-comp impacts, which are partially wholesale shipment timing because you recall last year, there was a lot of late supply from 2022 that came into 2023, but also a little bit of extra liquidation as we were more aggressive in moving inventory both through our own channels and our partner channels. But when I look at our growth plan for next year, adjusting for the comp headwind and look at the profitability recovery that we see on the margin – gross margin and EBIT line, I feel like it's a great plan and sets us up well for long-term growth and profitability.

Brooke Roach:

Good afternoon. This is Brooke Roach filling in for Kate. Thank you so much for taking our question. You commented in the prepared remarks about seeing around the corner on transitory cost headwinds that have pressured your profitability and FY 2024, we'll start to see some relief there. Can you speak to the proportion of transitory costs that you anticipate to recapture in FY 2024? And what's still on the horizon for FY 2025 and beyond? Thank you.

Operator:

Cristina Fernandez, Telsey Advisory Group has the next question.

John Donahoe:

Yes. Cristina, probably the highlight of the last 90 days for me was getting back to China for the first time post-pandemic. And I will tell you, it just – it was such a palpable reminder, a, what a strong team we have there. And I just want to again call out our China team who has just done a spectacular job over challenge after challenge after challenge over the last three or four years. But what's also clear is the consumers back in China and NIKE and Jordan brand are strong. So, you heard our Q4 growth was 25%. We had a strong 6/18, and that's across different categories, performance and lifestyle men's, women's, kids, really strong performance in running and basketball wholesale fitness. But what was really clear is that the NIKE formula of the best innovation combined with great local storytelling, combined with the marketplace is connecting with Chinese consumers, particularly Gen Z. And so, the Gen Z consumer in China cares about innovation, and they're doing a great job of taking our global innovations and hyper-localizing them as well a great job of local storytelling. When I was there, we saw – Craig Williams and I were there together, we saw that live streaming studio where we do a lot of live streaming in a way that really connects with Gen Z. Social shopping is taking off in China in a bigger way than other places, and we're at the front edge of that. And then as you know, we have 6,000 mono-brand doors that provide such an advantage. I will tell you being in several of those doors in Shanghai and Beijing, what was – it was right when the Motiva was launched. And the far majority of those 6,000 doors, the first floor is dedicated to women's. And you walk in, it is some of the best merchandising of a great innovation like Motiva connected to her, pulling her off the street and into the doors. And so, we'll continue to invest in China. Our China for China strategy, I think, is going very, very well. And looking ahead, we're optimistic about NIKE's Brand, Jordan's Brand, the momentum we have as well, we think it's a structural tailwinds in the region make us optimistic over the long-term. Gen Z is the most active generation. There's a growing middle class, increased focus on health and wellness. So, a very energizing visit and makes us very confident about our brands and our business in China.

Operator:

And our final question today will come from John Kernan TD Cowen.

Matt Friend:

Sure, John. Well, let me start – I'll start with the back and I'll come to the front in terms of the way you asked the question. We're making substantial progress towards the long-term goals that we had highlighted a couple of years ago. Our Consumer Direct Acceleration strategy has been a consumer-led strategy. And when we look at the mix of our business in Digital and in Direct relative to where we were in fiscal year 2019, we've made significant progress against it. And we continue to invest to grow based on the fact that consumer continues to choose to shop in our stores and in our digital channels or at least to engage in our digital channels before they go try to find the product that they want in the wholesale marketplace. And so, we're very pleased with where we are today. We finished fiscal year 2023 at a 44% mix in total Direct and a 26% mix in Digital. And the consumer will decide the ultimate endpoint. And what I mean by that is, whether we land exactly at 60% or not, it doesn't really matter. But what we are confident long-term is that we're going to be a more Direct and a more profitable company. And so, when I look at our guidance for fiscal year 2024 and the gross margin expansion that we're planning for on an operational basis, we're making significant progress to come back to where we were prior to the transitory impacts. And then we still see the benefits of structural opportunities to drive our margin long-term. We've talked about those before. Those include the price value that we create in our products and the opportunity that creates for us to raise prices to the impact of having an increasing channel mix to some of the cost – product cost opportunities we see through simplification of our SKU line and end-to-end efficiency. But the time line to predict when we're going to get there, as we've been talking about for a couple of quarters is, is difficult to predict. And a point on that in cases, we've got 150 basis points of foreign exchange headwinds between last year and this year. But we are confident that we're on the path towards achieving these long-term goals, even though it's a little bit more difficult to predict the exact time that we're going to get there, but we think that we're on a path to the high-40s long-term gross margin goal. And at this point, we're continuing to do within our control in order to move us in that direction.

Operator:

And everyone, that does conclude our question-and-answer session. It also concludes our conference for today. We would like to thank you all for your participation. You may now disconnect.

Paul Trussell:

Hello, everyone, and thank you for joining us today to discuss NIKE, Inc.'s fiscal 2023 third quarter results. Joining us on today's call will be NIKE, Inc. President and CEO, John Donahoe; and our Chief Financial Officer, Matt Friend. Following their prepared remarks, we will take your questions. We would like to allow as many of you to ask questions as possible in our allotted time, so we would appreciate you limiting your initial question to one. Thanks for your cooperation on this. I will now turn the call over to NIKE, Inc., President and CEO, John Donahoe.

Matthew Friend:

Thanks, John, and hello to everyone on the call. NIKE's third quarter showed that in a dynamic environment, strong brands set the pace. Two quarters ago, we took clear and decisive action in response to changing marketplace and supply chain conditions. Our top priority was to strategically manage excess inventory and drive a quicker return to a healthy pull market, and our Q3 results prove that NIKE is leading the way. NIKE is more agile, responsive and resilient than before the pandemic with operational capabilities and an experienced team that enable us to create competitive separation. While we may continue to face heightened volatility, we are confident in our ability to drive sustainable and more profitable growth. Consumer demand for our portfolio of brands remains uniquely strong, fueling unit growth of approximately 10% despite increased macro uncertainty. NIKE, Jordan and Converse, all drove double-digit currency-neutral growth this quarter. NIKE Direct outperformed with member buying frequency increasing and store sales growing across all geographies. Another quarter of industry-leading digital growth, up 24% in Q3, drove our digital share of business up to 27%. Our wholesale channel delivered a second straight quarter of outsized growth with a planned recapture of retail partner open to buy on improved inventory supply versus the prior year and strong consumer sell-through. Revenue from performance dimensions grew double digits versus the prior year with strong momentum from the Phantom GX, Invincible 3, LeBron 20 and other new product innovations. Revenue from lifestyle dimensions also remained strong as consumers continue to shift wallet share towards sport-inspired products that provide innovation, comfort and style. NIKE has been fueling this shift for more than 50 years, built on our passion for serving athletes. We have created the lifestyle around sport and have forged a deep connection to youth culture through our most iconic footwear franchises. Time and again, we take the consumer somewhere new. This quarter, we introduced new iterations of the Air Force 1 with Tiffany's Undefeated and Drake. We drove energy around our top Jordan franchises with our latest Travis Scott AJ1 and a women's exclusive AJ4. We welcomed the Year of the Rabbit with a Dunk inspired by the iconic White Rabbit candy. We celebrated the NBA All-Star Game with an Air Force 1, Dunk and Blazer collection inspired by its host city. And we connected consumers to the Air Max 1 through craftsmanship, heritage storytelling and new modern renditions. The energy that we are creating for the consumer continues to set NIKE apart. Even in a promotional environment, full price sales remain strong. And for the seventh consecutive quarter, ASP growth was positive for NIKE, Inc. with benefits from strategic pricing, product mix and our shift to direct more than offsetting the short-term cost of promotions to liquidate excess inventory. In addition to driving strong top line results, we are making tremendous progress on inventory. Let me walk through a few key points. First, inventory dollars and units are down meaningfully from last quarter. In the third quarter, total inventory dollar growth was 16% year-over-year. In North America, inventory dollar growth was 14%. In Greater China, inventory dollars declined 4% versus the prior year, positioning us well for the momentum that we are creating in the China marketplace. Next, we are making even greater progress where we are focused most. In Q3, total apparel units were down year-over-year as we continue our sharp focus on liquidating excess apparel inventory. In North America, apparel units were down high single digits. Finally, we are confident looking ahead with strong traffic and retail sales growth and reduced inventory buys for the spring and summer seasons, we are increasingly confident that we will exit the year with healthy inventories across the marketplace. In fact, given our brand momentum, we now intend to move through even more units by year-end than we had previously considered. Both transit and buying time lines continue to tighten towards pre-pandemic levels, and free cash flow accelerated this quarter through improvements in working capital. Along with an improving flow of seasonal supply, our decisive actions will enable NIKE to compete at its best, driving consumer energy through new product, seasonally relevant assortments and fresh storytelling and premium retail experiences. Regardless of the near-term uncertainty facing consumers, we will be prepared to lead and to operate from a position of strength. Now let me turn to our NIKE Inc. third quarter financial results. In Q3, NIKE, Inc. revenue grew 14% and 19% on a currency-neutral basis, with broad-based growth across brands, channels and geographies. NIKE Direct grew 22%, led by 24% growth in NIKE Digital and 19% growth in NIKE stores. Wholesale grew by 18%, driven by strong partner demand based on accelerating retail sales, higher shipments based on earlier supply availability and lower shipments in the prior year given supply constraints. Third quarter reported gross margins declined 330 basis points to 43.3% due to higher markdowns, increased product input costs, elevated freight and logistics expenses, including higher supply chain network costs in North America, partially offset by strategic pricing actions. This also includes approximately 140 basis points of impact from unfavorable changes in net foreign currency exchange rates. SG&A grew 15% in Q3, primarily due to wage-related expenses, variable NIKE Direct costs and increased demand creation expenses. Our effective tax rate for the quarter was 16% and substantially consistent to the same period as last year. Third quarter diluted earnings per share was $0.79. Now let's review the operating segment results. In North America, we drove strong holiday sales with momentum continuing into the new calendar year. Q3 revenue grew 27% on a currency-neutral basis, with NIKE Direct up 23% and NIKE Digital up 25%. EBIT grew 23% on a reported basis. Consumer demand drove strong growth across performance and lifestyle. LeBron, Giannis and Luka grew high double digits, fueling market share gains in basketball. A strong Invincible 3 launch energized the marketplace, doubling digital sales compared to the Invincible 2. Air Max grew double digits, and the Jordan Brand kicked off its 23rd year, also known as Jordan Year with strong double-digit growth, incredible momentum, especially with women consumers and even greater potential with a path toward becoming the #2 footwear brand in North America. Across the marketplace, we continue to capture opportunity with our growing digital advantage. Member moments throughout the quarter drove double-digit growth in repeat member buying. On the NIKE app, we integrated personalized product recommendations for members using available inventory to increase sell-through of key products. In addition, return on ad spend improved for another quarter as we test personalization and consumer experiences with activity and preference data. In EMEA, we saw strong growth across all Western European markets, including positive trends in the UK. Q3 revenue grew 26% on a currency-neutral basis, with NIKE Direct up 39% and NIKE Digital up 43%. EBIT grew 10% on a reported basis. New product innovation resonated deeply. Invincible 3 drove strong sell-through in NIKE Direct and with our retail partners. Our statement Go Leggings delivered positive early results with strong sales in NIKE Live and NIKE Rise Doors where we've been able to create a unique retail experience for her. In football, we are gaining share with a very successful launch of the Phantom GX plus sustained momentum in the Mercurial franchise. We saw strong consumer response as we continue to transform the consumer journey in Digital. Traffic grew double digits with average order value growing mid-single digits, and NIKE.com leading new member acquisition. On the NIKE App, member engagement grew double digits with the new Jordan member home button driving the highest click-through rate ever on the app. We also continue to drive convenience and improve NIKE Digital profitability by expanding O2O services, optimizing last-mile delivery and reducing digital split shipments. In Greater China, we drove top line growth despite another quarter of volatility. Q3 revenue grew 1% on a currency-neutral basis, declining 8% on a reported basis. NIKE Direct grew 3% on a currency-neutral basis with NIKE Digital declining 11% as consumer buying shifted to brick-and-mortar with the countries reopening. EBIT declined 10% on a reported basis. In December, we managed through disruption from the country's shift in COVID policies with widespread door closures. Starting in January, we began to see a rebound in brick-and-mortar traffic with strong retail momentum around Chinese New Year, accelerating into February, especially as our clean inventory position enabled us to serve consumers with fresh seasonal assortments. Throughout the quarter, we gained traction in some of our most important business dimensions

Matthew Boss:

Great. Thanks. Congrats on a very nice quarter and progression with all of your priorities. So John, maybe as you break down underlying drivers of the current business momentum, could you just speak to market share acceleration opportunities that you see across running, basketball and women's? As from your tone, the forward-looking product pipeline sounds pretty robust. And then just, Matt, with increased confidence in the inventory on track to finish the year in a healthy position, help us to think about the timing or magnitude of margin headwinds from this year turning to tailwinds as we look forward?

Matthew Friend :

And I'll just jump in that on inventory. We've made tremendous progress on inventory. And two quarters ago, you'll recall, we made clear -- set clear goals and decisive actions in response to changing conditions in the supply chain and the marketplace. And we've been able to leverage our brand momentum into and through the holiday season and continue to be able to sustain it into spring. And we're increasingly confident that we're going to exit fiscal year '23 with healthy inventory levels across the marketplace, across channels in the marketplace. And in fact, I mentioned in my prepared remarks that within the financial parameters that we had set two quarters ago, we're going to exit with even leaner inventory than we had anticipated given the momentum that we're seeing. As it relates to the impact on gross margins and fiscal year '24, I mentioned that next quarter I'll provide full and complete guidance. But what I will tell you is that we've been talking about 350 basis points of transitory cost headwinds in our gross margins over the past two years between elevated ocean freight and logistics and then the promotions required to move through excess and early arriving inventory. And we expect that those transitory headwinds will begin to recover in fiscal year '24, and I'll give specific guidance about how much next quarter.

Omar Saad:

I'd love to ask my question on China. Maybe you could dive in a little bit deeper on the outlook for the recovery there, maybe across a few different dimensions, being the consumer recovery, how the consumer is behaving, what you're seeing there, the competitive landscape, especially vis-a-vis locals, which may have taken some share. And then also the marketing landscape. Are you having unfettered access to all the different marketing channels that you need to resonate with the consumers?

Matthew Friend :

Yes. And Omar, I just would add on some of the monthly trends that I commented on in my script that in December, we talked about the shift in COVID policy and the impact that, that had both on the amount of doors that were open in retail traffic. And our business in December was down high single digits. We flipped to growth in January, and we saw a rebound in brick-and-mortar traffic and strong retail sales performance. And then in the month of February, we saw our momentum accelerate even further relative to January, and that’s with comping the nine-month comp of Lunar New Year in the prior year. So when we look at our inventory position being down again this year versus -- or this quarter, I should say, versus prior year for the second straight quarter, the fundamentals are there for us to continue the momentum that we've been talking about for several quarters. And we absolutely expect that China continues to be a growth opportunity for NIKE.

Paul Lejuez :

Thanks, guys. Paul Lejuez. Can you give us an update on your shared apps and the partnerships that you've developed with certain retailers? Are they progressing as planned? And what are your thoughts on linking up with any new partners in the future?

Operator:

Our next question comes from Alex Straton, Morgan Stanley.

Matthew Friend :

Sure, Alex. Well, we wanted to sharpen our guidance as we finish this fiscal year. But maybe to take a step back for a second as it relates to SG&A, we started the year with an SG&A guide of high single digits to low double-digit growth. And at the end of the first quarter, when we saw the change in conditions, we decided that we were going to prioritize our efforts around inventory liquidation and getting back to a healthy pull market. And so what we said was that we were going to prioritize the investments that we've been making for several years in our consumer-led digital transformation, the capabilities and the ways of working that are enabling us to create a new operating model for NIKE. And we would manage expense growth tightly, and we would reduce our planned head count growth. And we've absolutely done that over the last two quarters and feel very good about the momentum that we've been making with regards to ensuring that our resources are flowing towards the priorities that we have. And we've got some exciting things that are going to land from a transformation perspective in the next six months. When you step back even further, our revenue guidance at that point in time was for low single-digit to mid-single-digit revenue growth. And given the brand momentum that we're seeing, our updated revenue guidance now being high single-digit revenue growth, I'm actually quite proud that we've been able to manage expense growth on a variable basis even as we've seen our revenue continue to increase. And that focus and attention on expense growth or managing expense growth and head count growth, we definitely intend to carry into our next fiscal year. As it relates to your question about ASPs and pricing, we've increased prices this year mid-single digits on average across our portfolio. As I think I've said in prior quarters, it wasn't a peanut butter across every product in style. It was a surgical approach, but on average, it averages out to mid-single-digit growth. As we look ahead to next year, we're absolutely continually looking at the profitability of our product, we're looking at inflationary costs in supply chain and also inflationary costs that are impacting the make of our product. And we will continue to focus on managing those levers together in order to try to drive profitable growth going forward. I'll give you more guidance next quarter on the specifics, but that's absolutely our strategy and the way that we've been managing product pricing and margin for many, many years.

Robert Drbul :

Just a couple of questions on inventory. You made a lot of progress with your numbers. Can you talk about two pieces I'm interested in, wholesale inventories, meaning at the wholesale level at your retail partners, where you see the channels, specifically in North America, maybe even in Europe. And then on the apparel side, that's been where you had a lot of excess inventory. Just wanted to understand your sort of learnings from working through all the apparel? And maybe you could give us an updated outlook on how you think apparel is positioned over the next few quarters in the pipeline there?

John Donahoe :

Yes, I'll just build on that. The learning is, don't have a supply chain crisis in a highly seasonal business. But I referenced earlier, Matt and I were overseeing our spring '24. Again, that's six months -- six to nine months away. And you just see when you have the right assortments in apparel and the right colors coming together in the right way, it's very powerful. And so the pipeline there looks very exciting.

Aneesha Sherman :

I'm curious to know a little bit more about your trends through the quarter in China. I know you talked about December being a really tough month. Would it be possible for you to talk about December versus 2023 in terms of how the quarter behaved and possibly the exit rate out of the quarter so we can get a sense of how demand is trending at the moment? And then I have a second question around your sales guidance. Your sales guidance implies about flat quarter-over-quarter between Q4 versus Q3. Are you expecting inventory to be down kind of similarly to this quarter, so down a few percent quarter-over-quarter on a flat sales base?

Operator:

We'll take our next question from Kate Fitzsimons, Wells Fargo.

Matthew Friend :

Sure. Well, we've been talking for some time about the -- how our consumer-led digital transformation is transforming NIKE's financial model. And you really see it both in terms of revenue and in gross margin. And if you look at the momentum that we've been driving from a top line perspective, I would say that we've benefited from roughly 3 points of benefit related to a higher mix of business going through our digital and our direct channels. And you can see that not only in the algorithm that we provided around high single digit to low double-digit growth, but just looking at our ASP performance and the continued momentum that we're seeing as digital goes from being about 9% of our business in fiscal year '19 to exiting this quarter at 27% of our mix of business. We've always said that the margin contribution from our digital business is higher than the wholesale channels. And that had fueled gross margin expansion from fiscal year '19 to fiscal year '22. And as we look at some of the dynamics that I referenced on the call this quarter, what I was really trying to highlight is that not only is the channel mix a tailwind for us as we grow our digital business, but we actually think there's opportunities for us to improve the profitability of the digital channel. And those two examples that I gave this quarter really were intended to reflect that. One, we talked specifically in EMEA about some of the efforts that the team is making to lower our fulfillment cost from a digital perspective through O2O, through reducing split shipments and adding pickup points. And then on the membership and marketing side, the idea that if we've got more members coming in through the top of the funnel who are more engaged and buying more frequently, we should start to see an improvement in our ROAS or return on ad spend from a digital perspective and give us a lot of confidence that we're building a moat to be able to continue to serve and grow our digital business. So those are two examples, in particular, of us working hard to improve even greater the profitability of our digital channel. I think as we look longer term, we remain confident in our ability to continue to drive towards the long-term goals that we've provided. Obviously, this year, we've seen higher markdowns and promotions in our direct channels as we've been moving through excess inventory, but we think those are transitory costs, and we should begin to see the recovery of those beginning in fiscal year '24.

Operator:

That question will come from Gaby Carbone, Deutsche Bank.

John Donahoe :

I mean I'd just say a broad statement, and then Matt, you can fill in some of the specifics. The EMEA consumer has held up remarkably well. And what's clear is our brand strength has really strong across demand. That's both for NIKE and Jordan. You saw really strong across channels, digital, very strong this entire year as well as this quarter as well as our direct and wholesale channels. So the brand connection with NIKE across our major fields of play across NIKE and Jordan is as strong there as it is anywhere.

Paul Trussell :

Thanks for the question, Gaby, and thank you all for participating in our Q3 earnings call. This concludes the conference call for today. We'll talk to you next time. Thank you.

Paul Trussell:

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE, Inc.'s fiscal 2023 second quarter results. Joining us on today's call will be NIKE, Inc. President and CEO, John Donahoe; and our Chief Financial Officer, Matt Friend. Following their prepared remarks, we will take your questions. We would like to allow as many of you to ask questions as possible in our allotted time. So we would appreciate you limiting your initial question to one. Thanks for your cooperation on this. I'll now turn the call over to NIKE, Inc. President and CEO, John Donahoe.

Matthew Friend:

Thanks, John, and hello to everyone on the call. NIKE's second quarter of fiscal '23 demonstrated again the power of our portfolio of brands. Throughout the quarter, we leveraged our brand momentum and deepened our connections with consumers to drive strong revenue growth. Before going into our second quarter results and financial outlook, I want to provide more insight on the strong consumer demand that we continue to see and the progress that we have made over the past 90 days regarding our inventory. Consumer demand for our brands drove double-digit currency-neutral revenue growth across NIKE, Jordan and Converse. Within NIKE Direct, retail traffic was up, conversion rates expanded and member buying fueled record digital results. Within wholesale, we saw strong retail sales and market share gains across our top strategic partners. Since last quarter, our brand momentum has accelerated into the holiday season. In North America, our Black Friday and Cyber Week performance set record highs for demand and traffic, fueling strong double-digit revenue growth and exceeding our plan. In EMEA, we closed our biggest Cyber Week ever increasing demand by 75% from last year. In Greater China, our 11.11 demand grew mid-teens, outpacing the sports industry. And globally, our holiday season momentum has continued through the first few weeks of December. Despite operating a largely promotional marketplace, we are creating brand distinction by driving healthy, profitable growth. Full price realization remains strong after strategic pricing increases, especially for our top innovation products in our largest footwear franchises. NIKE Brand ASP is up year-over-year across our geographies, even with higher discounts to liquidate excess inventory. This quarter, we also leveraged targeted promotions to serve and acquire NIKE members, strengthening an important foundation for sustainable growth. Above all, our Q2 results reinforce our confidence that NIKE's brand and business momentum starts with the value that we create for consumers through our product innovation, deep brand connection and elevated experiences across the marketplace. Now let me turn to inventory. Last quarter, we talked specifically about the actions we are taking to address excess inventory, with focus on pockets of seasonally late products, predominantly in apparel. At the end of Q2, we are tracking in line with our plan, and we are pleased with the progress we have made over the last 90 days. Let me go deeper into what we are seeing and why I am optimistic about our path ahead. First, inventory dollars and units are down sequentially. Prior year comparisons are distorted by last year's Vietnam factory closures. But compared to the prior quarter, inventory dollars were down 3% and units are down high single digits, with days in inventory at the lowest level in four quarters. Second, we are making progress where we are focused most. In North America, year-over-year growth in inventory dollars decelerated from 65% in Q1 to 54% in Q2. More importantly, total inventory units are down low double digits from first quarter levels, even as spring product continues to arrive earlier with faster transit times. Third, the composition of our inventory is improving. In North America, apparel inventory units and apparel closeout units are both down mid-teens from the prior quarter. Last, we have proactively reduced forward supply. As I mentioned last quarter, we have tightened our second half buys to prioritize inventory health across the marketplace. As transit times stabilize, we are optimistic that we will begin to see a more normal and predictable flow supply in a more capital-efficient manner. Looking ahead, we are confident that our decisive actions have put us on the right track within the financial parameters that we provided last quarter. Our focus continues to be positioning NIKE for future seasons of sustainable and profitable growth. Now let me turn to our NIKE Inc. second quarter financial results. In Q2, NIKE, Inc. revenue grew 17% and 27% on a currency-neutral basis with strong growth across the portfolio. NIKE Direct grew by 25%, led by 34% growth in NIKE Digital and 11% growth in NIKE stores, highlighted by strong season-to-date holiday results. Wholesale grew by 30%, driven by strong demand for seasonal products, higher shipments based on earlier supply availability and lower shipments in the prior year given supply constraints. Second quarter reported gross margin declined 300 basis points to 42.9%, primarily due to higher markdowns, mainly in North America, unfavorable changes in net foreign currency exchange rates, elevated freight and logistics costs and increased product input costs, partially offset by strategic pricing actions. SG&A grew 10% in Q2, primarily due to wage-related expenses, strategic technology investments, higher NIKE Direct costs and increased demand creation expenses. Our effective tax rate for the quarter was 19.3% compared to 10.9% for the same period last year, primarily due to decreased benefits from stock-based compensation and earnings mix. Second quarter diluted earnings per share was $0.85. Now let's review the operating segment results. In North America, we captured market share, with strong holiday results and positive consumer response to new assortments. Q2 revenue grew 31% on a currency-neutral basis and EBIT grew 21% on a reported basis. NIKE Direct grew 23%, with NIKE Digital up 31% on double-digit growth in traffic and repeat member buying. Wholesale revenue grew 37%, driven by strong marketplace partner demand and improved inventory supply. Performance innovation and fresh seasonal product resonated deeply with consumers. The LeBron 20, KD and Giannis fueled double-digit growth in basketball. And the AJ11’s Varsity Red shock drop highlighted Jordan Brand’s momentum. In women's, our new statement leggings, NIKE Girl, launched with positive early response as the Free Metcon grew double digits. Dunk outperformed in men's, and Pegasus continues to win with everyday runners. Beyond product innovation, NIKE continues to create distinction at the intersection of culture and community. Ahead of homecoming season, our Yardrunners campaign elevated the voices of HBCU changemakers alongside the release of co-created product through our SNKRS App and neighborhood partners. In addition, with the recent announcement of future Nike x Off-White collections, we are deeply honored to introduce the next chapter of Virgil Abloh’s continuing legacy with NIKE. In EMEA, our team landed yet another strong quarter. Q2 revenue grew 33% on a currency neutral basis and EBIT grew 23% on a reported basis. NIKE Direct grew 44% on a currency-neutral basis with NIKE Digital growing 62%. Membership was an accelerator as members drove over 85% of demand during Cyber Week, our highest demand week ever in EMEA. Our campaign led with sport, adding more than 1 million new NIKE members as we invited consumers to join us in celebrating the World Cup. The power of our portfolio drove momentum across the marketplace. Earlier this month, we celebrated the Milan opening of Jordan World of Flight, a premium retail concept at the forefront of basketball culture. Meanwhile, NIKE dominated shoe and apparel accounts at the Berlin and London marathons, as Alphafly drove strong sell-through. Pegasus Shield and Winflo Shield grew double digits in women's running. Zegama created energy in trail running, the sport's fastest-growing segment and Global Football grew double digits as we continue to celebrate an incredible year of sports. In Greater China, our brand and business momentum continued as Q2 revenue grew 6% on a currency-neutral basis and EBIT declined 10% on a reported basis. NIKE Direct grew 4% on a currency-neutral basis, with NIKE Digital growing 9%. In addition to delivering positive growth, we achieved our goal of returning to inventory health at the end of Q2. Inventory dollars declined 3% this quarter and close out inventory was down high double digits versus the prior year, with closeout mix now in line with pre-pandemic levels. Our team delivered these results while managing through significant COVID-related disruption, including the closure of over 1,500 owned and partner stores at the end of November. We continue to closely monitor ongoing risk while focusing on what we can control, deepening our connections with Chinese consumers. As 18,000 runners joined in the return of the Shanghai Marathon, our brand presence was deeply felt, not only as the title sponsor, but also as NIKE dominated the shoe count and local NIKE athlete, Zhang Deshun, topped the podium. The energy extended into double-digit growth through our running business led by Zoom Fly and Vaporfly as well as the Pegasus and Winflo. NIKE's brand momentum with our youngest Chinese consumers continues to grow as well. On 11.11, Gen Z demand for NIKE grew by 45% on Tmall. And with NIKE leading on 11.11 as the #1 store on Tmall's Kids footwear channel, plus our top kids lifestyle footwear franchises growing double digits in Q2, we are more excited than ever about NIKE's opportunity to serve the next generation. Finally, in APLA, our team continues to over-deliver in our fastest-growing, most diverse geography. Q2 revenue grew 34% on a currency-neutral basis, and EBIT grew 25% on a reported basis despite the transition of our SOCO territory to a distributor model. NIKE Direct grew 30% on a currency-neutral basis and NIKE Digital grew 35%. We deepened consumer connections across territories with member days fueling robust growth. In Korea, one of our fast-growing marketplaces, we're excited to integrate our digital business on to NIKE's global platform, which will enable us to serve Korean consumers through the NIKE and SNKRS App. We also continue to strengthen local connections through our Express Lane with launches such as our Somos Familia collection. Across APLA, this quarter showed the power of our complete offense. In women's, we drove energy in lifestyle with local storytelling around the Air Force 1's 40th anniversary. Global Football and Running led the way in men's performance, and Kids delivered balanced growth across apparel and footwear. Finally, the Jordan brand continues to be an incredible engine for growth with momentum in streetwear and performance footwear. Now I will turn to our financial outlook. As I said last quarter, we are taking a measured approach in the second half against an uncertain macro outlook as we continue to prioritize a healthy pull market. That said, we remain positive regarding the strong consumer demand we see across our portfolio of brands as well as the health of our product franchises. From product innovation to rich storytelling, the value that NIKE creates for the consumer continues to drive business momentum and competitive separation across the marketplace. Given our strong second quarter performance, we now expect full year revenue to grow low teens on a currency-neutral basis, an improvement from our low double-digit guidance in the prior quarter. As of today, we expect approximately 700 basis points of foreign exchange headwinds, resulting in full year reported revenue growth of mid-single digits. Third quarter revenue growth is expected to be higher than the fourth quarter due to timing of wholesale shipments. We continue to expect gross margin to decline between 200 basis points to 250 basis points versus the prior year, reflecting ongoing liquidation actions in the second half. This outlook reflects our strong performance in Q2, mostly offset by an additional 25 basis points of negative foreign exchange impact, now totaling 95 basis points for the full year. We expect the third quarter gross margin will decline at a similar rate as the second quarter, including 120 basis points of foreign exchange headwinds. For the full year, we continue to expect SG&A to increase high single digits. We expect third quarter SG&A dollars to be in line with the second quarter. And we now expect our effective tax rate to be in the high teens range, primarily due to decreased benefits from stock-based compensation. As many of you know, we closed out NIKE's 50th anniversary this year. And for all the history NIKE has already made, it's the future that inspires us most. After all, NIKE's culture of innovation doesn't just shape the products we create and the stories we tell. It also defines the way we adapt and accelerate through dynamic conditions. Over this past year, no matter what we have faced, our teammates have continued to come together and deliver. I could not be more proud of their efforts. And as we turn toward NIKE's next 50 years, I have every confidence in the future this team will create. To every member of our NIKE Jordan and Converse team around the world, thank you for all that you do and happy holidays. With that, let's open up the call for questions.

Jim Duffy :

I'm hoping you can help with more insights on the composition of growth in North America and where you stand with clearance efforts. I believe, Matt, you said ASP was up in all geographies. Is that true for North America as well? And then looking at the split between footwear and apparel growth

Operator:

We take our next question now from Bob Drbul at Guggenheim Securities.

Matthew Friend :

Sure, Bob. Well, as I mentioned, we are really pleased with the progress that we delivered this quarter and where we ended Q2 is in line with the plans that we set 90 days ago. I guess the first thing I'd say is our prior year comparisons on inventory are really distorting the progress that we made this quarter because a year ago, we were undergoing 15 weeks of lost production capacity from our factories being closed in Vietnam. And so, it depressed the base quite significantly. When we look at the progress that we made this quarter where we needed to focus most, we feel really good about the momentum that we have there. And when we look at the brand momentum that we had into the holiday season and into the holiday season and where our partners are at, we continue to be confident in the momentum that we're building there, especially in the pockets of inventory that were elevated as a result of what transpired last quarter. I'll tell you two other things. As we look at transit times continuing to improve, one of the things that gives us greater confidence is a more predictable flow of supply on normal lead times. If you recall what we've been navigating over the past two years, it's been pretty significant and volatile, and it continues to increase our confidence levels. But we're focused on prioritizing healthy pull markets going into fiscal year '24. And so we expect the spread of inventory growth to revenue growth to continue to narrow over the second half. We already showed strong improvement this quarter, but we expect that spread to continue to narrow in the second half, and that will be driven based on strong demand and also the buy tightening that we did for the second half last quarter.

Matthew Boss :

Thanks, and congrats on a nice quarter. So maybe for John, two strict quarters of double-digit accelerating constant currency revenue growth. I guess, can you speak to the level of brand heat for NIKE that you're seeing in the marketplace today? Maybe elaborate, Matt, I think you cited market share gains that you're seeing in North America. And then just what's your confidence in sustaining this kind of momentum as we think about your product pipeline moving forward?

Matthew Friend :

Yes. And I just would say on the comment about market share and confidence, really, you saw the balanced growth we delivered this quarter across channels. And as John mentioned, it really does start with digital with that 34% growth. But I wouldn't want you to miss the importance of the funnel and the way that we're converting active members to buying members and increasing member buying frequency because our growth in actually over-indexed our overall digital growth, really referencing that, that strength of the consumer coming in. From a wholesale standpoint, the momentum that we're seeing is strong retail sales from our wholesale partners to consumers. But you'll recall that we've been starving the wholesale channel for six to eight quarters because of supply constraints. And so as we had supply constraints, we were prioritizing adequate inventory levels within NIKE Direct. And so we're seeing strong demand as we go back into our wholesale partners with available supply. That's enabling us to increase our open to buy in that channel. And as inventory supply becomes available on a greater basis than it was, we continue to see our partners pulling on the available inventory. So we're competing in that channel. There it's an important channel for us to lean in. And really for the first time in six quarters or so, we can finally supply the channel against the level of demand that we believe is there.

Brooke Roach:

This is Brooke Roach filling in for Kate. John, I wanted to ask you a little bit about what you think the next phase of the membership journey for NIKE would look like following the success that's achieved with that program to date? And then perhaps in the near term, how much of the strength of NIKE Digital that you're seeing today is due to underlying full price selling? And how much of that may be driven by increased depth of promotions, driving the consumer to convert at a higher rate?

Matthew Friend :

Yes. When you compare this quarter to last year, our inventory supply was so lean that last year, we saw extraordinary levels full price realization through our digital channel and the lowest levels of discounts that we've ever experienced in running that channel. So we expected that to normalize in this fiscal year. And with where inventory is broadly across the marketplace, the environment is definitely more promotional. But as John mentioned, when we look at our most important product franchises, we continue to see strong full price realization in our own channels and in wholesale. And I'd say that the other thing that we focused on this quarter was leveraging our investment in markdown to drive new member acquisition and to increase loyalty from our existing members, and we were able to accomplish that this quarter.

Tom Nikic :

I wanted to ask about China. So obviously, returning to growth in a pretty challenging environment is fairly encouraging. How do we think about the path forward in China from here? I know you mentioned that inventory is much cleaner in China now. So should we think that you're kind of back to a pull market in China? You should be able to sort of build off the momentum you've had this quarter. Just how do we kind of think about the path forward in China from here?

Matthew Friend :

Yes. And I just would comment on inventory. We set a goal two quarters ago to be clean by the end of the second quarter, and we reduced our buys and we focused on moving through the excess inventory that we had. And so we're incredibly pleased with the results that our team has delivered through the end of this quarter. We think it puts us in a position of strength relative to the marketplace to be clean and to be ready to face whatever uncertainties are in front of us. I obviously mentioned that we had 1,500 of our stores closed in the last week of November. That was roughly 5x the number of stores that were closed on average throughout the entire quarter. And we also saw traffic impacts as the country navigates through this transition of its COVID policy. So we've taken a very cautious approach in our guidance to China, given the short-term uncertainties that are there. But what you should be hearing from us is a consistent trend of confidence and encouragement in the consumer connections that we're creating that give us confidence in the long term.

Matthew Friend:

Good afternoon and congratulations, really a nice amazing quarter. My question is on Greater China. Obviously, this is the first quarter we're now starting to see that constant currency growth. So very happy to see that inflection. What have you seen sort of after the quarter as things have opened up even more sort of in the December timeframe? And does it give you any -- do you have any more kind of solid thoughts on sort of what the growth algorithm could look like, maybe 2023 and beyond or it’s still very much too early? Last question is, when does that Shenzhen tech center -- I believe is it open now and when is it starting to put forth that China-specific product?

Operator:

We go next now to Abbie Zvejnieks at Piper Sandler.

John Donahoe :

Yes. Abbie, the strategy remains very much the same. And as I mentioned repeatedly, it's consumer driven. It is consumers in this day and age want to get what they want, when they want, how they want it and they want a consistent and seamless experience from us. The same consumer shop online and offline, the same consumer shop mono-brand and multi-brand through different occasions. And so our whole strategy is to offer them that choice in a seamless and premium way. And then wholesale plays a very important part of that, right? It provides a very strong footprint, both physical footprint as well as digital. And we mentioned last quarter, we had our wholesale partners on campus in September for the first time in three years and exposed them to our product innovation pipeline and just talked about how working together, we can really serve that consumer through connected membership. And those conversations have just gone great. For instance, this quarter, we spent a lot of time with Mary Dillon and her team at Foot Locker talking about how the next phase of growth for us can jointly be great around real opportunities of basketball and sneaker culture and kids. And so there's a lot of excitement, I would say, with our wholesale partners and what we can accomplish together and particularly through a connected membership environment, which allows us to serve our mutual consumers in a better way.

Operator:

We go next now to John Kernan of Cowen.

Matthew Friend :

Sure, John. Well, first, I'd say we raised our guidance to low teens on a currency-neutral basis, really reflecting the accelerating brand momentum that we saw in August carrying through back-to-school into September and then accelerating through the holiday season and even the first couple of weeks of December. And so we do have confidence as we're looking in the near term that the consumer continues to be uniquely interested in NIKE, Jordan and Converse, and it's fueling our growth. What I said last quarter is still true, though, which is that we were concerned about the macro uncertainty and the indicators that we're seeing more broadly for the consumer. And while over the last 90 days, we've seen strength. Those macro concerns have not abated. They're still there for the consumer. And so we continue to take a cautious approach to the second half. We buy our inventory, as you know, on six-month lead times. And so we took some decisions in light of the inventory -- our inventory position at the end of Q1 to reduce our buys for the second half of the year. And we focus those reductions in places where we had excess inventory, but we preserve the strength of our product franchises and the new innovation that John referenced earlier in the call that's going to be coming to market in the second half and in the beginning of '23. So we continue to take a cautious approach as we look at it. And to the extent that consumer demand continues to be strong, with a supply chain that's providing product in a more predictable manner, in a more timely manner, if we ended up overcorrecting on our buys, then we will chase demand as we exit this year and enter into fiscal year '24.

Michael Binetti :

Congrats on a great quarter. I know it's a lot of heavy lifting. It may be a simple question, but how do you feel on North America inventory in the channel? I know you moved the mountain, but you have a big wholesale business is hard for us to track inventory once it leaves your books. Are we past the peak promotions in the U.S.? Is this the highest level of promotions in your view? It would seem so based on some of the inventory comments you gave on the U.S., I just wanted to check that. And then I guess as you start to come out of some of the recent volatility, maybe you can help us connect back to your longer-term targets, in particular, the path to the high teens EBIT margins and the major input to getting there, the D2C versus wholesale transition since we don't get many numbers reported on the margins between those two channels. How would you tell us to think about building our understanding into how you get there from here is that seems like the next part of the NIKE story?

Paul Trussell :

All right. Thank you, Michael, for the question and everyone who was able to join in and participate in this call. We look forward to speaking with you next quarter. Happy holidays.

Operator:

Thank you, gentlemen. Again, that will conclude NIKE Inc.'s fiscal 2023 Second Quarter Conference Call. We'd like to thank you all so much for joining us and wish you all a great evening. Goodbye.

Paul Trussell:

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE, Inc.'s fiscal 2023 first quarter results. As the operator indicated, participants on today's call may discuss non-GAAP financial measures. You will find the appropriate reconciliations in our press release, which was issued about an hour ago or at our website, investors.nike.com. Joining us on today's call will be NIKE, Inc. President and CEO, John Donahoe; and our Chief Financial Officer, Matt Friend. Following their prepared remarks, we will take your questions. [Operator Instructions] And I'll now turn the call over to NIKE Inc. President and CEO, John Donahoe.

Matthew Friend:

Thanks, John, and hello to everyone on the call. Our first quarter of fiscal '23 demonstrated again the deep consumer connection and strong demand for NIKE, Jordan and Converse. In a dynamic operating environment, we delivered top line results ahead of plan, more than offsetting foreign exchange headwinds. With industry-leading Digital growth, positive retail traffic in our stores and online, and more product available for consumers across the marketplace, the power of NIKE's portfolio continues to fuel business momentum. At our core, NIKE is a growth company, built on a passion for serving athletes. 50 years later, this passion inspires consumers worldwide through our commitment to product innovation and our belief that sport can change the world. Today, NIKE's potential for growth has no limits as we create our future through a steadfast focus on serving the consumer. At the same time, we are closely monitoring an operating environment that continues to be disruptive. So before discussing our first quarter financial results, let me provide a deeper view into the latest shifts we are seeing and the actions we are taking to manage our business for the long term. Over the past three years, we have leveraged our operational playbook to manage through supply chain disruption and COVID-related store closures. I could not be more proud of how our team continues to adapt to changing circumstances with a relentless focus on getting the right product to the right place at the right time. This quarter, it became clear to us that conditions in North America are shifting once again. Earlier ordering by retailers, driven by strong consumer demand and less predictable delivery time lines, had led to elevated inventory levels broadly across consumer goods. Then transit times began to rapidly improve with signals that further improvement may be coming. At the same time, consumers are facing greater economic uncertainty, and promotional activity across the marketplace is accelerating, especially in apparel. As a result, we faced a new degree of complexity. Demand for NIKE, Jordan and Converse continues to be uniquely strong with positive consumer response and high full price realization on fresh seasonal assortments and key product franchises. In September, month-to-date retail sales are up double digits versus the prior year, following a strong back-to-school season. However, our North America inventory grew 65% versus the prior year, with in-transit inventory growing approximately 85%. This reflects the combination of late delivery for the past two seasons plus early holiday orders that are now set to arrive earlier than planned and a prior year that was impacted by factory closures in Vietnam and Indonesia. As a result, we are taking decisive action to clear excess inventory, focusing on specific pockets of seasonally late products, predominantly in apparel. While we expect this to have a transitory impact on gross margins this fiscal year, we believe this cost will be far outweighed by the benefit of clearing marketplace capacity to align seasonally relevant product, storytelling and retail experiences for the consumer. Time and again, this is how NIKE responds to adversity. We adapt, we compete and we accelerate forward. With strong brand momentum, improving deliveries and a robust innovation pipeline, we're acting now to set the stage for future seasons of sustainable profitable growth. Looking ahead, we are especially excited about the breadth and depth of our product pipeline. This includes innovation platforms that break new ground in performance and sustainability. Women's apparel completely redesigned for fit, sensation and support. A renewed focus on serving everyday runners with the world's best running innovation across price points. A total refresh of our signature basketball line across brands. New sportswear collaborations with the leaders of youth culture and the next chapters of our most iconic product franchises. NIKE's authenticity as the champion for athletes and sport has always been one of our greatest strengths. Over the next 18 months, we'll drive consumer energy through new product and storytelling, in essence, doing what NIKE does best. NIKE's competitive advantages are also growing as the Consumer Direct Acceleration transforms our operating model, driving deeper and more direct connections through digital. NIKE membership serves as a catalyst for digital growth, driving greater engagement and higher lifetime value in our highest margin channel. This quarter, repeat buying members grew by over 30% with increased buying frequency and demand across total NIKE members. In fact, many of our most important membership benchmarks, reflecting how well we convert, engage and retain buying members, are at near all-time highs. These trends give us confidence that we have a strong and loyal member foundation to drive digital growth ahead. Since fiscal '19, our Digital business has nearly tripled to exceed $10 billion in revenue, representing 24% of total NIKE Brand revenue in fiscal '22. Over this period, NIKE Direct gross margins expanded through the combination of rapid digital growth and improvements in channel margin profitability, ultimately fueling NIKE's overall gross margin expansion despite being partially offset by transitory headwinds experienced through the pandemic. While we continue to manage through short-term dynamics, these structural tailwinds give us confidence that we are making progress towards our long-term financial goals. Now let me turn to our NIKE, Inc. first quarter financial results. In Q1, NIKE Inc. revenue grew 4% and 10% on a currency-neutral basis. This was led by 14% growth in NIKE Direct and 8% growth in wholesale. NIKE Digital grew 23% with double-digit growth across EMEA, North America and APLA, fueled by increasing traffic, higher conversion and growth in average order value. First quarter reported gross margin declined 220 basis points to 44.3%. This was primarily due to elevated freight and logistics costs plus higher markdowns across the marketplace in North America and unfavorable changes in net foreign currency exchange rates. SG&A grew 10% in Q1, primarily due to wage-related expenses, strategic technology investments, increased NIKE Direct costs and increased demand creation expenses. Our effective tax rate for the quarter was 19.7% compared to 11% for the same period last year, primarily due to decreased benefits from stock-based compensation. First quarter diluted earnings per share was $0.93. Finally, inventories were $9.7 billion, up 44% compared to the prior year. Driven by volatility in transit times in North America, strategic decisions to buy inventory for future seasons earlier and lower inventory levels due to last year's factory closures in Vietnam and Indonesia. Now let's review the operating segments. In North America, Q1 revenue grew 13% and EBIT declined 4%. NIKE Direct grew 13% versus the prior year, outpacing the broader market with double-digit in-store and digital traffic growth. NIKE Digital grew 19%, fueled by member demand and the NIKE app. Wholesale revenue grew low double digits with strong growth from strategic partners such as DICK'S and JD Finish Line as well as our authenticated partners. NIKE continues to lead as the number 1 cool and number one favorite brand in North America. We're driving momentum across key consumer and sport dimensions, including positive consumer response to the Pegasus 39, Invincible 2 and Infinity 3 in performance running; high sell-through and full price realization across key footwear franchises, such as Air Force 1, Dunk and the Air Max 270 and broad-based growth across men's, women's, kids and Jordan on improved inventory supply. As I previously discussed, we started to increase promotional activity in the first quarter and expect the broader marketplace to be promotional at least through the end of the calendar year. We expect that total inventory in North America peaked in Q1, and we anticipate seeing sequential improvement over the year as we rebalance supply and continue serving strong consumer demand. As we prioritize a healthy pull market, we are confident that our brand strength and decisive actions positions us well to compete and to capture market share. In EMEA, we saw record results. Q1 revenue grew 17% on a currency-neutral basis. EBIT grew 11% on a reported basis, with broad-based growth and strong gross margin expansion driving the most profitable quarter in EMEA history despite significant foreign exchange headwinds. NIKE Direct grew 20% on a currency-neutral basis and NIKE Digital grew 46%. Running delivered solid growth with strong consumer response to the Pegasus 39, Invincible 2 and the Peg Trail 4. We also celebrated our most successful Mercurial launch ever and an unforgettable moment for women's sport at the European Championships, with our Never Settle, Never Done campaign driving over 450 million impressions. Since fiscal '19, EMEA gross margins have expanded by more than 500 basis points, with NIKE Digital increasing its penetration from 7% to 20%, nearly tripling its share of EMEA NIKE Brand revenue. This is another great proof point for how our consumer-led digital transformation is accelerating NIKE's growth and profitability. Next, I'll provide some color around our results in Greater China. In Q1, revenue declined 13% on a currency-neutral basis, and EBIT declined 23% on a reported basis. NIKE Direct declined 2% on a currency-neutral basis with a 5% decline in NIKE Digital. While COVID-related disruption had meaningful impact on store operations and retail traffic, business performance and inventory management are ahead of plan as we continue to proactively recalibrate supply and demand. Brand strength is our competitive advantage, with NIKE setting the pace as Chinese consumers' number one and number one favorite brand, further extending our lead among teams. Product innovation remains a key differentiator with strong sell-through from the Alphafly Next% 2, the Pegasus 39, the G.T. Cut 2 and other performance products. Jordan Brand's momentum was another highlight with year-over-year growth, driven by a standout Luka 1 launch, key franchise strength and the energy of Jordan's 25th anniversary campaign. We continue to deepen connections with Chinese consumers in locally relevant ways, from elevating the street dance community with hyperlocal product and storytelling to igniting youth basketball culture through the lens of the Chinese high school basketball league. With Gen Z member demand growing more than 25% versus last year on NIKE's digital platforms and the newly launched localized NIKE app already leading as the number one brand shopping app, we're more encouraged than ever about NIKE's opportunity to serve Chinese consumers with distinct, premium and localized experiences. As mentioned last quarter, we are taking a cautious near-term approach in Greater China, given the ongoing risks of COVID-related disruption. However, our brand and business momentum gives us increasing confidence that NIKE's unique value proposition will fuel long-term growth in Greater China. As we turn to APLA, Q1 revenue grew 16% on a currency-neutral basis, and EBIT grew 4% on a reported basis. We delivered our third consecutive quarter of double-digit currency-neutral growth led by Southeast Asia and India and Korea. NIKE Direct grew 30% on a currency-neutral basis, led by 29% growth in NIKE Digital and 31% growth from NIKE-owned stores. Our Member Days offense continues to accelerate member engagement, tripling repeat buying versus the prior year. Women's continues to deliver outsized growth, with momentum in performance running, footwear, bras and sports style innovation footwear like Air Max. Performance fueled strong growth in men's with the launch of Pegasus, Infinity and Invincible in running and the Mercurial in global football. In addition, we have now transitioned our businesses in Argentina, Chile and Uruguay to a distributor model. Now I'll turn to our updated financial outlook for fiscal '23. To date, we continue to see strong consumer demand for our portfolio of brands across our geographies. We are closely monitoring consumer confidence and behavior, and ultimately, the implications of high inflation on consumer demand. We've managed through cycles like this before, and we know these are times to stay on the offense, leveraging our financial strength to prioritize a quicker return to a healthy pull market. In this environment, strong brands set the pace and we are confident NIKE will emerge even stronger. We are focused on what we can control as we take a measured approach against an uncertain macro outlook. Accordingly, we will tighten up our second half buys and liquidate excess inventory more aggressively beginning in the second quarter, focusing the flow of new product to our strategic partners and NIKE Direct. Headwinds from foreign exchange have also shifted significantly in the last 90 days as the trend of U.S. dollar strengthening has accelerated. Based on current spot rates, net of hedging activity, we estimate the full year negative impact of foreign exchange on reported revenue and EBIT to now be approximately $4 billion and $900 million, respectively, creating a wide divergence in constant versus real dollar performance. We continue to expect currency-neutral revenue growth of low double digits versus the prior year, equating to reported revenue growth of low to mid-single digits versus the prior year, assuming 800 basis points of foreign exchange headwinds. We now expect gross margin to decline between 200 to 250 basis points versus the prior year. This reflects approximately 150 basis points of annual impact from higher markdowns and higher off-price mix to liquidate elevated inventory, a second straight year of more than 100 basis points of headwinds from elevated freight and logistics costs, and foreign exchange pressure now a 70 basis point headwind on the full year. We now expect SG&A to increase high single digits as we prioritize investment in new transformational capabilities to serve consumers directly and at scale, partially offset by tighter expense control and limited headcount growth across the business. We now expect the fiscal '23 effective tax rate to be in the mid- to high teens range, primarily due to decreased benefits from stock-based compensation. For the second quarter specifically, we expect reported revenue to grow low double digits on strong consumer demand despite 900 basis points of foreign exchange headwinds. We expect second quarter gross margins to decline approximately 350 to 400 basis points versus the prior year, the largest impact across the fiscal year as we discount out-of-season product more aggressively in a largely promotional marketplace. This will require higher markdowns in our own channels and through wholesale partners. The second quarter also compares to last year's record level of full price realization and includes headwinds from freight, logistics and other supply chain costs as well as foreign exchange. As we look towards the rest of our fiscal year, we are confident in our strategy and in our opportunity ahead. While we expect circumstances to remain dynamic, we are optimistic as we continue to make progress towards our long-term financial goals. Our brand momentum is strong. The power of our portfolio is unrivaled, and our vision of NIKE's limitless potential is clear. On that note, I'd like to close by thanking our 79,000 NIKE, Jordan and Converse teammates around the world who serve our mission with a passion for sport and a culture of innovation unlike any other. They represent our true competitive advantage and our greatest reason for confidence as we create NIKE's future. With that, let's open up the call for questions.

Robert Drbul:

Hi, good evening. A couple of questions. The first one is when you look at the inventory situation, and I guess specifically in North America, when do you think you will have recalibrated the supply/demand for NIKE? And I guess just wondering if - what you think about the industry when you think the industry might also sort of be better in balance on the supply-demand equation. Thanks.

John Donahoe:

And Bob, I'd add on to the second, just part of your question around - you're right, it's the entire industry. And so we're entering the next 90 days and the remainder of this fiscal year with the same mindset we've had in the last 2.5 years, which is through whatever period of turbulence we've got, we want to leverage our strengths to emerge in a stronger position than our competition at the other end of it. And so in a promotional environment, brand strength matters. And so we will be aggressive, as Matt said, on liquidating excess inventory but also coming hard with our key popular franchises to bring heat and energy to them in Q just like we did in Q1, like the Travis Scott AJ1, and that had very strong full price realization. And we got a very strong innovation pipeline that will still be coming hard and hard in Q2, Q3 and Q4. You saw in Q1, we had the Air Zoom Mercurial. We had the Air Max Scorpion, NIKE Forward. We've got a really strong innovation pipeline. So we talk about the transitional and the structural. The transitional is navigating through the inventory situation. The structural is leveraging our competitive advantages so we emerge in a stronger position, and we'll be playing offense on both.

Operator:

Your next question comes from the line of Matthew Boss with JPMorgan. Your line is open.

John Donahoe:

Well, Matthew, it's just as Matt said earlier. So we see strong consumer demand in North America currently, right? There's no signs of any softness. It was relatively promotional in August but strong, strong into the first couple of weeks of this quarter. And so we, again, talk in terms of transitional and structural. On a transitional basis, as Matt said, we're going to work through the excess inventory to get to a full marketplace as fast as we can and try to do it in an intelligent way to take share. And as my predecessors used to say, through a few competitive elbows along the way. And then our innovation agenda is still going to continue full speed ahead. And consumers are responding to innovation and compelling storytelling. And that's been true. That's true in Running. That's true with the Peg 39 and the innovations coming and our Running line are excellent over the next year. We're very excited about Pegasus, Invincible, Infinity, the entire, what we call the Must-Win 6. We have a great basketball portfolio coming. You've seen the LeBron 20, right, launched, already hard to get, if not sold out. And LeBron 20 and what's beginning a real refresh of our entire basketball signature line, both in NIKE and Jordan. We've got, in women's fitness, we got a very strong Alate bra is out with very good early consumer response and our entire tights line will be coming in and full bra line in this coming fiscal year. And then Air Max Scorpion was the starting point in the lifestyle basis, we have a strong Air Max pipeline over the next six to 12 months. And so we're going to be going full speed ahead on those with strong and compelling storytelling. And it's kind of a balance. We think those are the structural things that set us up to gain long-term share while we're navigating through the short-term, short-term industry-wide excess inventory.

Operator:

Your next question comes from the line of Paul Lejuez with Citi. Your line is open.

John Donahoe:

Maybe Matt, I'll just make one comment and then - you're going to hear a key theme over and over to - our highest priority is building our long-term competitive position. And that's what we've been doing. So whether that's in China coming out, we are very enthusiastic about the signs we're seeing in China and coming with a full wave of innovation and storytelling and hyper-localized innovation and storytelling, we think, will serve us well in China. As Matt mentioned, EMEA and APLA, strong consumer demand with a strong pipeline. So our ultimate goal, the way we're prioritizing is what's going to enable us to improve our competitive position and build that deeper relationship with consumers that, with a direct connection, surrounded by membership that allows us to have a lifetime relationship with those consumers. And then, Matt, you can comment on some of the details.

Operator:

Your next question comes from the line of Alex Straton with Morgan Stanley. Your line is open.

John Donahoe:

Yes, Alex, we again will repeat some consistent things. We're coming off a strong quarter and we feel very good about our competitive position, and we have not yet seen any signs of slowdown. That said, we don't have any crystal ball around the external factors, whether it's FX, whether it's inflation, whether it's the impact of energy prices on consumer spending. And so Matt will talk a little bit about the assumptions we have built in to our second half. But what we're focused on is what we can control, which is staying on the offense. And we believe that we can meet consumer demand regardless of the macro demand, meet consumers and gain share through this period. And so whether that's in a promotional environment in North America in the next six to 12 months, or that's in EMEA, APLA, in China, as we discussed, we feel like we can have better price realization and use our strong brand strength and product innovation to gain share during this period.

Operator:

Your next question comes from Brian Nagel with Oppenheimer. Your line is open.

John Donahoe:

So Brian, [indiscernible], Matt, I'll take the first and you take second? Thanks, Brian, for the question. On China, as you know, we've got a very strong local team there, led by Angela Dong, and they're doing a remarkable job navigating through this dynamic situation with the temporary COVID closures. And our hope is that, that gets better over time. So that's - but that's a factor that - it's a little like inflation. We can't completely predict it. And the great news is our team there is showing great agility navigating through, again, what we're calling a transitional environment. But structurally, we see some very encouraging signs of consumers. In fact, I was talking to Angela last night. And she's very clear that they're seeing Chinese consumers are emerging from these lockdowns with a real hunger for innovation, quality and energized storytelling. And that's particularly around sport, that's what - that's we do best. And so they're responding to our strong flow of global innovative product. G.T. Cut sold out, as Matt mentioned. Alphafly Next% sold out. But even more what they're responding to is when they take a global innovation and hyper-localize it. So the Peg 39, a hyper-localized into a gel design. Our dance pack, they hyper-localized. And as a result, they're having the lowest markdowns in the industry. And we're building a hyper local-brand voice there. The NIKE mobile app and SNKRS are now fully localized, which allows us to both in live streaming and other ways, deliver a very localized consumer journey and consumer experience. And Matt mentioned some of the storytelling in his remarks around the Jordan 25th anniversary and what we're doing with high school basketball that it is connecting with consumers. And so we continue to be the number one cool and favorite brand. And that is - we are strengthening with young consumers and Gen Z consumers on that. And so I don't know if there's quantitative. What is clear is that the Chinese consumer is ready to come back into the market, and what they're looking for is innovation, quality and storytelling. And we feel that plays well to our positioning into our opportunity. So we're optimistic.

Paul Trussell:

We have time for one last question.

Michael Binetti:

Hi guys. Thanks for taking our questions here. Matt, I was just wondering if you - to clarify one simple thing, you said North America inventory peaked in first quarter. Could you clarify that the total company inventory starts to decline on a year-over-year basis after this? Maybe some of the visibility you have into the back half related to how you're building it after your comment that 2Q will be the low watermark on gross margins. And then, John, I know it's a very different macro but the comments you guys just made for fiscal '24 and beyond. Any reflection on the five-year targets that you gave us a year ago, some of the growth rates and year-over-year margin opportunities as we get past this year relative to that plan? Thanks.

John Donahoe:

And Mike, on the second part of your question, it's - I'm really glad you asked that because it gets to why we're so focused on the medium to long term because we do believe there is some very strong structural advantages that come into play. It's directly connecting with consumers, is critical to serve consumers going forward to have that direct connection, use our membership program to translate what has been a transactional relationship into a lifetime relationship of value, whether it's through directly or through our partners. And with our movement toward Direct, both Digital and our monobrand brand stores, as Matt has said, each quarter, there is a structural benefit to our margins. And so it has - it's good for consumer, it's good for competitive position and it's also good for our margins. And so that's why we're staying ruthlessly focused on it. That's why you see our digital growth rates still continue to be quite strong, and we will continue to move ahead on our marketplace strategy. So we continue to be confident in the five-year macro outlook that - and guardrails Matt put out there. The exact timing of those, I think we're a little bit out of the game. We're trying to predict year in and year out, given how dynamic it is. But the structural things that we've laid out in our strategy, we believe, are strong today.

John Donahoe:

And still achievable.

Operator:

This concludes today's conference call. You may now disconnect.

Paul Trussell:

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE, Inc.'s fiscal 2022 fourth quarter results. As the operator indicated, participants on today's call may discuss non-GAAP financial measures. You will find the appropriate reconciliations in our press release, which was issued about an hour ago or at our website, investors.nike.com. Joining us on today's call will be NIKE, Inc. President and CEO, John Donahoe; and our Chief Financial Officer, Matt Friend. Following their prepared remarks, we will take your questions. We would like to allow as many of you to ask questions as possible in our allotted time. So we would appreciate you limiting your initial question to one. Thanks for your cooperation on this. I will now turn the call over to Nike Inc., President and CEO, John Donahoe.

Matthew Friend:

Thanks, John, and hello to everyone on the call. NIKE's 50th year has been a year of transformation. Through dynamic conditions, our team has remained focused on what we can control, continuing to lead with speed, agility and responsiveness. Most importantly, we stayed focused on accelerating our strength and building NIKE for the future. . In this environment, what guides us is a relentless focus on creating value for our consumer and what fuels our confidence is the way our consumer is responding. Fiscal '22 was our largest revenue year ever, even with supply constraints challenging our ability to serve consumer demand. We are optimistic as we enter fiscal '23, with our source base fully operational, production surpassing pre-pandemic levels and inventory flowing again into our largest geographies. As we set the foundation for another year of strong growth, I'd like to provide some broader context around our strategic transformation. Two years ago, we introduced a bold new phase of our strategy, our Consumer Direct Acceleration. In the early months of the pandemic, we set our sights beyond simply navigating through short-term volatility. Instead, we outlined a clear vision to pursue even further competitive separation by expanding our digital advantage, reshaping the marketplace of the future, and creating deeper, more direct consumer relationships. Today, NIKE's continued momentum shows that our strategy is working. As we look forward, let me briefly highlight 3 of NIKE's foundational elements for long-term value creation, our global portfolio, our consumer-led digital transformation and our expanding direct-to-consumer operational capabilities. First, one of NIKE's greatest strengths is our unrivaled global portfolio. Together, NIKE, Jordan and Converse, represents 3 of the world's most connected consumer brands, dimensionalized across sports and lifestyle, footwear and apparel, up and down price points, throughout geographies at the center of cultural relevance. Today, NIKE is the #1 cool and #1 favorite brand in all 12 of our key cities around the world, leading as the champion for athletes and sport. With a sharpened consumer construct across men's, women's and kids, we're deepening our sport focus, expanding our product pipeline, and accelerating our long-term growth potential. The next chapter of our partnership with Kobe Bryant and the Bryant family is just one example of how we continue to bring new energy and dimension to our portfolio. Jordan Brand's momentum has also been unstoppable, with some of the most exciting young athletes in sport and some of the most iconic products in the world. Since fiscal '20, Jordan Women's has tripled. International geographies have grown over 60% and apparel has grown over 50%. Now with approximately $5 billion in revenue, fiscal '22 was Jordan's biggest year ever, with epic growth potential ahead. Converse also delivered incredible milestones in fiscal '22. Product and storytelling through the lens of youth and creativity are resonating deeply with growing strength among women consumers. As Converse scaled its digital offense and invest in new product creation, the impact is clear with global revenue approaching $2.3 billion, total digital penetration reaching 27% globally and EBIT more than doubling since fiscal '20. Across all 3 of our brands, we're driving a more direct, digital and differentiated future and I wouldn't trade our position with anyone. Next, our consumer-led digital transformation is driving long-term growth and value. A more digitally connected NIKE is a more valuable NIKE. Today, our own digital business, representing over $10 billion in revenue, is more than double in size versus pre-pandemic levels. After increasing market share and gaining 3 percentage points from the prior year, NIKE Digital now represents 24% of total brand revenue. More importantly, we are accelerating the pace and scale of NIKE's direct consumer connections. With growing digital traffic and NIKE App downloads, our apps now represent almost 50% of total digital demand. In turn, increased digital engagement is translating into more repeat buyers, a higher buying frequency and increased average order value, ultimately driving higher lifetime value through membership. And as retail consolidation continues and consumers converge around fewer digital platforms, a distinct NIKE consumer experience is driving more direct connections, positioning us well for long-term growth. Lastly, we are transforming our operating model with new capabilities in order to move at the speed of the consumer. This year, we will begin to see value from our biggest investment in NIKE's Digital transformation, our new ERP. As we shift to an increasingly direct-to-consumer future, an ERP will be foundational for increasing speed and agility across our supply chain. This will give us real-time visibility to inventory across our network, plus dynamic transactional capabilities to optimize consumer demand and inventory productivity. We will go live with our new ERP in Greater China in July and continue building and testing in North America for deployment in fiscal '24. We will also see a new consumer marketing offense in action in fiscal '23. Through new capabilities activated in partnership with Adobe, we will unlock additional productivity and demand creation and member retention across our NIKE ecosystem. We have started testing audience segmentation in North America with real-time data and personalized journeys on the NIKE app with plans for further expansion in the coming months. In Greater China, we are also accelerating our digital capabilities, building on our 40-year history in the market with an ecosystem from China and for China. In fiscal '23, we will deliver a new suite of commerce and support activity apps, deepening our connections with Chinese consumers through an enhanced user experience, including locally relevant features across our digital apps, services and our owned and partner retail stores. Finally, we continue to scale our Express Lane, which combines hyper local consumer insights with improved responsiveness and speed to market. In fiscal '22, Express Lane drove approximately 25% of total NIKE Brand revenue with higher profitability. We expect to build Express Lane into a larger portion of our business in fiscal '23 and beyond. Now let me turn to NIKE, Inc. fourth quarter financial results and operating segment performance. In Q4, NIKE, Inc. revenue declined 1% and grew 3% on a currency-neutral basis. This was led by 11% growth in NIKE Direct, offset by a 3% decline in wholesale. NIKE Digital grew 18%, fueled by strong demand across our app ecosystem. Fourth quarter reported gross margin declined 80 basis points versus the prior year. This was primarily due to specific actions taken to manage supply and demand in Greater China following COVID-related disruption as well as elevated freight and logistics costs. Headwinds were partially offset by benefits from strategic pricing actions, favorable foreign currency exchange rates, improved NIKE Direct margins and a higher full price mix. SG&A grew 8% in Q4, primarily due to strategic technology investments, increased NIKE Direct variable costs, wage-related expenses and increased demand creation expenses. Our effective tax rate for the quarter was negative 4.7%. This was due to a shift in our earnings mix and a noncash onetime benefit related to the onshoring of our non-U.S. intangible property. Fourth quarter diluted earnings per share was $0.90. This includes a $0.10 nonrecurring noncash charge related to both the deconsolidation of our Russian operations as well as the transition of our Argentina, Chile and Uruguay businesses to a strategic distributor model. Finally, inventories were $8.4 billion, up 23% compared to the prior year period. This was driven by elevated in-transit inventories due to extended lead times from ongoing supply chain disruptions, partially offset by strong consumer demand. Now let's move to our operating segments. In North America, Q4 revenue declined 5% and EBIT declined 18%, in line with our expectations as we lapped supply shifts in the previous year. Elevated ocean freight and logistics costs continue to dampen near-term profitability in this geography. NIKE-owned inventory grew 30% versus the prior year, with extended lead times causing in-transit inventory to be 65% of our total inventory at the end of the quarter. Wholesale revenue declined 12% due to inventory supply constraints. Strong marketplace demand drove closeout units down double digits versus the prior year. NIKE Direct grew 5% versus the prior year, delivering its highest quarterly revenue ever. Marketplace channel growth was led by 11% growth in NIKE Digital with another quarter of historically low markdown rates and lower available inventory supply. NIKE Digital total penetration reached 27% for the quarter, led by strong NIKE app growth. Even with lean available inventory, our power franchises continue to resonate deeply. Pegasus led the wafer performance footwear, Jordan launch delivered a record-breaking quarter and classics such as Dunk and Blazer drove strong full price growth. Meanwhile, we continue to test and learn across our newest retail concepts, such as our NIKE Live doors, which are increasing member buying amongst women. In EMEA Q4 revenue grew 20% on a currency-neutral basis. EBIT grew 63% on a reported basis. With broad-based growth across channels, consumer dimensions and product engines, NIKE Direct grew 25% on a currency-neutral basis, powered by healthy retail traffic as we anniversary COVID-related closures from the prior year. NIKE Digital grew 21%, driven by positive launch sell-through, improved full price selling mix and lower markdown rates. Sport continues to power our EMEA marketplace, highlighted by growth in running and fitness, performance franchises such as Metcon and Mercurial and apparel launches such as the Alate bra in women's. Looking ahead, EMEA will kick off the most unprecedented 12 months of global football in NIKE's history, starting with the Women's EURO Champs this summer, Men's World Cup in the fall and Women's World Cup next summer, NIKE is meeting the moment with a complete offense, including new kit launches, new training and lifestyle assortments and a new Mercurial, Tiempo and Phantom footwear innovations across men's, women's and kids. Next, I'll provide some deeper color around our results in Greater China. In Q4, revenue declined 20% on a currency-neutral basis, and EBIT declined 55% on a reported basis. This follows the region's most widespread COVID disruption since 2020, impacting over 100 cities and over 60% of our business. As conditions shifted, our experienced local team acted quickly and decisively. We leverage the diverse logistics network and strong local partnerships, returning to 100% capacity at our central logistics center within 3 weeks. Our marketplace team also adjusted inventory to meet digital demand. As a result, NIKE Digital landed Q4 with low single-digit growth. Despite a dynamic operating environment, NIKE extended its leadership position as Chinese consumers' #1 cool and #1 favorite brand. We saw this translate into positive business impact on NIKE Tmall Super Brand Day, which drove 90% number demand penetration and nearly 1 billion impressions. NIKE also created a clear separation on 6/18 as the undisputed #1 store and #1 brand on Tmall sport channel, outperforming the market. In addition, as lockdowns lifted in specific trade zones in late April, May and early June, we saw improved store traffic and overall consumer demand. Key footwear franchises continue to win in the marketplace, led by G.T. Cut as the #1 style in performance basketball and Pegasus 39, which drove strong results in men's and women's running. Express Lane also drove incredible sell-through with locally inspired launches, such as the Air Force 1 logo and the head-to-toe street dance pack in footwear and apparel. As I mentioned earlier, we took specific actions in Q4 to recalibrate forward-looking supply and demand, prioritizing the return to a healthy pull market by the end of the second quarter. While there may be near-term risk of further COVID disruption, longer term, we continue to be encouraged by another quarter of brand momentum in the marketplace. As we turn to APLA, Q4 revenue grew 24% on a currency-neutral basis and EBIT grew 31% on a reported basis, reflecting our largest quarter ever in the geography. We saw double-digit currency neutral growth across Korea, Mexico, Southeast Asia and India and Japan. NIKE Direct grew 43% on a currency-neutral basis, led by 59% growth from NIKE Digital. Membership fueled double-digit growth across all territories as our sneakers app drove its best ever quarter in Japan, Korea and Mexico. We also saw our biggest quarter women's, led by performance running, classics and lifestyle apparel. Kids led the way within NIKE Digital, up nearly 100% from last year. We're expanding support for a new generation, driving strong results with proven franchises such as the Court Borough plus newer innovations such as Dynamo GO. Now I'll turn to our financial outlook for fiscal '23. We enter the year confident in our brand strength, consumer connection, product pipeline and normalizing inventory supply into a healthy pull market in North America, EMEA and APLA. We continue to see momentum against our largest growth drivers and our most iconic product franchises. At the same time, we are closely monitoring consumer behavior, and the implications of high inflation on near-term economic growth and consumer demand. We are also taking a cautious approach to Greater China, given uncertainty around additional COVID disruptions. As such, we have factored various risk scenarios into our guidance for fiscal '23. We expect revenue for the full year to grow low double digits on a currency-neutral basis, partially offset by foreign exchange headwinds of approximately 400 basis points. In the first quarter, we expect real dollar revenue growth to be flat to slightly up versus the prior year due to COVID disruption in Greater China and more than 500 basis points impact from foreign exchange translation. We expect gross margins to be in the range of flat to declining by 50 basis points versus the prior year with a wider-than-usual range reflecting our consideration of a number of scenarios. We expect to benefit from mid-single-digit pricing actions and continued gains from our shift to a more direct business, offset by another 100 basis points headwind from elevated ocean freight costs, increased product costs, discrete supply chain investments and normalization of historically low markdown rates. We expect foreign exchange to be a 30 basis point headwind on gross margin due to strength in the U.S. dollar, largely offset in fiscal '23 by favorable hedge rates versus current spot rates. We expect gross margin pressure to exceed 100 basis points in the first quarter of fiscal '23, both as we recalibrate supply and demand in Greater China and as we anticipate higher promotional activity to sell seasonal inventory, which has arrived late due to a combination of factory closures and longer transit times. We expect SG&A to increase high single digits to low double digits as we continue to invest in our people, our brands, new stores and our transformational capabilities. And lastly, we expect the fiscal '23 effective tax rate to be in the mid-teens range. As we move forward, we will stay focused on what we can control and continue managing the business for the long term. This includes leveraging our scale and financial strength, optimizing supply and demand and most importantly, creating value for our consumer from the products we design to the stories we tell, to the experiences that we deliver. Our consumer-direct acceleration is working. Our long-term vision has never been more clear. And if there is anything that's 50 years of growth have proven, it's that with the right team and the right strategy, the future is ours to create. On that note, I'd like to close with a heartfelt thank you to the team that makes it all possible, the people behind the art, science and magic of NIKE. Our team is and always will be NIKE's greatest competitive advantage. And as proud as we are of all that NIKE has achieved over the past 50 years, what excites us most is what comes next. With that, let's open up the call for questions.

Robert Drbul:

I was wondering if you could maybe just comment some more around China. I think when you look at what's happened over the last few months and even more recently with the reopening, just exactly how you're balancing the compares that you're facing versus the concerns that you have over the next few quarters?

Matthew Friend :

Yes. And I just would add, Bob, that we entered the fourth quarter positioned for a strong quarter on building brand momentum in the marketplace. And our fourth quarter results were impacted by COVID-related disruption and lockdowns, impacting over 100 cities and about 60% of our business. As we look at the dynamics in that particular marketplace and the risk of ongoing disruption in the first half of fiscal '23, we decided to prioritize the health of that marketplace. And as we've learned from experience over the years, having a healthy pull marketplace in a monobrand marketplace like Greater China is critical to brand health and long-term growth. And so we made decisions to recalibrate supply and demand in the fourth quarter. And that included reducing our inventory buys at the factories for forward seasons. We took some reserves on our existing inventory, and we also plan for some investment in promotional activity with our partners. Because we expect that as the marketplace reopens, it's going to be more promotional. And so those were the charges and the impacts that we had in the fourth quarter in order to prioritize that inventory health and pull market by the end of Q2. As John said and some of the examples I gave, we continue to see brand strength growing and consumer connection. And we're seeing it in our brand strength results and also in the way the consumer is engaging with our brand. We invested in the brand this quarter again for the third straight quarter, and we're seeing the impact of that on our business. And as lockdowns lifted in specific trade zones, in late April, May and early June, we saw improvement in traffic and strong overall consumer demand. So we're trying to take the decisions -- the right decisions for the marketplace to position us for growth over the long term. And despite the short-term disruptions, we're increasingly confident in our local market strategy and our ability to fuel long-term growth in the China marketplace.

Michael Binetti :

Just a few on the model click and then a bigger picture question. I guess, just if we could get a sense of SG&A in the first quarter. I think we got it for the year, a little bit of help there. And then I guess it looks like you're guiding to or at the high end of the revenue algorithm for the year despite the caution that you mentioned to us on China in the first part of the year. Maybe just some thought on what parts of the portfolio overgrow those long-term rates you gave us last year in the year just so we can think about that alongside you? And then I guess just a little bit more on your thinking on structural margins in China over the long term. Obviously, you took some actions in the quarter. We see the output here in the margins. But how should we think about those as you move into things like the new ERP system and into a better pull market?

Operator:

Our next question is from Aneesha Sherman with Bernstein.

Matthew Friend:

Sure. Well, let me start on the gross margin by talking about what we saw in the fourth quarter, and I think it will help bring some light, maybe it's a broader question. Our gross margins were down 80 basis points in the fourth quarter. And that is really reflective of 2 elements. From an operational perspective, if you look at the growth that we saw at NIKE Direct and the expanding margins that we saw both in NIKE Direct, in NIKE Digital and a higher full price selling mix overall, our gross margins would have expanded over 100 basis points in the fourth quarter. The decision that we took in Greater China, the specific actions that we took in Greater China had a 200 basis point impact on NIKE, Inc.'s Q4 margins. So when we look at the underlying health of our business and the margin expansion that we see attributed to the shifting business mix from wholesale to more direct and more digital, we are seeing it and the financial benefits that come from it in our gross margins. Since the year '20, our gross margins are up over 260 basis points, and that includes in fiscal year '22 a 100 basis point headwind from elevated ocean freight costs. We're paying about 5x the rate that we paid -- we paid pre-pandemic to put product in a container on a boat and move it from Asia to the U.S. So up 260 basis points with 100 basis points of a headwind. As we look ahead to fiscal '23 and our guidance were flat to declining 50 bps, we're planning for mid-single-digit price increases. We're planning for additional expansion from our growing NIKE Direct business and our digital business, which we believe will continue to lead our growth, but that's being offset by another 100 basis points of ocean freight. So if you take '22 and '23 together, it's about a 200 basis point impact on a 2-year basis from paying those higher rates to move product from Asia to our other geographies. And that has a significant impact on where we are today relative to where we would be. We still believe in the high 40s gross margin goal. We believe those costs are transitory in nature, but we expect it's going to take a few years to revert. And so we're planning for that accordingly. On the last part of what you said about markdowns, here's what I say. We've planned for a normalization of full price realization and markdown rates in fiscal '23. For the last year, we've seen full price realization in our -- in 3 of our geographies to be over 70%, whereas our long-term goal is to be at 65% full price realization. As we think about the markdown rates that associated with that, we also saw both in our channel partners and in our own business, a historically low markdown rate because of the lower available supply. We think that, that will start to normalize over this year. And given some of the uncertainties and the risk scenario planning that we've done around our guidance for '23 that's what's helping to drive this wider range that we're providing in our gross margin guidance for '23. As far as the longer-term goes, as I mentioned, we continue to believe in that high 40s number. And we're going to continue -- and it's going to be fueled by this ongoing consumer-led shift to direct into digital.

Gabriella Carbone :

So if you move into fiscal '23, I just wondered if you could dig into the overall product flows and what you're seeing around lead time? If you're seeing any recent improvement there. Then I was just wondering if you can elaborate on demand and how you feel about the product pipeline moving ahead? You mentioned in your prepared remarks that you're expanding it. So I wondering if you can just talk about that.

John Donahoe :

Sure.

John Donahoe :

And Gaby, on product pipeline, it's funny you asked that. We had about 2 weeks ago, our first in-person VP meeting in 2 years. And because we haven't been to in-person, and now when had seen physical product, we had 6 different rooms and built out on the new Serena Williams Building that had our full innovation pipeline for the next 3 years. NIKE, men's, women's, kids, performance, lifestyle by every sport, a Jordan room, a Converse room. And I will tell you, everyone walked out excited by the breadth and depth of the innovation pipeline. It was almost overwhelming to be honest, when you see it all in one place. And so you saw some recent examples of the Spark Flyknit, which is -- what's really interesting about that is more and more of our innovations are done for her, but can be leveraged by all. The ZoomX foam, which is one of our most responsive ones yet that's been pulled throughout the entire running line. I mentioned Formula 23, Next Nature and the sustainability innovations. And so going forward, we're very excited. I teased a little bit about the apparel innovation coming. We think that's going to be a platform opportunity for us, more to come on that in the fall. The pipeline -- Matt mentioned this next coming year of global football with EURO Champ Women's this summer, World Cup in the Men's in the fall, Women's World Cup next year. The remarkable innovation, both performance and lifestyle around global football, a sharper focus on running the Jordan stuff, both footwear and apparel, performance and lifestyle. The Converse room was like a hit because I think most people don't really get to see the full breadth and depth of Converse innovation. So we feel very excited about the innovation pipeline. I will also tell you that our teams, now they're back together in person, feel like the pace and level of innovation is just going to -- and design is going to just accelerate. So a lot of optimism on the innovation front.

Lorraine Hutchinson :

Just hoping to get your thoughts on channel mix in the coming years as you think about wholesale versus direct, if there are any big call-outs that you would make? Obviously, you're making the investment in technology. Would you expect that to return wholesale to a faster growth rate? Or do you think the Direct business will continue to lead?

Matthew Friend :

Yes. And I just would add that our wholesale revenue this year was depressed because we had to cut 130 million units of supply because our factories in Vietnam were closed for 12 weeks. And so as you look specifically to '23, NIKE Direct will lead our growth and NIKE Digital will be our fastest-growing channel. But we do expect to see wholesale growth look different, in other words, turn and grow based on available inventory supply flowing back into our geographies. And so we do expect to see wholesale growth in fiscal '23. And I think, as John said long term, this is a consumer-led digital transformation. But I still think that our longer-term vision of NIKE Direct representing approximately 60% of our business and digital -- owned digital representing 40% is a trajectory that we are still on. We're seeing growth in our digital business that's exceeding what's happening in the marketplace. We're watching our own digital traffic and an accelerating level of NIKE app downloads that's driving more consumer engagement against our digital platform, and that is driving growth and shift relative to the broader marketplace. And while we're up about 9 points of business mix versus FY '20, we continue to believe that digital is going to be, as John has said again and again and again, a fuel for growth for us over the next 3 to 5 years.

Paul Trussell:

Yes. Just want to say thank you to everyone for participating in our fourth quarter call. We appreciate you joining, and we look forward to speaking with you next quarter. Take care.

Matthew Friend:

Thanks.

Paul Trussell:

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE, Inc.'s fiscal 2022 third quarter results. As the operator indicated, participants on today's call may discuss non-GAAP financial measures. You will find the appropriate reconciliations in our press release, which was issued about 45 minutes ago, or at our website, investors.nike.com. Joining us on today's call will be NIKE, Inc. President and CEO, John Donahoe; and our Chief Financial Officer, Matt Friend. Following their prepared remarks, we will take your questions. We would like to allow as many of you to ask questions as possible in our allotted time, so we would appreciate you limiting your initial question to one. Thanks for your cooperation on this. I'll now turn the call over to NIKE, Inc. President and CEO, John Donahoe.

Matt Friend:

Thank you, John, and hello to everyone on the call. NIKE has become more agile, responsive and resilient over the past 2 years through the operational capabilities and playbook that we have developed to navigate the unexpected. This past quarter, the operating environment shifted rapidly as the latest COVID variant presented new challenges to business operations. And our teams around the world were prepared to do what was necessary to continue to serve the consumer. Our ability to optimize near-term performance through heightened levels of volatility while continuing to make strategic progress on Consumer Direct Acceleration reinforces NIKE's positioning as a portfolio of leading brands with unlimited potential. Marketplace demand continues to significantly exceed available inventory supply, with a healthy pull market across our geographies. When inventory supply is available in region, we are quickly moving it to the appropriate channels to serve consumer demand. Consumers continue to shift towards digital to find the products they love, and NIKE's digital experience continues to build deep consumer connections and capture digital market share. Now let me briefly update on the supply chain. All factories in Vietnam are operational, with total footwear and apparel production in line with pre-closure volumes and our forward-looking demand plans. Nearly all of our supplier base is operational without restrictions, and we are working closely with our partners around the world to navigate through the most recent risks related to COVID. Inventory supply in our geographies is beginning to improve from here. Transit times, however, remain elevated. And in the case of North America, transit times in the third quarter have worsened. We have taken numerous actions to address these challenges, and in many cases, to protect against lead times increasing even further. Despite these ongoing challenges, we have been able to mitigate our transit delay impact by nearly 4 weeks versus industry averages. I am so proud of how our teams continue to respond, demonstrating how to win in a dynamic and rapidly changing environment. Now consumer demand for all 3 of our brands, NIKE, Jordan and Converse, remains incredibly strong. Our growth in the third quarter would have been even higher if we had greater quantities of available inventory to meet marketplace demand. Across the marketplace, holiday retail sales finished strong, and spring retail sales are off to a great start, fueled by strong demand for performance men's running, Air Jordan 1, classics footwear and our apparel fleece franchises. We are also sustaining a higher full-price mix with year-over-year improvement in markdown activity. NIKE Digital has seen improvement in conversion rates and lower customer returns despite having lower levels of available inventory in our most desired product franchises. And in Greater China, we saw improvement in full price realization versus the prior season. Speaking of product, we continue to refresh and reimagine our most iconic franchises through design, collaboration and creative storytelling. We are expanding the contribution of our express lane in all geographies to make more locally relevant product on shorter lead times, yielding higher rates of sell-through and profitability for NIKE and our partners. We continue to deliver a consistent flow of product innovation in performance sports like running, basketball and training and through platforms like ZoomX, FlyEase and Space Hippie with the crater foam. Our product is our most valuable form of demand creation, and we have a highly loyal and engaged audience eager to share in the stories we have to tell around our athletes and products. This quarter, the NIKE Brand registered as both the #1 cool and #1 favorite brand in all 12 of our key cities around the world. Recent product announcements ranging from our collaboration with Drake on the NOCTA Line of apparel and sneakers, to the Ted Lasso-AFC Richmond kits for the show's third season speaks to the depth of our cultural reach. Our brands live at the intersection of sport, media, music and increasingly, technology, enabling us to be highly relevant to today's youth. As I've said repeatedly over the past year, NIKE's market opportunity is larger than ever. Consumer interest in sport, health and well-being has never been greater. And consumers' desire to wear athletic inspired footwear and apparel in more moments of their lives is here to stay. NIKE will always be a growth company, fueled through innovation to help all athletes achieve their full potential. Now continuing with the theme of growth, John said earlier that our marketplace strategy is a growth strategy. And so I'd like to go a little deeper on where we are in our journey to create the marketplace of the future, including how we have managed our wholesale portfolio. Over the past 4 years, we have reduced the number of wholesale accounts worldwide by more than 50% while delivering strong revenue growth through NIKE Direct and our remaining wholesale partners. We are now moving into the next phase of our marketplace strategy. We have finished communicating the big account pivots. And our go-forward growth plans are aligned with our wholesale partners. Wholesale partners play an integral role in our future marketplace, first, to authenticate our brands and then to create scale of distribution through a consistent consumer experience across a larger retail footprint. We will drive healthy wholesale growth with our remaining wholesale partners and recapture dislocated demand by elevating our partner's retail environment and digitally connecting NIKE membership with their retail experience. Take, for example, our collaboration with James Whitner's Whitaker Group, owner of Social Status and other sneaker boutiques. We recently partnered with The Whitaker Group to develop unique silhouettes of Jordan and Dunk products as well as produce SNKRS Live content to connect our brand to important communities. We are committed to driving growth with partners like this as they create authentic, deeply connected consumer concepts in key cities and communities around the world. NIKE Digital continues to be our fastest-growing component of the marketplace. This quarter, downloads of the NIKE mobile app accelerated, and member buying frequency and average order values improved again as we continue to test member engagement across activity, content, community and commerce. In Q3, NIKE Digital gained 3 points from the prior year and now represents 26% of our total NIKE Brand revenue. We're investing in NIKE stores to specifically address gaps in distribution to serve the growth opportunities we see in women's apparel and Jordan. Our NIKE Live concept is showing promising levels of productivity per square foot, store profitability and new member acquisition. We continue to obsess over the consumer experience and perfect the concept for her to maximize the incremental growth opportunity in the marketplace. We will also begin testing a Jordan-only concept in North America in fiscal '23, leveraging a popular consumer experience that has been wildly successful in Greater China, the Philippines and Korea. Our approach is to first pilot these new concepts, iterate and perfect, and then move to scale. Since the onset of the pandemic, we have seen how creating the marketplace of the future will deepen our connections with consumers, fuel marketplace growth and expand the profit pool for NIKE and our wholesale partners. Now let me turn to the details of our third quarter financial results and operating segment performance. NIKE, Inc. revenue grew 5% and 8% on a currency-neutral basis, led by 17% growth in NIKE Direct. Wholesale returned to growth, up 1% on a currency-neutral basis. NIKE Digital grew 22%, fueled by strong demand through our NIKE app. NIKE-owned stores grew 14% with significant improvements in traffic during the quarter. Gross margin increased 100 basis points versus the prior year, driven primarily by higher NIKE Direct margins due to lower markdowns, favorable foreign currency exchange rates and a higher full price mix, partially offset by increased freight and logistics costs. SG&A grew 13% versus the prior year, primarily due to strategic technology investments, normalization of investment against brand campaigns, wage-related expenses and digital marketing investment to fuel heightened digital demand. Our effective tax rate for the quarter was 16.4% compared to 11.4% for the same period last year. This was due to a shift in our earnings mix, effects of stock-based compensation and recently finalized U.S. tax regulations. Third quarter diluted earnings per share was $0.87. Now let's review the operating segments. In North America, Q3 revenue grew 9% and EBIT was flat. NIKE continued to drive momentum through key product franchises across men's, women's and kids. This was highlighted by double-digit growth in key men's running franchises like Pegasus as well as updates on franchises like the Winflo and Vomero. NIKE Direct grew 27% versus the prior year, led by NIKE Digital delivering industry-leading growth, increasing 33% versus the prior year, driven by double-digit growth in traffic, strong growth in new members and member engagement and improvements in member buying frequency. NIKE Digital in North America now has the highest penetration of all the geographies, representing 1/3 of total North America revenue in the quarter. NIKE-owned stores grew 16% due to traffic improving towards pre-pandemic levels and successful activations in key cities during moments like the Super Bowl in L.A. North America continues to experience strong full price realization and low markdown rates across the marketplace as inventory supply begins to improve. NIKE-owned inventory levels increased 22% versus the prior year, with in-transit inventory now representing 65% of total inventory at the end of the quarter, as transit times are now more than 6 weeks longer than pre-pandemic levels and 2 weeks longer than the same period in the prior year. In order to ensure the right assortment of products arrive on time for the fall selling season, we have moved forward our buying time lines to accommodate for longer transit times. In EMEA, Q3 revenue grew 13% on a currency-neutral basis, with growth across all consumer segments, and EBIT grew 34% on a reported basis. Retail sales across the marketplace grew strong double digits with improvements in full price realization and lower average markdown rates. Team Sports continues to make its comeback and the continuation of the Champions League tournament enabled global football to drive energy across the region. The momentum behind the Jordan brand in EMEA is also driving strong growth across all consumer segments, led by women's. NIKE Direct grew 22% on a currency-neutral basis, led by growth in NIKE-owned stores of 44% as we compare to uneven store closures due to COVID-related government restrictions in the prior year. NIKE Digital rose 11%, fueled by member-only access and app-exclusive releases, an another quarter of strong double-digit growth in full price demand. Wholesale revenue grew 10%, led by even stronger growth rates from our strategic accounts. As John mentioned in his remarks, we remain focused on the safety and well-being of our teammates regarding the deeply troubling crisis unfolding in Ukraine. Our own stores and digital commerce operations remain paused in Russia and Ukraine. As a note, our business in both countries represent less than 1% of total company revenue. In Greater China, Q3 revenue declined 8% on a currency-neutral basis, and EBIT declined 19% on a reported basis. Our results for this quarter were in line with our expectations, with sequential improvement versus the prior quarter. As we continued rebuilding local brand activities again this quarter, NIKE was rated the #1 cool and #1 favorite brand in China, creating separation and distinction versus the competition. And as I said earlier, we are observing continued improvement in full price realization. Greater China delivered over $2 billion in revenue this quarter, driven by the Lunar New Year period as Nike.com saw record weekly traffic. We leveraged our Express Lane capabilities to design hyperlocal products with the Year Of The Tiger elements, resulting in strong sell-through across men's, women's, kids and Jordan. Speaking of Jordan, the brand had a record quarter for revenue in the region, growing versus the prior year through momentum in both footwear and apparel. NIKE Direct was down 11% on a currency-neutral basis, with declines in both digital and physical retail channels. COVID-related lockdowns continue to create challenges for retail traffic. NIKE-owned stores were down 5% and Digital declined 19% due to the ongoing supply delays that negatively impacted timing of product launches. We created marketplace energy with the opening of NIKE Beijing, the first connected partner-operated Rise door and 2 new Unite doors that set consecutive records for global opening sales. Our relentless focus on sport, product innovation and our most iconic product franchises, combined with local athlete storytelling, remains a competitive advantage for us in Greater China. We are closely monitoring the current situation regarding the virus, but we are encouraged by the momentum we are building in the marketplace. Now moving to APLA. Q3 revenue grew 19% on a currency-neutral basis and EBIT grew 17% on a reported basis. This quarter was the largest and most profitable in the history of the APLA region. We saw double-digit currency-neutral growth across nearly all territories led by Korea, Mexico and SOKO. We're winning with the consumer in sport across performance and lifestyle, demonstrated by strong growth in running, fitness, Jordan and Classics. NIKE Direct grew 39%, led by NIKE Digital growth of 61% due to record-setting member days across a number of territories, delivering more than 2.5x the demand versus a typical week. NIKE-owned stores grew 17% while the wholesale channel grew 9%. Our focus on localized product and content, particularly the launch of our Kwondo1 collaboration with K-Pop star G-Dragon demonstrated yet again our deep connection to consumers. It was APLA's biggest hyperlocal launch ever, reaching 91 million users on social and 3.8 million entries across SNKRS and our marketplace partners. Now let's turn to our financial outlook. We continue to expect revenue for the full year to grow mid-single digits versus the prior year. As you know, comparing quarters to prior periods has not been intuitive, so we continue to look at the size, trend and health of our business, market share and profitability relative to pre-pandemic periods, and we remain confident we are on track towards our long-term financial goals. Specifically for the fourth quarter, in North America, we expect a decline in revenue due to year-over-year comparisons. And in Greater China, we expect to see another quarter of sequential improvement while we closely monitor the operational impact related to recent COVID lockdowns. We now expect gross margin to expand by at least 150 basis points versus the prior year as strong consumer demand continues to fuel high levels of full price realization, low markdown rates and low customer returns. Benefits of strategic pricing expected in Q4 are being partially offset by elevated product costs, primarily due to higher macro input costs, supply chain costs and strategic actions to expedite delivery of product in North America. Despite the recent strengthening of the U.S. dollar, we continue to expect foreign exchange to be a 55 basis point tailwind versus the prior year. We now expect SG&A to grow mid-teens for the full year as our spend normalizes, and we continue to advance our capabilities to support our ongoing digital transformation. We continue to expect our effective tax rate to be in the low teens for the fiscal year. And as we look ahead to fiscal '23, we are optimistic as our brand strength is unparalleled with a strong product pipeline and momentum against our largest growth drivers. Marketplace demand continues to exceed available supply as inventory supply begins to normalize in the fourth quarter, against the context of a healthy pull market, setting the foundation for another year of strong growth. We are focused on what we can control while there are several new dynamics creating higher levels of volatility. As a result, we will provide more specific financial guidance for fiscal '23 during our fourth quarter earnings call. In closing, our strategy is working. NIKE's brand strength and consumer demand remains at an all-time high and we are confident in our business momentum. Our deep focus on the consumer and sport is what sets us apart from the rest. We continue to leverage the same principles for how we are strategically and financially managing the company. And as we approach our 50-year anniversary, we are reminded of NIKE's rich history of delivering consistent results even through periods of uncertainty as we build NIKE for the future. With that, let's open up the call for questions.

John Kernan:

So Matt, as we get into the fourth quarter and into the first half of 2023, can you talk to how you see product flows improving? And do you think you'll be able to meet this elevated level of demand as we go into the first half of your fiscal '23?

Operator:

Your next question comes from the line of Kate McShane with Goldman Sachs.

John Donahoe:

Yes. Thanks, Kate. Let me just start by reminding us why we're driving this, what we're calling NIKE Marketplace. And it's driven by the consumer, who I have this phrase of saying, consumers want to get what they want, when they want it, how they want it. And they expect us to know who they are regardless of channel, and they want a very consistent and premium experience. And so starts with NIKE Digital. I won't go into that, but the clear competitive separation in our digital capabilities. But wholesale plays a very, very important role in that, as I said in my remarks and Matt reinforced. And so we will continue to build strategic partnerships with our wholesale partners, in particular, around the ability to link our membership program so that consumers know that NIKE knows who they are, even through the wholesale channel and allows both of us to grow. And then NIKE Direct, our own mono-brand stores, will continue to play a role, an increased role, in particular, focusing on a couple of areas of the market where we feel like there's incremental need to reach the consumer, particularly around women's, around apparel, and as Matt mentioned, around Jordan. And so we'll increase our mono-brand stores over the coming years. But as Matt said, importantly, we're going to take an intelligent approach to that, where we're going to test, iterate and learn so that we get the consumer construct and consumer experiences in our mono brand store is clear before we rapidly expand. And so that expansion will happen some in fiscal '23 but even more so in fiscal '24 and '25. But again, the main goal is to be able to have consumers almost be indifferent where and how they have a first-rate NIKE experience.

John Donahoe:

One other thing I just want to really reinforce because I think there was some confusion on this, that's around Foot Locker. To be crystal clear, Foot Locker always has been and always will be a large and important partner of NIKE's. And that will continue to be the case. And they'll have a very distinct role in our marketplace strategy as a wholesaler, with a particular focus on the culture of basketball, on the sneaker culture and on kids, which is a really big and important opportunity for us. So just to be clear, they are one of our important partners going forward.

Jay Sole:

My question is about China. Matt, when you said you expect sequential growth in fourth quarter, can you maybe give us a little bit more color on that? Do you expect the growth to turn positive on a year-over-year basis? And maybe if you can dive in a little bit more about what gives you conviction in both the near term and the long-term opportunity in China, if you could elaborate on that, that would be appreciated.

Jay Sole:

Got it, okay. And then if I can ask you another question. You mentioned that you'll give more color on fiscal '23 on the fourth quarter call. But I mean, at a high level, the long-term guidance that you gave for fiscal '25 talked about high single-digit to low double-digit revenue growth. Do you expect fiscal '23 at a high level to be sort of an on-algorithm type of year as it were to deliver that kind of growth? Is there any sort of broad brushstroke kind of contours of fiscal '23 that you're thinking about right now?

Operator:

We have the next question from Jonathan Komp with Baird.

John Donahoe:

Maybe I'll take the first part of that, Matt, and you take the second. Jonathan, on the first part, quite the contrary. We see this marketplace strategy positioning us even more strongly for healthy, sustainable growth in North America. And it starts with Digital. You saw the Digital growth rate in North America, I think it was 33% this past quarter. It's been very strong. And NIKE is one of the very few brands that's on the home screen of the mobile app. And we don't just have 1 mobile app. We have the NIKE Mobile app, the SNKRS mobile app, the NTC and NRC. And that is very scarce space to have clear digital competitive advantage. We also believe that it's going to become a healthier retail or wholesale, if you will, marketplace, as we described. We have our connected partnership and pilot we've done with DICK'S Sporting Goods, where we've taken one of our partners, one of our important strategic partners and we're learning together around connected membership. We have very strong initial results from that. Consumers really appreciate the fact that they know who we are and their NIKE members whether they're shopping at a DICK'S or shopping elsewhere. And we're working closely with DICK'S to provide that seamless experience. And as we learn more from that, we'll roll that connected partnership out to others. And then just to repeat, we believe in the North America marketplace in particular. There's a real need around women's, around Jordan and around some higher-end apparel where our mono brand stores, particularly NIKE Live concept, the 5,000- to 6,000-square-foot concept can really play a role in neighborhoods around North America. So we think that leads to a healthier marketplace that leads to even accelerated growth.

Operator:

We have your next question from Matthew Boss with JPMorgan.

John Donahoe:

Yes, Matt, I'm so glad you asked this question because one of the things that just gives us extraordinary confidence in our outlook is the innovation pipeline. And it's been so much fun because a growing number of our teams are back together here on campus. Matt and I both spent a whole bunch of time over our new Serena Williams Building last week with Michael and Heidi and Andy and DJ and going through our products. And in person, physically touching the products in the pipeline, I can't tell you how energizing that is. And we have a very strong pipeline. And as Matt and I both described, that's both in our platforms and in our products. The FlyEase is just a great example of how NIKE has this extraordinary ability to take innovation insight. In this case, it was developed for people with ability challenges and now leverage it. You see it first with kids, right? One of the #1 challenges parents have is helping get their kids their shoes on in the morning or off at night. And this -- the Dynamo GO, along with several other new models coming that take advantage of FlyEase technology, both in lifestyle and performance. And now women and men's want to embrace the FlyEase and Converse as I mentioned. So that's a great example of a platform that's scaling and there's a strong innovation pipeline. And then we've got a great pipeline coming over the next 3 to 12 months of running, is a great example where we have updated models around Infinity, around Invincible, and we're really excited about Invincible. The next Pegasus models are quite strong so that will be coming. Very excited about the running line going forward. With women's, we just launched the Dri-FIT Alpha Bra. And in the pipeline is a really exciting next generation of leggings and bras that we think is just really going to continue to turbocharge our growth there. And obviously, the Free Metcon is seeing strong consumer demand already. And then with kids, we're bringing ACG into kids in the fall for the first time. In basketball, the G.T. Cut; in global football, the Phantom and the Mercurial and what is going to be an extraordinary. You think about the global football agenda for the next 15 months, both men's and women's, I can just tell you that our -- we are so excited about the product pipeline, both the breadth and the depth of it that -- and it's just fun to be able to really be together in person as our innovation teams continue to put the pedal to the metal.

Operator:

Our last question comes from the line of Adrienne Yih with Barclays.

Matt Friend:

Adrienne, we've got a strong portfolio of brands, products, geographies, and we're encouraged by the momentum that we're seeing in Greater China. As it relates to Digital, as both John and I mentioned on the call, the growth we continue to deliver through that channel continues to be fantastic and it's the consumer that's leading that transition. To be able to deliver double-digit traffic -- growth in traffic in North America this past quarter really stood out as an outlier relative to where other brands and retailers were seeing traffic growth. And to us, it's a signal of the strength of our brand and the fact that the consumer continues to choose this channel to engage, the fact that the app downloads have increased on a quarter-over-quarter basis, the fact that we're seeing the app drive a greater proportion of our overall business connects membership. And the way that we're going to try to connect membership into the marketplace, we continue to feel very strong that Consumer Direct Acceleration led by Digital is what's going to drive us towards that fiscal year '25 goal. And as we've mentioned before, we earn a higher gross margin on our sales through the digital channels, and we expect to see leverage in our costs, which will enable us to hit that high teens operating profit over the multiyear period.

John Donahoe:

Thanks, everyone.

Operator:

And this concludes today's conference call. Thank you for participating. You may now disconnect.

Paul Trussell:

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE, Inc.’s fiscal 2022 second quarter results. As the operator indicated, participants on today’s call may discuss non-GAAP financial measures. You will find the appropriate reconciliations in our press release, which was issued about an hour ago, or at our website, investors.nike.com. Joining us on today’s call will be NIKE, Inc. President and CEO, John Donahoe; and our Chief Financial Officer, Matt Friend. Following their prepared remarks, we will take your questions. We would like to allow as many of you to ask questions as possible in our allotted time. So, we would appreciate you limiting your initial questions to one. Thank you for your cooperation on this. I will now turn the call over to Nike, Inc. President and CEO, John Donahoe.

Matt Friend:

Thank you, John. Hello and happy holidays to everyone on the call. As you’ve heard us say before, NIKE is a growth company with boundless potential. And our Consumer Direct Acceleration strategy is transforming our operating model by driving deeper and more direct connections with consumers through digital. Our teams continue to navigate through unprecedented levels of volatility, with flexibility, agility and grace, leveraging the operational playbook we created at the onset of the pandemic to stay focused on what matters most. We have embraced new ways of working, elevated experienced players into new leadership roles, reorganized the Company to create even deeper focus on the consumer and developed new capabilities to serve consumers directly with speed and at scale. NIKE’s second quarter financial results were in line with the expectations we established 90 days ago, fueled by continued brand momentum, the strength of our product franchises with extraordinary levels of full-price realization and strong season-to-date holiday sales, offset by lower levels of available inventory supply relative to marketplace demand. As John mentioned, we had an incredible Black Friday week, with NIKE Direct in North America and EMEA, increasing over 20% versus the prior year on top of last year’s meaningful gains. To accomplish this, I’m particularly proud of the work by our supply chain teams. In late October, I was able to visit our North America distribution centers in Pennsylvania, Tennessee and Mississippi, to review our expanding digital fulfillment capabilities and holiday readiness plans. Our teams are executing those plans with precision, optimizing available inventory to meet demand with improved service levels and lowering carbon impact, all enabled through technology and automation. Staying on the topic of supply chain a little longer, factory reopening in Vietnam is on plan. Nearly all impacted factories began reopening in October. As of today, all factories are operational, and employee attendance rates have improved with weekly footwear and apparel production now at roughly 80% of pre-closure volumes. In total, Vietnam factory closures caused us to cancel production of roughly 130 million units due to three months of lost production volume and several months to ramp back to full production. Compared to 90 days ago, we are increasingly confident supply will normalize heading into fiscal ‘23. Turning to our digital business. NIKE’s digital growth is outperforming comparisons and being fueled by our member-centric focus. NIKE Digital grew 11% in the quarter on a currency-neutral basis, setting the pace for the industry. NIKE Digital is now 25% of total NIKE brand revenue, up 3 points versus the prior year and more than double the digital mix in fiscal ‘19. Enhanced onboarding experiences are attracting millions of new members into the top of the funnel, and we are focused heavily on member engagement and buying. Member engagement grew 27% and repeat buyers grew 50% versus last year, driving overall higher AUR, AOV and member buying frequency. 40% of total digital demand this year is coming from our mobile apps, highlighting the strength of our digital platform. We now have over 79 million engaged members across our NIKE ecosystem. And as NIKE’s digital ecosystem continues to grow, we are beginning to see the compounding benefits of scale from brand awareness and consumer connection to data-informed personalization and inventory utilization to loyalty. This quarter, we held our first globally coordinated Member Days event, setting records in member engagement. From member-exclusive product offerings to our first live stream member events from our NikeTown London and Passeig de Gràcia store in Barcelona, we created a distinct member experience and set a record for weekly active users on the Nike app in North America. Now, moving to one final topic. Connecting with today’s consumers means serving them with the product they want, when and where they want it. Consumers want a premium, seamless and personalized experience with minimal friction across their journey to explore, engage, connect and purchase products from the brands they love. As we’ve discussed before, NIKE is focused on creating one NIKE marketplace that elevates the brand by creating direct consumer connections through fewer, more impactful wholesale partners with a connected mobile digital experience at the center built for the NIKE member. Over the past 4 years, North America has reduced the number of wholesale accounts by roughly 50%, while delivering strong growth and recapturing consumer demand through NIKE Direct and our strategic wholesale partners, leading the way for NIKE. In the second quarter, North America Digital grew 40% versus the prior year, pushing NIKE Digital to 30% of total North America marketplace, bringing NIKE Direct to 48% of total. In order to enable this growth and drive the shift in marketplace composition, we have accelerated investment to evolve our distribution network and scale a digital-first supply chain, leveraging advanced analytics, automation and technology. We have opened two new regional service centers on both coasts, which are able to deliver more units to consumers with shorter delivery times. We also enabled ship-from-store capabilities across our store fleet, all leveraging advanced analytics from our Celect acquisition. On automation, we’ve added more than 1,000 robots in our distribution centers to handle the digital growth. In our digital distribution center in Memphis, robots handled more than 10 million units that would have otherwise required manual labor. We continue to scale O2O consumer services across our store fleet, including buy online, pick up in store and digital order returns in store. Volumes are relatively small today, but we have significant opportunity to scale. We’ve also established new fulfillment models with key strategic partners to create inventory visibility across the marketplace and optimize full-price digital demand. When we do this right, the consumer wins. The progress being made to create One Nike Marketplace has accelerated North America’s revenue growth and gross margin expansion for yet another quarter, illustrating how consumer-direct acceleration will fuel NIKE’s growth and profitability towards the fiscal ‘25 outlook we shared in June. Now, let me turn to the details of our second quarter financial results and operating segment performance. NIKE, Inc. revenue grew 1% and was flat on a currency-neutral basis, led by 8% growth in NIKE Direct offset by a 6% decline in wholesale due to optimization of available inventory supply. NIKE Digital grew 11% and NIKE-owned stores grew 4% with significant improvements in traffic and higher conversion rates. Gross margin increased 280 basis points versus the prior year, driven primarily by higher NIKE Direct margins due to lower markdowns, higher full price mix and foreign currency exchange rates, partially offset by increased freight and logistics costs. SG&A grew 15% versus the prior year, primarily due to normalization of spend against brand campaigns, digital marketing investments to support heightened digital demand, strategic technology investments and wage-related expenses. Our effective tax rate for the quarter was 10.9% compared to 14.1% for the same period last year. This was due to a shift in our earnings mix and the effects of stock-based compensation. Second quarter diluted earnings per share was $0.83, up 6% versus the prior year. Before we move into operating segment results, I want to recall a few points I made last quarter regarding the impact of Vietnam factory closures on the short-term performance of each of our geographies beginning in the second quarter. North America and EMEA finished the first quarter with high levels of in-transit inventory, resulting in prior season supply that was arriving late due to longer transit times, which could be sold in the second quarter. We saw that in our Q2 results. However, Greater China and APLA, located closer to our sourcing base with shorter standard transit times, experienced a decline in units sold in the second quarter due to lost production and lower available inventory supply. We also saw that reflected in our Q2 results. With that in mind, let’s review the operating segments. In North America, Q2 revenue grew 12% and EBIT grew 21%. Demand for NIKE remained incredibly strong with season-to-date holiday retail sales across the total market growing double digits, energized by the continued momentum from the return to sport and the beginning of an outstanding holiday season. Performance sport dimensions delivered strong double-digit retail sales growth led by running, fitness and basketball on lower levels of sell-in due to available inventory supply. Women’s retail sales grew high double digits, more than twice the rate of men’s with strong growth across both footwear and apparel. NIKE Direct had an outstanding quarter, growing 30% versus the prior year. As I mentioned earlier, digital maintained its momentum growing 40% and setting holiday records on Black Friday week. NIKE-owned stores also delivered strong double-digit growth, with traffic trending towards pre-pandemic levels and strong increases in AUR due to lower closeout inventory levels and significant year-over-year improvements in markdown rates and promotions. Despite strong retail sales momentum in the wholesale channel, revenue declined 1% as marketplace inventory levels remain lean and Vietnam factory closures and longer transit times disrupt the flow of inventory supply to meet marketplace demand. In EMEA, Q2 revenue grew 6% on a currency-neutral basis, and EBIT grew 22% on a reported basis. Season-to-date holiday retail sales across the total market grew double digits, with strong growth across all consumer segments. The region was energized by the start of the global football season and the Champions League tournament across the continent. NIKE players continue to dominate on the pitch with the Mercurial boot being the lead score in a number of European professional leagues. We saw a strong consumer response for the Mercurial boot and launch of the Champions League third kit. Wholesale revenue grew 6% on a currency-neutral basis as we comp prior year market closures. NIKE Direct also grew 6%, led by double-digit growth in NIKE-owned stores, as we comp prior year store closures with traffic improvement due to tourism picking up and back-to-school holidays. NIKE Digital was down 1% as we compare to extraordinary levels of off-price sales in the prior year as the geography leverage digital in the prior year to liquidate excess inventory. This quarter, our full-price digital business grew over 20% resulting in a 30-point improvement in full price sales mix, double-digit growth in AUR and improvement in markdown rates and promotions. This contributed to strong year-over-year expansion in gross margin and return on sales profitability. In Greater China, Q2 revenue declined 24% on a currency-neutral basis, and EBIT declined 36% on a reported basis. However, season-to-date holiday retail sales across the total market have trended more favorably. Results for this quarter were as expected, as we navigated lower full-price product supply, due to the Vietnam factory closures. We saw disproportionate impacts to our wholesale revenue, which declined 27% on a currency-neutral basis. NIKE Direct declined 21% with declines in both, digital and physical retail channels. COVID-related lockdowns continue to drive volatility in retail traffic. However, we did see traffic recover to pre-pandemic levels at times throughout the quarter. Digital declined 27%, partially impacted by delay in product launch timing on SNKRS. Over the 11/11 consumer moment, we drove stronger digital performance with significant member acquisition and higher AOV through better engagement with consumers. While challenging, we continue to leverage our operational playbook and remain optimistic about the longer term in Greater China. This quarter, we extended our Joy of Sports brand campaign, utilizing local influencers, Olympians and other athletes that are part of NIKE’s leading sports marketing portfolio in Greater China. The Jordan brand added to the energy by announcing their first female athlete signing in Asia with basketball player Yang Shuyu. To support this activity and normalize our marketing investment levels, we increased our investment in demand-creation in the second quarter by more than 40% versus the prior year. Our local team remains focused on creating distinctive and authentic connections with Chinese consumers. We celebrated the 40th anniversary of NIKE’s operations in China by using the Express Lane to reintroduce the original NIKE collection with robust storytelling on the history and heritage of these iconic products. During our first launch, all products sold through in the first hour. We will continue to expand the Express Lane to bring unique localized offerings to the consumer, leveraging our most popular global product franchises to drive uniquely NIKE energy in the marketplace. We see encouraging signs in Greater China. And while inventory supply has been a major disruption in the marketplace, we continue to expect fiscal ‘22 to be a year of recovery. Having said that, we expect to see sequential improvement from here, beginning in the third quarter. Now, moving to APLA. Q2 revenue declined 6% on a currency-neutral basis and EBIT declined 8% on a reported basis. Double-digit revenue growth on a currency-neutral basis in SOCO was offset by declines in Asia Pacific territories, which faced a greater impact from Vietnam factory closures as well as the business model shift in Brazil. Season-to-date holiday retail sales across the total market grew versus the prior year, despite supply disruptions and door closures in SEA&I and Pacific. NIKE Direct grew 6%, led by NIKE Digital growth of 25%. Our teams maximized market moments with all territories delivering successful member days and locally relevant activations, including Singles’ Day in Southeast Asia, Buen Fin in Mexico and Cyber Week in Japan. Mexico’s digital business more than doubled as we enabled the localized assortment and fulfillment capabilities through the NIKE App. Finally, APLA continues to leverage the Express Lane, their digital ecosystem and global partnerships to create locally relevant product and meaningful engagement with consumers around the world. Consumers in APLA are highly connected, and our team continues to innovate on digital experiences that are locally relevant. The Dia de los Muertos footwear pack saw a 100% sell-through, and this story was extended to the world through our new partnership with Roblox. Now, let’s turn to our financial outlook. As we approach the end of the second year of the pandemic, it is becoming even more challenging to compare quarters and fiscal years due to multiple waves of COVID-related disruption at different times across the consumer marketplace and now supply chain. We expect the operating environment to remain volatile as COVID variants continue to cause disruption to business operations. Our fiscal ‘22 financial outlook reflects inventory supply significantly lagging consumer demand across NIKE’s portfolio of brands. However, NIKE’s long-term market opportunity is larger than ever. And so, we remain focused on what we can control in the short term and on where we are heading through our Consumer Direct Acceleration strategy and on what is required to deliver on our fiscal ‘25 financial outlook. Specifically for fiscal ‘22, we continue to expect revenue to grow mid-single digits versus the prior year, in line with guidance from 90 days ago. For Q3, we expect revenue to grow low-single digits versus the prior year due to the ongoing impacts from lost production from COVID-related disruptions in Vietnam. We are raising our gross margin guidance to expand 150 basis points versus the prior year. We expect to continue benefiting from exceptional demand against the backdrop of lean marketplace inventory. Full price realization will remain above our long-term target with lower channel markdowns. However, we expect product costs to rise in the second half due to higher macro input costs. We’re also planning for supply chain costs for the full year to increase relative to our estimates 90 days ago with a greater impact in the second half. Last, we now expect foreign exchange to be a 55 basis-point tailwind versus the prior year. We continue to expect SG&A to grow mid to high teens for the full year as demand-creation spend normalizes, and we continue to invest in the capabilities to support our consumer-led digital transformation. We now expect our effective tax rate to be in the low-teens for the full year. Consumer Direct Acceleration is driving our business forward, and it is transforming our financial model. We continue to prove that we can manage through the uncertainty and volatility in the current operating environment. But we are doing more than just managing through. We are building NIKE for the future with deeper consumer connections, a pipeline of product innovation to serve the needs of the modern athlete and new operational capabilities required to serve consumers directly and digitally at scale. We have a clear vision of our brand’s long-term future and so we remain focused on what is required to win over the long term. With that, let’s open up the call for questions.

Kimberly Greenberger:

Great. Thank you so much. And a great job here navigating through, I think, a very difficult time. Matt, I wanted to follow up on your commentary regarding the resumption of production running at 80%. Can you just talk about your expectation here over the next several months in terms of that continued productivity ramp? And when do you expect to be -- if you could just talk about, again, I know you talked about it last quarter, but when do you expect to be back in a more offensive position with regard to inventory and fully restocked on that? Thank you.

Operator:

[Operator Instructions] Your next question comes from the line of Adrienne Yih with Barclays.

John Donahoe:

Yes. Thanks, Adrienne. I’m just going to repeat what I said last quarter and the quarter before, which is NIKE always has, and we always will, take a long-term view in China, right? We’ve been there for 40 years. Phil was in there very early. We have built up a very strong brand connection with the consumer in China. And we’re going to continue to invest to lead in China. And so, we’re investing behind the various things that brought us to where we are today. First and foremost, we have a great local team. Angela Dong and her team are helping us navigate and shepherd through the current environment. Product innovations, at the top of our list, the most innovative product in the world that we consistently produce increasingly tailored to the Chinese consumer through our Express Lane. And Matt talked a little bit about that, and that more and more of what we do in China is tailored to that China consumer. Same thing on storytelling. Storytelling that’s centered on local athletes and the local consumer. We mentioned the signing of the most recent Jordan sports marketing [Indiscernible] and the live streaming. We’re connecting with that local Chinese consumer on their terms. And then, we continue to be responsible citizens. We’ve always invested to grow sport in China. We are continuing to do that. We care and are investing behind sustainability. And so, the same fundamentals that have always been there, we believe, are the right fundamentals going forward. This quarter, as Matt said, the results were in line with what we expected, with all the supply shortages and other dimensions. And what I look at is when we are present and active with the consumer in China, how they’re responding. We saw some very encouraging things. We were very active around Singles’ Day, right? We mentioned 90 live streams in the month prior with over 70 million viewers. That led to 13 million new members. And NIKE, once again being number 1 on the Tmall during that period in China. And so, we’re focusing on the long term. We’re getting a little bit better each quarter, and we’re going to continue on that path, working closely with our team there.

Adrienne Yih:

Great. Matt, how should we shape China in the third quarter relative to the guidance you gave?

Operator:

Your next question comes from the line of Omar Saad with Evercore.

John Donahoe:

Omar, let me start and maybe talk about our team, and then, Matt, you can maybe elaborate on it. Omar, I just got to say I am so proud of how our team has navigated through the last 6 to 24 months. It’s been an ongoing series, as you know, of start-stop, a lot of uncertainty, a lot of change. And our team has responded with resilience, with creativity, and with a lot of innovation. And I got to be honest, in hindsight, many of the changes that have been made accelerated progress that otherwise would have happened. And so, we’re actually in a stronger position today. I think we’ve actually benefited because of our team’s efforts and demonstrated ability to respond even in a work-from-home environment. Now that said, we do believe over time that with innovation and a strong brand, we want to go to a hybrid model. As you know, in the United States, we have mandated vaccines and have a very high response rate to that. So, we’re ready to come back in a hybrid work environment when that’s safe, and we prioritize that, safety of our employees. And we’ll be ready, whether that’s first quarter or whenever it ends up being. But in the interim, our teams continue to innovate and execute in a way that I’m so appreciative and proud of. And I think the results reflect that. Do you want to talk about the impact, Matt, on the rest of them?

Operator:

Your next question comes from the line of Bob Drbul with Guggenheim Securities.

Matt Friend:

Yes, Bob, it’s a great question. To date, we have been delaying launches to synchronize them around the world. And as an example, in Greater China in the second quarter, SNKRS was down 50% versus the prior year, which had a big impact on that digital number. And that was because we didn’t have the available inventory supply across the rest of our geographies to be able to coordinate a launch. We’re evaluating that as we look forward because we want to do the right thing for the consumer in the right local marketplaces. But yes, we have been operating that way to date.

Matt Friend:

And our teams are shifting to a seasonless approach as we navigate the inventory we have for the balance of the year in order to make sure that we can fulfill consumer demand with the supply we have versus delaying further.

John Donahoe:

I don’t think that’s probably first on the priority list. But I don’t know, Paul, maybe.

John Donahoe:

Maybe. Maybe someday, you can come to us from the metaverse, Paul.

Laurent Vasilescu:

I wanted to ask about pricing, especially with the backdrop of the very strong gross margin. Near term, how should we think about the promotional environment in North America and EMEA for the back half of the fiscal year? And then, longer term, on the last call, you talked about exceeding your 65% full-price sales realization goal put forward in your last Investor Day, just curious to know what that new goal is embedded with the 2025 targets?

Operator:

Your next question comes from the line of Matthew Boss with JP Morgan.

John Donahoe:

Sure, Matt. Let me just tell you the foundation with which I say it. Number one, our brand tracking tells us that our brand is still the number 1 cool and favorite brand in all 12 of our key cities around the world, and it’s strengthening, and strengthening against our historical competitors. In fact, the only people that are coming close are technology companies. And so, that continues to be one evidence. But I think even more fundamentally in longer term is the foundation of having a direct connection with the consumer. We are in an era where that is the liquid gold for any brand is to have a direct connection with the consumer so that you can understand that consumer, you can engage that consumer and then you can serve them in a personalized way. And if you have a leadership position, you have more information with which to do all that, more data, more information. And so, our digital penetration is at an all-time high. Matt mentioned it’s 25%. Our Direct Digital and mono brand penetration is at an all-time high that gives us that direct connection. And frankly, the partnerships like DICK’S allows us to have that direct connection, whether it’s direct, or with a wholesale partner, and that allows us to serve that consumer in a more personalized, engaging and sustainable way. And we believe that is going to be one of the key indicators of future success. And not every brand in our industry or other industries is to be able to have that direct connection with consumers. And so, that’s the best leading indicator. And that’s why we’re putting so much focus on our full consumer funnel, bringing new members into the top of the funnel, engaging the mid-funnel and then obviously, translating that into strong and deep relationships. And so, when you compare geographies, we’re in this weird period where you got sort of numerator-denominator issues, right? Obviously, North America results were really strong this quarter. We had the supply and our team did a great job executing. In EMEA, for instance, the digital results reflected last year when we were sort of liquidating a lot of inventory when COVID just occurred. But, I look at our full-price digital penetration, it was quite strong. So, the quarter-to-quarter growth rates get a little bit hard to interpret because of supply issues because of the previous years, we’re lapping store closures or -- but I would say we feel very good and very confident about being stronger in each of our regions.

Operator:

Your last question comes from the line of Michael Binetti with Credit Suisse.

Matt Friend:

Thanks for the question, Michael. The results this quarter in China were absolutely -- were overwhelmingly impacted by supply disruptions from Vietnam. And we’ve been -- we’ve talked about that both earlier today and last quarter. We also had to navigate through local measures that were put in place to reduce the spread of COVID. And what I mean by that is that 25% of our partner retail stores were impacted in the quarter in some way as a result of local mandates to affect operations, and 50% of our factory stores in Greater China were equal -- were similarly impacted. And so, that was -- those were clearly the two biggest drivers that impacted our performance this quarter. I mentioned SNKRS and the comparison challenges due to the delay of launch. But we’ve actually seen digital sequentially improving throughout the quarter. And so, we’re increasingly optimistic given our 11/11 performance in the way that we’re sequentially improving. And as supply normalizes, as I referenced, we expect to see sequential improvement from these 2Q results. And as we restart our marketing activity and drive those connections with consumers, some of these signals that we’re seeing, these encouraging signs that we see give us a lot of confidence that our trajectory is going to improve from this quarter.

Paul Trussell:

Well, thank you, everyone, for joining the day. We look forward to speaking to you not just next quarter, but next year. So, happy holidays to all. Take care and stay safe.

Matt Friend:

Happy holidays.

Paul Trussell:

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE, Inc.’s fiscal 2022 first quarter results. As the operator indicated, participants on today’s call may discuss non-GAAP financial measures. You will find the appropriate reconciliations in our press release, which was issued about an hour ago, or at our website, investors.nike.com. Joining us on today’s call will be NIKE, Inc. President and CEO, John Donahoe; and our Chief Financial Officer, Matt Friend. Following their prepared remarks, we will take your questions. We would like to allow as many of you to ask questions as possible in our allotted time. So, we would appreciate you limiting your initial questions to one. Thank you for your cooperation on this. I will now turn the call over to Nike, Inc. President and CEO, John Donahoe.

Matt Friend:

Thank you, John, and hello to everyone on the call today. NIKE’s acceleration to a more direct member-centric business model continues to fuel deep connections between consumers and our portfolio of brands. Drawing upon our culture of innovation, unmatched global scale and our industry-leading digital platform, we continue to serve the modern consumer as only NIKE can. Our first quarter results proved again that our strategy is working. And NIKE’s Consumer Direct Acceleration is fueling the transformation of our long-term financial model. Our relentless focus on serving the consumer translated into revenue growth of 16% and EBIT growth of 22% versus the prior year. The NIKE Brand remains distinctive and deeply connected in our key cities around the world. From New York to Paris, Shanghai to Tokyo, NIKE continues to be consumers’ number one cool and favorite brand with a position that has gained strength as we’ve navigated through the pandemic. Consumer demand for NIKE, Jordan and Converse, remains incredibly high, and our first quarter financial results would have been even stronger, if not for supply chain congestion, resulting in lack of available supply. Despite these headwinds, retail sales still grew double digits versus the prior year, including a record-setting back-to-school season in North America. SNKRS has increasingly become an indicator and barometer of brand heat now being operational at scale in 50 countries around the world. NIKE Digital is now 21% of total NIKE brand revenue, which is an increase of 2 points versus last year with strong double-digit growth versus the prior year, even with broad reopening of physical retail. Digital is increasingly becoming a part of everyone’s shopping journey, and we are well positioned to reach our vision of a 40% owned digital business by fiscal ‘25. And coming back to marketplace health for a moment, we delivered strong growth in average selling price this quarter with continued improvement in full price realization. This performance reflects our intentional efforts to manage the health of our product franchises as demand surges, to move available inventory to serve demand in the right channels and to drive a more premium experience for consumers. This quarter, we exceeded our 65% full price sales realization goal, which reflects the expectations that we put forward at our last Investor Day. As we accelerate our consumer-led digital transformation, we are developing and refining new capabilities that are transforming our operating model, quickly becoming a competitive advantage for NIKE. Central to these capabilities is scaling our digital-first supply chain to enable NIKE’s digital growth while optimizing service, cost, convenience and sustainability. We are evolving our distribution network and forward deploying inventory closer to the consumer, leveraging data and advanced analytics. These actions will improve service levels, reduce carbon impact and ultimately reduce cost to fulfill an order. Our regional service center outside of Los Angeles opened one year ago, and we’re excited with the opening of two more centers in Q1, one in the East Coast and one in Spain. Our investments in O2O services are putting our products in the path of more consumers and more efficiently optimizing our inventory. Today, we have at least two O2O services in each of our NIKE-owned stores in the U.S., and we are aggressively scaling these services across the globe. Our Express Lane offense is also creating more and more agility across our portfolio, from creating locally relevant product on shorter lead times to leveraging a shared inventory pool across the marketplace, we are better conserving consumers with more operational flexibility, yielding higher profitability. This quarter, Express Lane grew roughly 20% versus the prior year and increased its share of overall business. And last, the NIKE App continues to enable a convergence between physical and digital shopping journeys, eliminating friction for consumers. From member-driven personalization and localization to building an endless aisle through digital integration with our most important wholesale partners, Consumer Direct Acceleration is transforming NIKE’s operating model to move at the speed of the consumer. Now, let me turn to the details of our first quarter financial results and operating segment performance. NIKE, Inc. revenue grew 16% and 12% on a currency-neutral basis, with growth across all marketplace channels. NIKE Digital grew 25% and NIKE-owned stores grew 24%. Wholesale grew 5% in the quarter, negatively impacted by lower available inventory supply due to worsening transit times. Gross margin increased 170 basis points versus the prior year, driven primarily by higher NIKE Direct margins and partially offset by increased ocean freight surcharges. SG&A grew 20% versus the prior year. This was due to higher wage-related expenses, higher levels of brand activity connected to return to sport and strategic technology investments. Our effective tax rate for the quarter was 11% compared to 11.5% for the same period last year. This was due to increased benefits from stock-based compensation and discrete items, offset by a shift in our earnings mix. First quarter diluted earnings per share was $1.16, up 22% versus the prior year. Now, let’s move to our operating segments. In North America, Q1 revenue grew 15% and EBIT grew 10%. Demand for NIKE remained incredibly strong for the fifth consecutive season, energized this fifth consecutive season, energized this quarter by back-to-school and the return-to-sport. Retail sales for our performance business grew strong double digits during the fall season, led by running, fitness and basketball, powered by excitement from the Olympics, the new WNBA season and the NBA finals. NIKE Direct grew more than 45%, with NIKE Digital now representing 26% share of business. Digital continued its momentum and grew more than 40%, increasing market share by outperforming industry trends with strong growth in traffic and repeat buying member activity. The return to physical retail accelerated NIKE-owned store growth of over 50% as we serve members with elevated experiences. NIKE-owned inventory increased 12% versus the prior year. This was driven by highly elevated in-transit inventory levels as transit times in North America deteriorated during the last quarter, now almost twice as long as pre-pandemic levels. This impacted product availability across the marketplace and our ability to serve strong levels of consumer demand, particularly in the wholesale channels. Closeout inventory was down double digits versus the prior year. In EMEA, Q1 revenue grew 8% on a currency-neutral basis and EBIT grew 26% on a reported basis. This region was energized by the Euros this summer, where NIKE players scored more goals than all other brands combined, and more than half of those goals were with our material boots. We saw a strong consumer response to both the material boot and replica jerseys during the tournament. NIKE Direct grew 10% on a currency-neutral basis, led by our NIKE-owned stores. Following a full reopening, we saw traffic increase by double digits versus the prior year with better-than-expected conversion rates. In EMEA, while NIKE Digital grew 2% in the quarter, demand for full-price products grew nearly 30% as we compare to higher liquidation levels in the prior year. NIKE-owned inventory declined 14% on a reported basis with closeout inventory down double digits. Transit times to EMEA have also deteriorated over the past 90 days, causing higher levels of in-transit inventory and negatively impacting product availability to serve strong consumer demand. In Greater China, Q1 revenue grew 1% on a currency-neutral basis. EBIT grew 2% on a reported basis as the team delivered in line with our own recovery expectations. Retail sales were impacted in late July and August due to regional closures and lower levels of foot traffic due to COVID containment. Prior to late July, physical traffic had been approaching prior year levels. In July, we engaged with consumers through the launch of our Joy of Sports, local marketing campaign. This campaign generated over 1 billion local views, demonstrating strong brand connection with Chinese consumers. NIKE Direct declined 3% on a currency-neutral basis, partially impacted by retail closures. NIKE Digital declined 6% as we compare to higher liquidation in the prior year, partially offset by double-digit improvement in full price sales mix. We experienced a strong 6/18 consumer moment where we grew nearly 10% versus the prior year and remained the number one sports brand on Tmall. Demand in our SNKRS App grew more than 130% for the quarter. Our experienced local team continues to navigate through marketplace dynamics. We finished the quarter with healthy marketplace weeks of supply, and inventory normalization is on plan. Now moving to APLA. First quarter revenue grew 31% on a currency-neutral basis and EBIT grew 72% on a reported basis. Revenue growth was led by SOCO, Japan, Mexico and Korea, with more muted growth in Pacific and Southeast Asia and India due to COVID restrictions and government-mandated store closures. NIKE Digital grew more than 60% on a currency-neutral basis, highlighted by the expansion of our NIKE App. In June, the app went live in Mexico and 6 additional countries across Southeast Asia, generating 3 million local downloads during the quarter. Earlier on the call, John spoke about the new NIKE Rise retail experience in Seoul. To mark the opening of the store, our Express Lane, SNKRS and NIKE Rise teams created the NIKE Seoul Dunk. This collaboration drove more than half of day one sales and highlight how digital and physical experiences are converging in our own stores, leveraging local insights and a more agile supply model. Now, I will turn to our financial outlook. Consumer demand for NIKE remains at an all-time high, and we are confident that our deep consumer connections and brand momentum will continue. However, we are not immune to the global supply chain headwinds that are challenging the manufacture and movement of product around the world. Previously, I had shared that we for transit times to remain elevated for the balance of fiscal ‘22. Unfortunately, the situation deteriorated even further in the first quarter, with North America and EMEA seeing increases in transit times due primarily to port and rail congestion and labor shortages. Additionally, several of our factory partners in Vietnam and Indonesia were required to abruptly cease operations in the first quarter. As of today, Indonesia is now fully operational. But in Vietnam, nearly all footwear factories remain closed by government mandate. Our experience with COVID-related factory closures suggest that reopening and ramping back to full production scale will take time. Therefore, we’re revising our short-term financial outlook to incorporate the following factors

Erinn Murphy:

Great. Thanks. Good afternoon. And I really appreciate the update on what you’re seeing real-time in the supply chain. I guess, my question relatedly is, are there any -- if you look to the fall and back half -- or holiday season, are there any key footwear franchises that are being more impacted than others? And then, when you zoom back and think about the longer-term, what type of investments do you plan to continue to make within the supply chain to continue to improve your agility? Thanks so much.

John Donahoe:

And Erinn, to the second part of your question on -- in that context investment, we’re doing what strong companies do during periods of time like this. We’re going to continue to invest in innovation and product creation, in brand and storytelling and support of sport being back and our strong sports marketing portfolio and our digital transformation. So, that’s continuing. And then, we’ll continue with strong presence around driving demand and brand even in the face of a supply-constrained market, and as Matt mentioned, accelerate air transportation and other things in our supply chain that allow us to take -- manage every lever we can in this supply chain-constrained environment. So, we’re going to -- again, our mantra going into this next phase is the same mantra we had going into the first phase of the pandemic. Let’s make sure we emerge stronger coming out of it than we have even today going in.

Matthew Boss:

Great. Thanks. So, John, maybe could you speak to the overall health of the athletic industry? How best to think about overall TAM for NIKE as we exit the pandemic? Can you leverage size, scale and innovation to accelerate market share? And then, Matt, real quick, just on the revised gross margin outlook for this year, aside from the supply chain impact, I guess, my question is, could you speak to maybe some of the underlying drivers? It sounds like full price selling digital margin is on track. Meaning aside from the supply chain dynamics, does anything really change? Meaning do you see this as fully transitory, any change to the multiyear gross margin outlook?

Matt Friend:

And I’ll just hit the gross margin quickly, Matt. We believe that this quarter was an excellent proof point of the success that we’re seeing in driving our consumer-led digital transformation. We’re seeing meaningful movement forward in both, NIKE Direct mix of business and also NIKE Digital mix of business, as I mentioned. And that’s what fueled our gross margin expansion in the first quarter, high levels of full price realization, greater mix of NIKE Direct and NIKE Digital business and lower markdowns as we leverage the capabilities that we have to serve consumer demand, how and where they want it. As we look longer term, we’re absolutely continuing to look towards that high-40s gross margin outlook that we provided last quarter. And in the short term, we’re going to navigate through these transitory impacts. But, when you’ve got a strong brand and you’ve got a healthy pull market, what we’re seeing is strong full price margins offsetting some of these transient costs that we’re going to experience as we move product around the world.

Michael Binetti:

Maybe, John, could you click into the China trends a little bit more in the quarter? I guess, John -- on that. Last quarter, you spoke to some of the trends within the quarter after the impact in April to help us give an understanding of the path back to what was headed back to normal at the time. Any kind of dimensions this quarter? You mentioned there are some COVID lockdowns in a few markets that weighed on the total China trend. Maybe where we’re at in 2Q to date and what you see is the right pace to think about getting back to normal in that market? And then, on North America, to the extent that you do need to make decisions in the allocations of the inventory going forward, I know you had a good amount in transit that can feed into 2Q, but how should we think about how you’re thinking about allocation between the DTC channel and wholesale as we roll forward from here? Is it similar dynamics to what we saw in the first quarter, or any change in that trajectory?

Matt Friend:

And just transitioning to North America, we’ve continued to deliver strong growth in that marketplace. I mentioned five consecutive quarters of -- or seasons, I should say, of incredibly strong demand. As we think about the marketplace, our approach is really no different than we’ve been talking about for a couple of years now. We start through the eyes of the consumer. Where is the consumer shopping? How is the consumer engaging with our brand across the marketplace? And we’re going to continue to focus on prioritizing our product availability for those locations where the consumer is shopping, and that will continue to be within NIKE’s own channels and our most strategic wholesale partners. And that’s what we’re going to continue to do to serve that demand. The marketplace, as I said, is going to be lean. We’re going to have lean inventory across the marketplace. But, NIKE and our partners will continue to try to create the best consumer experience that we can throughout the remainder of that -- of this fiscal year.

Bob Drbul:

Just two questions. The first one is on the spending levels. With the updated outlook on the revenue with the disruption of the supply chain, can you just help us understand how you’re thinking about spending against the lower levels of revenue, whether it’s demand creation or the investment technologies? And I have a follow-up.

Bob Drbul:

Great. And if I could just sneak one more in. I think, the Drake NOCTA line dropped today, or -- I just wondered if you might give us some learnings on what you think about how that product is going and the opportunity that you have for something like that?

Operator:

Your next question comes from the line of Simeon Siegel with BMO Capital Markets.

Matt Friend:

Yes. So, on the pricing question, we -- I mentioned in my prepared remarks that we’ve taken some pricing actions in the second half. And what I would say, Simeon, is that we evaluate price value of our products on a season-by-season basis. And we consider a number of different factors that we incorporate to make a decision about what to do. But, what I will tell you is that we take a long -- we have a long-standing relationship with our consumer. And so, we take a long-term view to these types of decisions. And so, the price increases that we’ve implemented in the second half are in the low single-digit range. And we feel it’s appropriate given the marketplace we’re operating in and those other factors that I referenced, considering we’ve got rising input costs and other factors that are impacting our business. But, I think it’s really important not to drive past the fact that we continue to see strong growth in ASPs across the whole marketplace, driven by higher full price realization as we’ve been talking about for several quarters and lower markdowns, and leveraging the capabilities of identifying our inventory, knowing where we want to put it, putting it in the path of the consumer, optimizing it between ourselves and our physical locations, our digital locations and increasingly providing that endless access to some of our wholesale, to some of our most strategic wholesale partners. All of these things are contributing to a higher level of full price realization across the marketplace. And so, we do believe that this is a base from where we want to operate as opposed to a moment in time. And that’s driving profitability for NIKE at a moment that -- where there’s lots of disruption. I think in terms of your second question in terms of undifferentiated or differentiated, what I would tell you is that we continue to see strong growth in our differentiated partners. And our differentiated partners because of the fact that they are creating a better consumer experience and driving more demand, their weeks of inventory on hand is about half where they would like for it to be right now because of the strong demand that they’re driving. And to take it a step further, over the last three years, we’ve actually exited about 50% of our undifferentiated accounts while we’ve been able to deliver strong double-digit growth. And so, we believe that we will continue down this strategy. And as John alluded to in his prepared remarks, we believe that the supply-related reductions will likely trigger an even greater acceleration in the transformation of the marketplace towards NIKE and our most important wholesale partners.

Kimberly Greenberger:

Great. Thank you so much. And really, really great color on the call today. Thank you. Matt, I wanted to just talk through the resumption in production and when you see inventory levels normalizing, assuming that production resumes through that October, November time frame that you laid out. As you sort of think about your lead times, the low inventory levels, when do you think, in calendar year 2022, you’re going to feel really comfortable about having gotten caught up on the inventory that is holding back revenue growth here over the next few quarters? Thanks so much.

John Donahoe:

And I might just build on that, Kimberly, to say, both Matt and I wish we had a crystal ball, but we don’t. And one of the things that I think we are demonstrating through this very dynamic phase is regardless of what the future holds, we’re capitalizing on it, right? We’re doing what great sports teams do, which is making -- confronting the reality, making adjustments, showing agility and executing in a way where we emerge stronger. And so, we had demand shocks last year with the closing of retail in the phase 1 of pandemic. And now we’ve got some supply shocks with phase 2 of the pandemic this year. We will navigate through those just as we did last year. I think we’re stronger today than we were 18 months ago and we’ll be stronger 18 months from now than we are today. And in the process, we’re building that capability where we’re leveraging our strengths and we’re leveraging the leadership position. And I just want to maybe conclude this call, Paul, by once again, just expressing my sincere thanks and appreciation for the 75,000 NIKE teammates around the world, who day in and day out are adjusting to the circumstances on the field, are demonstrating teamwork and resilience and creativity to serve consumers and continuing to innovate. And that’s what we’ll continue to do regardless of what the future deals us.

Operator:

Ladies and gentlemen, we thank you for your participation in today’s conference call. This concludes today’s conference call. You may now disconnect.

Andy Muir:

Thank you, operator. Hello, everyone and thank you for joining us today to discuss NIKE, Inc.’s fiscal 2021 fourth quarter results. As the operator indicated, participants on today’s call may discuss non-GAAP financial measures. You will find the appropriate reconciliations in our press release, which was issued about an hour ago or at our website, investors.nike.com. Joining us on today’s call will be NIKE Inc.’s President and CEO, John Donahoe; and our Chief Financial Officer, Matt Friend. Following their prepared remarks, we will take your questions. We would like to allow as many of you to ask questions if possible in our allotted time. So we would appreciate you limiting your initial questions to one. In the event, you have additional questions that are not covered by others, please feel free to re-queue and we will do our best to come back to you Thanks for your cooperation on this. I will now turn the call over to NIKE, Inc.’s President and CEO, John Donahoe.

Matt Friend:

Thank you, John, and hello to everyone on the call today. Before I begin my prepared remarks, I too want to take a moment to thank our incredible team. They have delivered extraordinary results over the past year. I also want to take a moment and recognize Andy Muir. This will be her last earnings call as Vice President of Investor Relations after recently becoming CFO of our Jordan Brand. Thank you, Andy, for your leadership and specifically for your support in my transition to CFO last year. I wish you the best of luck in your new role. I know you’ll do great. And backfilling Andy in this role is Paul Trussell, who many of you already know. Paul joins us from Deutsche Bank, and we’re excited to welcome him to the NIKE team. Now I’d like to begin today’s call with a baseline on where we are in our recovery. Just as we anticipated, NIKE is emerging from the pandemic stronger and better positioned to serve the consumer. And the reason for this is clear, NIKE’s Consumer Direct Acceleration is fueling a deeper consumer connection with our brands and driving business results, all while highlighting greater strategic and financial opportunity ahead. Over the past 15 months, we have navigated through this challenging environment with outstanding execution of our operational playbook. We have faced every challenge head-on, focused on what we could control, all while keeping the consumer at the center. These actions have helped set a strong foundation for sustainable growth and profitability, with business performance now exceeding pre-pandemic levels. In the fourth quarter, we delivered over $12 billion of reported revenue, our largest quarter ever. Our NIKE Direct business is now approaching 40% of total NIKE Brand revenue. NIKE Digital represents 21% of total NIKE Brand revenue, a milestone we’ve reached several years ahead of our prior plan. And finally, our fiscal ‘21 EBIT margin reached 15.5%, reflecting more than 300 basis points of expansion when compared to fiscal ‘19. These metrics now become the new baseline from which we expect to grow. As we recover from the global pandemic, it is clear that our Consumer Direct Acceleration strategy is transforming NIKE’s financial model. So later on the call, I will share our financial outlook through fiscal year ‘25, reflecting a more direct, member-centric business model. However, first, I would like to provide additional detail on our extraordinary fourth quarter results and operating segment performance. NIKE, Inc.’s revenue increased 96% and 88% on a currency-neutral basis. This was driven by strong wholesale shipments and NIKE owned store performance as we anniversary pandemic-related store closures. Even as physical retail reopened, we continued to see strong growth in NIKE Digital of 37% versus the prior year. Gross margin increased 850 basis points versus the prior year driven by favorable NIKE Direct margins and the anniversary of higher costs, including actions taken to manage supply and demand in the face of the COVID-19 pandemic. SG&A grew 17% versus the prior year due to higher levels of brand activity connected to return of sport, digital marketing to drive digital demand, technology investments to support our digital transformation and higher wage-related expenses. Our effective tax rate for the quarter was 18.6% compared to 1.7% for the same period last year due to decreased benefits from discrete items in the prior year and a shift in earnings mix, primarily related to pandemic recovery. Fourth quarter diluted earnings per share was $0.93 and full year diluted earnings per share was $3.56, up 123% versus the prior year. Now let’s move to our operating segments. In North America, Q4 revenue grew 141%. This also marked the first-ever $5 billion quarter for North America driven by notable improvement in full price sell-through as the marketplace reopened and sport activity returned. Demand for NIKE remained incredibly strong. And as we expected, delayed revenue from the global supply chain disruption in the third quarter was recaptured during the fourth quarter. NIKE Direct grew over 120% as NIKE owned stores returned to positive sales growth versus pre-pandemic levels. More importantly, NIKE Digital grew over 50%, while physical traffic continued to improve across the marketplace. NIKE Direct performance was propelled by our members across both digital and physical retail. Member demand nearly doubled versus the prior year, and the number of buying members grew roughly 80%. Across the total marketplace, we continue to see strong retail sales growth and consumer demand for our brands exceeding marketplace supply with marketplace inventory down double digits versus the prior year. NIKE owned inventory declined 7% with double-digit declines in closeout inventory. In-transit full price inventory remains elevated as we continue to experience longer end-to-end lead times for supply. We expect supply chain delays and higher logistics costs to persist throughout much of fiscal ‘22. In EMEA, Q4 revenue grew 107% on a currency-neutral basis with strong growth across the region, including the UK and Ireland, France, Germany and Italy. NIKE Direct grew 57% despite government restrictions requiring nearly half of our NIKE owned stores to remain closed for the first 2 months of the quarter. In May, as restrictions eased, we saw a strong consumer response with incredible pent-up demand, and this momentum has continued into June. NIKE Digital grew nearly 30% versus the prior year. Through our member days, we saw strong engagement with member demand outpacing total NIKE Direct revenue growth with all-time highs for female active members during Air Max week. In the fourth quarter, we also expanded the NIKE mobile app to more than 10 new countries across the region. During our last earnings call, I shared our expectation that inventory in EMEA would normalize in the first quarter of fiscal ‘22. We have exceeded that goal due to stronger-than-anticipated consumer demand, ending fiscal ‘21 in a healthy and normalized inventory position. In Greater China, Q4 revenue grew 9% on a currency-neutral basis. For the full year, Greater China delivered its 7th consecutive year of double-digit growth, demonstrating our consistent brand strength and commitment to serving the consumer. NIKE Direct grew 2% in Q4, with strong growth in NIKE owned stores, partially offset by declines in NIKE Digital. As John mentioned earlier, Q4 business results were impacted by marketplace dynamics. After a strong March, our business in Greater China was impacted in April, and we adjusted our operations by suspending marketing activities and product launches. We then began to see a recovery trend, improving to a single-digit decline in May and sequentially improving into June, with month-to-date retail sales trends approaching prior year levels. And for the 6/18 consumer moment, our flagship store on Tmall ranked number one, driving the highest demand across the sports industry. Building on our 40-year history in Greater China, we continue to invest in serving consumers with the best products Nike has to offer in locally relevant ways. We also continue to invest in the creation of a premium, seamless consumer digital experience and supply chain capabilities. And we plan to open a new digital technology center in Shenzhen to better serve Chinese consumers. We have an experienced local team in Greater China who helped create our operational playbook at the beginning of the pandemic. They have proactively managed marketplace supply and demand in order to navigate through these dynamics, and we expect inventory to be normalized by the end of Q2. Now moving to APLA, Q4 revenue grew 76% on a currency-neutral basis, with growth across all territories led by Japan, SOCO and Mexico. And Korea grew double digits this quarter on top of the 8% growth they delivered in the fourth quarter of last year. NIKE Digital grew more than 50%, enabled and amplified by our membership offense. This was highlighted by member days, which drove all-time highs for member demand. This momentum also extended to our marketplace partners in APLA as they return to growth versus pre-pandemic levels and achieved their highest level of full price realization since the beginning of the pandemic. During Golden Week in Japan, the Express Lane assortment was heavily influenced by member insights and delivered a sell-through rate that was 2x the rate of the rest of NIKE Digital in Japan, showcasing the power of blending art and science that John referenced earlier. APLA was the last geography to launch our Express Lane offense, and we see significant opportunity to leverage these capabilities to drive deeper, authentic consumer connections across the region. Now as we look ahead to fiscal ‘22 and beyond, I want to provide a new financial outlook through fiscal ‘25. As we emerge from the pandemic, accelerate our consumer direct strategy and transform the operating model of the company. First of all, NIKE is a growth company, and we expect to sustain strong revenue growth going forward. This is based on the significant market opportunity that we see for our brands across the portfolio as well as our accelerated shift to a more direct member-centric business model. As a result, we expect revenue growth to inflect upwards to a range of high single-digit to low double-digit growth on average with outsized marketplace opportunities in women’s, apparel, Jordan, digital and international. Growth will be led by NIKE Direct and our strategic marketplace partners. Earlier, I mentioned NIKE Direct is approaching 40% of our brand business today, and we expect it to represent approximately 60% of the business in fiscal ‘25, led by growth in digital. And as John said earlier, we expect owned and partnered digital to achieve 50% business mix in fiscal ‘25 with NIKE owned digital to represent 40% of the business. We will continue reshaping our wholesale business portfolio, which includes divesting from undifferentiated retail while investing in our strategic wholesale partners for healthy growth. Overall, we expect wholesale revenue to remain roughly flat versus fiscal ‘21. We will support partners who continue to authenticate our brand as well as those who have the scale to create a consistent, premium, digitally connected experience for consumers across the marketplace. Our longer term revenue outlook reflects higher growth expectations across several operating segments. We will continue to leverage the power of our diverse global portfolio. And we expect, on average, North America to grow mid-single to high single digits, EMEA to grow high single digits and APLA to grow low double digits. And with respect to Greater China, while marketplace dynamics still exist, we are optimistic that we can continue to grow low to mid-teens over the long-term. We remain committed to investing in the local consumer experience and inspiring the next generation of athletes in China. We will continue to serve consumers with NIKE’s performance innovation and sports style product franchises, while also increasing local customization of style and fit for consumers. For several quarters now, I’ve highlighted that the strategic and financial benefit of shifting to a higher mix of business through NIKE Direct led by digital and leveraging enhanced data and analytics capabilities to optimize inventory, drive higher full price realization and lower digital fulfillment costs. We now see gross margin rate reaching the high 40s by fiscal ‘25. We will continue to reallocate resources and invest to enable our digital transformation and fuel the long-term growth and profitability opportunities that we see. Having said that, we expect to invest in SG&A at a rate that drives leverage versus pre-pandemic levels, which averaged roughly 32% to 33% of revenue. As a result of all of these, we see our EBIT margin reaching high teens by fiscal ‘25 with earnings per share growth of mid- to high teens on average over this period. As we drive towards a more direct business model, we remain committed to create long-term value for our shareholders through serving consumers and sustaining our disciplined financial management. We expect to deliver strong growth in free cash flow, maintain annual capital expenditures at roughly 3% of revenue, drive returns on invested capital above prior guidance of the low 30% range and deliver consistent returns to shareholders through dividends and share repurchases. Now that I’ve discussed our updated financial outlook through fiscal ‘25, I will provide guidance for fiscal ‘22. As I’ve already said, we entered the fiscal year strong, confident that our deep consumer connections and brand momentum will continue despite being in a dynamic operating environment. Our confidence is rooted in the fact that consumers in key cities rate NIKE as their favorite brand, that retail sales continue to grow strongly on lean marketplace inventory and our organization is aligned against our new consumer construct, which will help us accelerate even faster against our largest growth opportunities. In fiscal ‘22, we expect revenue to grow low double digits and surpass $50 billion, reflecting strong consumer demand across our operating segments as we lead with digital, scale NIKE owned physical retail concepts and grow with our strategic partners. It’s important to note, as we normalize our post-pandemic business and continue to reshape the marketplace we do not expect quarter-by-quarter growth to be linear. Therefore, we expect first half growth to be slightly higher than second half growth. We expect gross margin to expand 125 to 150 basis points, reflecting our continued shift to a more profitable NIKE Direct business and sustained strong full price realization, partially offset by higher product costs, supply chain investments and the annualization of certain one-time benefits in fiscal ‘21. Foreign exchange is estimated to be a tailwind of roughly 70 basis points. We expect SG&A growth to slightly outpace revenue growth as we normalize spend with return to sport and more consistent store operating schedules as well as investments focused against our largest growth opportunities, which I have shared previously. However, we do expect leverage relative to pre-pandemic rates of investment. And last, we expect the fiscal ‘22 effective tax rate to be mid-teens. As we begin our next fiscal year, NIKE continues to navigate through a dynamic and rapidly changing environment. At the same time, we are on the offense and accelerating our strategy to serve more consumers personally and at scale. Our unmatched innovation continues to enable world-class athletes to reach new levels of performance as sport returns to the main stage. Our product pipeline is strong, and we are even more deeply connected to consumers than before the pandemic. We are building upon the strong foundation we set in fiscal ‘21 and accelerating our pace for the next leg of the race. We have a clear vision for our brand’s long-term future, and we are focused on what it will take to get there. With that, we will now open up the call for questions.

Bob Drbul:

Yes. Good afternoon, and Paul Trussell, congratulations. And Andy, best of luck, and thanks for all the information today. I guess the first question that I have, can you spend a little more time on China? Exactly – I mean you gave us a lot of detail around how it’s progressing. I guess I would be curious just to hear, when you think about the inventories and you think about how you are planning the next few quarters from a flow perspective, if you could give us a little more color just how you would plan China on the revenues, I guess either quarterly or just for the year based on the trends? Thanks.

Bob Drbul:

Great. And I just have a question sort of – I guess it will be a North American question as a follow-up. But with LeBron out and KD out, you still have Giannis, and I just wondered if you think this is his year and you think he can bring the trophy home.

Bob Drbul:

Great. Thank you very much.

Operator:

Your next question comes from the line of Kimberly Greenberger with Morgan Stanley.

Matt Friend:

Sure, Kimberly. Well, as we have talked about throughout this year, we have continued to see the way that we have gotten closer to the consumer creating deeper connections, and as we look at how our brand is positioned around the world, we continue to be very optimistic with what we see. That’s translated into very strong retail sales growth throughout the year. And in many circumstances, we have seen demand outstripping supply. As we think about the future, especially as we exit ‘21 and we move forward to ‘22, there are definitely specific things that give us optimism and confidence. John just mentioned one of them, which is the return to sport, and we are already starting to see an acceleration in our sport performance business. We are excited about the connections that we are driving from a digital perspective, especially as physical retail reopens. We believe that is a sticky shift that will continue, and that’s embedded in our guidance for ‘22 and also the longer-term outlook that I provided for you. And that shift of – a 20-point mix shift in direct is definitely an inflection from a revenue – it creates an inflection from a revenue perspective. And then lastly, I would say that we continue to talk about the significant opportunities that we see more broadly in the marketplace. And while we have had momentum, and we continue to see those dimensions of business outstrip the growth of the rest of the business, the opportunity is still significant relative to our share in those specific areas. And so, what I am referring to there is our women’s business and the opportunity we see in front of us, the apparel business and the opportunities that we see there, and then the momentum that we have with the Jordan Brand, in particular, and the opportunities that we see for that brand both in North America, but in international markets as well.

Operator:

Your next question comes from the line of Matthew Boss with JPMorgan.

John Donahoe:

Well, sure, Matthew. The first thing, never look a wonderful tailwind in the eye or look away from one. So, we have got a – there is a fundamental shift in consumer behavior toward digital. And that’s been happening, but the pandemic has simply accelerated that. And that provides the opportunity for us to have a direct connection with consumers, which is increasingly important in a digital world where consumers, while they are going more digital are focusing on fewer and fewer apps. And we are going to be one of the very few apps that have a direct connection with consumers, and that’s unlocking great growth. That’s unlocking growth in our ability to serve them with more personalized shopping experiences, with recommendations across our vast product portfolio with services and other ways to engage them like NIKE Run Club, NIKE Training Club. So, we think we are one of the very few in our industry that will be able to establish that direct connection with consumers both around commerce, but also engage them on a weekly, monthly, quarterly basis. And then that produces great consumer insight, and that consumer insight has a bit of a virtuous cycle. The more you have of it, the more you can use it. You can use that consumer insight as I said earlier on, personalizing a recommendation or anticipating a need on replenishing a product when you know they are going to need it. It also drives efficiency in our operations, right. We talk about building a digital supply chain. What that’s all about is having the intelligence to know, having the right product in the right place at the right time, so that we can deliver that product at a low-cost, convenient, and speedy and a climate-friendly way. And last, but not least, that insight – consumer insight helps fuel product creation. I mean the more we know about our consumers, the more we can build the kind of compelling product that they want and need. And so, we feel like – as Matt said, there is a virtuous cycle by embracing our digital transformation as aggressive as we are. We think we can create competitive separation. And so – and we still – we think it’s going to be a journey that has continuous improvement and continuous ROI and benefits along the way.

Matthew Boss:

Congrats on the momentum and the new multiyear model.

Operator:

Your next question comes from the line of Erinn Murphy with Piper Sandler.

John Donahoe:

Sure. Matt, why don’t I take the first part and then maybe you take the second part of Erinn’s question?

John Donahoe:

So Erinn, bottom line, we are confident about what we are seeing in China as we drive long-term growth. And we have a long-term view about China. And we have always taken a long-term view. We have been in China for over 40 years. Phil invested significant time and energy in China in the early days. And today, we are the largest sport brand there, and we are a brand of China and for China. And the biggest asset we have in China is the consumer equity. Consumers feel a strong, deep connection to the NIKE, Jordan and Converse brands in China. And it’s real. I saw that in my first week here, can’t wait to get back there. And it’s strong. And that’s brought to life on streets all over China through the over 7,000 mono-brand stores we have in China. So, we have a strong consumer franchise in China, and they feel very connected to our brand. And so we are going to continue to invest. We will continue our long-term investment in China whether it’s through the Express Lane, which allows us to have local product insights, so design and deliver with speed and agility or we are localizing our tech stack. Matt mentioned we are opening a new digital technology center in Shenzhen. And we are going to invest for the long-term, and we are encouraged by the momentum and we have confidence in the future. It’s interesting. We have been the #1 sports brand in Tmall for a decade, and we are still #1 today once we open back up on it. Over the last month, we have added 1 million new members on Tmall through the 6/18 shopping holiday. And so we are focusing on what we can control. We are confident of our momentum and our position. And we will – as Matt outlined, we feel confident about our long-term growth in China.

Erinn Murphy:

Great. That’s super helpful, and congratulations to all.

Omar Saad:

Thanks for taking my question. Great quarter. Congrats to everyone. High-teens operating margin target really is a huge breakout from historical trend and a lot of the long-term guidance that you guys have given over the years. Clearly, technology and NIKE’s digital excellence is really the root of this kind of transformation we have all been talking about. I would love to hear – I saw that Converse continues to improve. I would love to hear you talk about how you are using that digital advantage and applying it at Converse. Is Converse starting to generate some of the benefits of these incredible technologies that you have developed under the Jordan and NIKE halo? I would love to hear more on those lines. Thanks.

Matt Friend:

Yes. And we think that digital is going to play a really important role for Converse as they reshape the composition of their own marketplace. And so that’s what’s been driving growth for the last couple of quarters or for the last eight quarters, and it’s continued to help us as they create that direct connection with consumers as well.

Andy Muir:

Operator we have time for one more question.

Adrienne Yih:

Good afternoon. Thank you very much. Congratulations on the quarter and congratulations to Andy and Paul. My question is, Matt, on the $50 billion or greater than $50 billion for the out-year for fiscal ‘22, what is the expectation for China in that number? And I guess more specifically, in what quarter can we – or half of the year perhaps – can we expect to see China return to perhaps pre-pandemic trend rate? And which channel is going to be the most predictive

Adrienne Yih:

Okay. Thank you very much.

Operator:

Ladies and gentlemen, this concludes today’s conference call. We thank you for your participation. You may now disconnect.

Andy Muir:

Thank you, operator. Hello, everyone and thank you for joining us today to discuss NIKE, Inc.’s fiscal 2021 third quarter results. As the operator indicated, participants on today’s call may discuss non-GAAP financial measures. You will find the appropriate reconciliations in our press release, which was issued about an hour ago or at our website, investors.nike.com. Joining us on today’s call will be NIKE, Inc. President and CEO, John Donahoe and our Chief Financial Officer, Matt Friend. Following their prepared remarks, we will take your questions. We would like to allow as many of you to ask questions as possible in our allotted time. So we would appreciate you limiting your initial questions to one. In the event, you have additional questions that are not covered by others, please feel free to re-queue and we will do our best to come back to you. Thanks for your cooperation on this. I will now turn the call over to NIKE, Inc. President and CEO, John Donahoe.

Matt Friend:

Thank you, John and hello to everyone on the call. As we have entered into a new calendar year filled with new opportunities amidst pandemic-related challenges, our focus has not wavered. We continue to position NIKE to win today and over the long term. We are now 1 year into managing through these dynamics and we have met every hurdle with leadership and decisive action. While we are optimistic about the pace of vaccine distribution and how this will enable safe reopening of the global economy in the near future, the effects of the virus continue to create short-term volatility in our business performance. For example, in Q3, disruption in the global supply chain due to container shortages, transportation delays and port congestion has interrupted the flow of inventory supply. The result has been supply shortages relative to continued strong marketplace demand. In North America specifically, inventory supply was delayed by more than 3 weeks, impacting the timing of wholesale shipments and growth in the quarter. In EMEA, additional COVID-related lockdowns caused a higher number of physical retail stores to be closed and/or operate on reduced hours versus the prior quarter. But our operating priorities remain unchanged and we’re focused on what we can control

Bob Drbul:

Hi, guys. Good afternoon.

Bob Drbul:

I guess, I was wondering on the inventory, I think the delayed flow of inventory you talked about your confidence in essentially just moving everything into the fourth quarter. Just – can you just give us a little bit more color in terms of – will that be largely into the wholesale where you sort of missed some of the sales? Are you going to move it to more the apps or the online, the SNKRS App and Nike.com app? Just could you give us a little more color around the plans to move that inventory in the fourth quarter? Thanks.

Bob Drbul:

Great, great. And if I could just ask a follow-up question, the – so, I recently had a chance to re-watch The Last [indiscernible], and I think the original budget for the Jordans in – was that $4 million or $3 million in year 4, they did $126 million in year 1. I was wondering if you could tell us who was responsible for the budget that year and maybe if you could just give us a little bit more flavor on how different your forecasting is these days? I think that might be quite interesting.

Bob Drbul:

Alright. I’ll do that.

John Donahoe:

He dreamed big and we delivered.

John Donahoe:

Thanks Bob.

Michael Binetti:

Hey, guys. Thanks for taking our questions, and Matt I wanted to ask you, I think you just said that you raised the revenue growth rate for the year. Obviously, that helps to add a lot of confidence to your ability to unlock some of that inventory. But I think you previously described that the SG&A for the year at up-low singles, and now you’re saying up slightly, while you’re raising revenue growth. But you did say there was some reinvestment in demand creation there, too. So I’m trying to put the – just at a high level, the picture together. It seems like there is either much more efficient demand creation going on that we can think about as the model kind of builds back post COVID longer term, or better leverage on the operating overhead expense line. Maybe you could just help us think about why the SG&A is able to stay at a fairly manageable level there while you keep raising the revenue line?

Michael Binetti:

Okay. Thanks for that. And then John, if I could ask one follow-up, you speak about the physical store strategy globally. It sounds like there is a lot of new interesting concepts. And I guess in North America, a market that grew up long ago is more of a wholesale model, and you’ve made the biggest effort to transform the marketplace there. If the – I’m curious how you see the segmentation effort as a lot of undifferentiated retailers come out of your business, but you still do have strategic partners through – with stores through the U.S. In the past, we’ve seen you segment by House of Hoops, Track Club, the big installations at Dick’s Sporting Goods, those kinds of things. How do you think about the next round of segmenting the market when, if you’re going to be bringing more NIKE brand stores into the market now in a backdrop that has some of those wholesale partners still out there that are generating good business?

Michael Binetti:

Thanks a lot, John.

Erinn Murphy:

Great, thanks. Good afternoon. John, for you, I was hoping you could speak a little bit more about the strength you’ve seen in China, maybe a little bit on the consumer behavior as well as the product trends as that economy has picked up. Is there anything that you’re looking or that you can learn from what you’re seeing there for the rest of the world as we all open up? And then Matt, just for you, a clarification, would you be able to quantify kind of what you think the port miss was on North American segment in the quarter? Thank you.

Matt Friend:

I’d maybe just jump in and say on the China piece that we continue to scale the Express Lane in China. And I referenced a couple of examples in the quarter related to Chinese New Year specific product. But we doubled the Express Lane in the quarter, and it continues to have significant impact, not only on localizing product but also – localizing product, but also speed and agility in the marketplace through our fulfillment models. And then Erinn, maybe one other indication vis-à-vis China being ahead of other places, as the world has opened up, sport is returning. And so just the energy that we’re seeing with sport returning, we’re seeing our Performance business continue to grow significantly as well as our Kids business in that market, and it gives us a lot of optimism as we’re looking ahead to reopening occurring in North America, Europe and other places. Specifically on your question about North America, what I would just say is we were on track to deliver our internal plans, and we were seeing momentum that was consistent with the type of momentum that we’ve been seeing year-to-date as we are shifting, creating the marketplace shifts and continuing to lead with NIKE Direct and our strategic partners.

Omar Saad:

Good afternoon. Thanks for taking my question. Hey, John, I wanted to follow-up on an interesting comment you made about merging art and science. And when you were talking about putting the data people alongside the creative people, maybe you could dive into that a little bit more. What your vision is and what areas are you applying data? Is it just customer analytics or is it in design and marketing and other areas? We’d be really curious to see how you’re doing that. And then my follow-up question is around women’s. It kind of seems like a recurring theme. You guys are doing really well in a lot of areas in the women’s business. What are the key drivers? What’s the difference from the past? NIKE has been focused on women’s a long time, but it seems to be inflecting. And maybe if you could update us on where women’s is in the mix and how big that maybe that could be over time? Thanks.

Matt Friend:

I would just add that some of the comments John made earlier as well just about our store strategy, the Nike Live concept is a is a concept that’s intended to unlock significant growth in the women’s marketplace. And we just – it would be hard, Omar, to size the opportunity because the women’s market is so large. And we see the opportunity relative to where our business is penetrated today. And so while we continue to take share, those definitions are within the refinement of the way people define the market from an athletic footwear and athletic apparel in this. But what we’re also seeing is athletic taking share of the broader women’s marketplace. And so those are going to be fuel for growth for us as we continue to invest behind this exciting opportunity.

Operator:

Our last question comes from Jamie Merriman with Bernstein. Your line is open.

John Donahoe:

Well, Matt, maybe I’ll dream the dream around the consumer, and you can dream the dream around our income statement. I think they are very linked. Jamie, it’s – I had to say we’re just scratching the surface. I mean, so yes, Datalogue is our fourth data and analytics acquisition over the past couple of years. And they use machine learning to help automate, translating raw data into critical and actionable insights and doing it real-time at enterprise scale. And so as I said earlier, you’re beginning to see whether it’s improved and personalized search results, whether you’re seeing more personalized recommendations of what if you bought this, you should buy this, if it’s anticipating timing of when you’re due for potentially some new footwear or some new apparel. Data just allows us to have a more personalized experience with consumers, and it’s what consumers want and expect from a brand like NIKE, There are an awful lot of brands out there or platforms where they don’t want people, they don’t want people to know them well. NIKE is a brand and Jordan, where consumers want us to know them well and offer that even better experience. And then as you said and as I said a minute ago, almost across every step of our value chain, data enables us to, one, deliver the right product, right place, right time to that consumer. As I described earlier, and two, it drives efficiency and productivity. But our focus will be on the consumer. And that’s one of the things that I think has always been a hallmark of NIKE is the consumer is absolutely at the center. And so we’re going to prioritize that and continue to invest heavily in technology enablement and data. And as you said, scale matters. Scale matters because you get the most actionable data. This is – it’s true in the technology industry. It’s also true, I think, in our industry, and so we’ll have a scale advantage in data. And it will drive both better consumer experience and efficiency. Matt, do you want to comment, add to that?

John Donahoe:

And Matt, I’m going to just maybe add one final comment before we wrap up because I do want to – we’ve had two, three data questions in a row, but as you said, Jamie, art and science. The science, the science of what we are doing, it’s been done, it’s doable. But the thing that makes this company remarkable is the art. It’s the creativity of our apparel designers, of our footwear designers. It’s the creativity of our brand teams and the storytelling they do and so data doesn’t displace art. It’s both. It’s data and technology help enhance it and supplement it. But this – the core of this, the heart and soul of this company is an amazing wellspring of creativity and innovation and the mindset in everything we do. And so I just – this is going to make it a little bit more direct-to-consumer and make it a little bit more efficient. But we will never lose sight of the art of what NIKE, Jordan and Converse do. So, with that, Andy time to wrap up.

Operator:

This concludes today’s conference call. You may now disconnect.

Andy Muir:

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE, Inc.’s fiscal 2021 second quarter results. As the operator indicated, participants on today’s call may discuss non-GAAP financial measures. You will find the appropriate reconciliations in our press release, which was issued about an hour ago or at our website, investors.nike.com. Joining us on today’s call will be NIKE, Inc.’s President and CEO, John Donahoe; and our Chief Financial Officer, Matt Friend. Following their prepared remarks, we will take your questions. We would like to allow as many of you to ask questions as possible in our allotted time, so we would appreciate you limiting your initial questions to one. In the event you have additional questions that are not covered by others, please feel free to re-queue and we will do our best to come back to you. Thanks for your cooperation on this. I’ll now turn the call over to NIKE, Inc. President and CEO, John Donahoe.

Matt Friend:

Thank you, John, and hello, and happy holidays to everyone. As I said in our last call, NIKE is recovering faster, fueled by our unparalleled brand momentum and sharp focus on operational execution. Consumer engagement with our brands continues to grow in frequency and depth through the power of our product franchises and fresh storytelling delivered through improved digital and physical experiences. Our financial results in the second quarter and for the first half of fiscal ‘21 are proof that NIKE has recovered and is moving forward. We have a new consumer offense and a clear vision for how we will engage and serve consumer demand for our brands through digital, leveraging a technology-enabled operating model, which is being built for greater speed, efficiency and effectiveness. While uncertainty due to the global pandemic persists, our teams are now better equipped than ever to navigate through the dynamics we face. We continue to leverage our operational playbook and we learn more every week. Our leadership momentum and trajectory in Greater China is helping to shape decisions we are making around the rest of the world. Our teams are sharply focused on the key metrics that matter most to accelerate the pace of our recovery and return to sustainable, profitable growth. In June, we set clear measures of success for the first half of this fiscal year, and now six months later, we’ve exceeded those goals. Let me share a few of the highlights. We said inventory would return to a healthy and normalized level by the end of Q2. And now, through intentional supply and demand management actions, marketplace health has been restored across all geographies without compromising the value of our brands and product franchises. And NIKE-owned inventory is clean, ending Q2 down 2% versus prior year while delivering 9% revenue growth on a reported basis. We said that digital acceleration brought on by COVID-19 was indicative of a new future marketplace and not a temporary phenomenon. In Q1, we exceeded our digital penetration goal of 30% across owned and partnered, almost three years earlier than planned. Now, in Q2, our momentum continues with 80% NIKE Digital revenue growth on a currency-neutral basis. And we increased our digital penetration further by improving product availability through search optimization, moving inventory across marketplace channels and increasing digital fulfillment capacity through scale and automation. We said we would tightly manage costs. And in the first half of fiscal ‘21, SG&A declined 6% versus prior year. Over the course of the last six months, we have reduced discretionary spending in non-priority areas while accelerating investment to support our digital transformation and realigning our organization through a new consumer construct. And finally, we said our product pipeline would remain robust. And you’ve seen us continue a consistent flow of innovation and new storytelling around our most important product franchises. This has translated into deep consumer engagement with our brands and market share gains, driving first half revenue growth of 4% versus the prior year. Simply put, we have executed on our plan, and NIKE is now even better positioned to compete and serve consumers than prior to the pandemic. Now, as we look ahead to the second half of fiscal ‘21 and beyond, I want to share some perspective on how we will strategically and financially manage the Company. You’ve heard me talk about these principles before, and I will continue to reiterate them as we execute against our strategy and transform our business. First and foremost, despite the short-term uncertainty, we are managing the business and making decisions for the long term. Consumer interest in sport, fitness, health and wellness has never been greater. And NIKE’s market opportunity is as large as ever. While short-term consumer demand may continue to be impacted, we are focused on moving faster against the most important elements to position NIKE for the long term, deepening relationships our three brands have with consumers; scaling direct connections with contactable members; expanding capabilities to manage a rapidly growing digital business; and transforming and elevating the marketplace. Second, we will continue to optimize supply and demand with speed and agility, maintaining healthy inventory levels and increasing full price realization. Capabilities like Express Lane now operationalized in all four geographies and representing almost 20% of our total business enables increased flexibility and responsiveness in serving consumer demand while driving higher profitability. Third, we will capitalize on the relative speed of our recovery and our financial strength by accelerating investment levels from the first half. Our investment priorities will be focused on a few key areas. We will begin to rebuild investment in demand creation, activating against major sports moments, athletes and innovation, and expanding the reach and impact of significant growth opportunities in women’s, apparel, digital and our Jordan Brand. We expect demand creation as a percentage of revenue will gradually increase versus recent quarters, although new capabilities and a member-focused digital marketing model will enable greater return on investment over time. We will create a digital-first supply chain, built on a strong technology and analytics foundation, in order to optimize service, cost, convenience and sustainability. We already see return on our investments in North America, where we ramped up our new regional service center in Los Angeles to serve peak holiday demand, aided by capabilities from our Celect acquisition. As a result, we delivered over 100% NIKE Digital revenue growth in Q2 in North America while lowering digital fulfillment cost per unit versus the prior year. We will accelerate the technology enablement of our operating model to change the speed with which we directly engage with and serve the consumer from online to offline services, digital marketing, personalization and digital supply and demand management. In North America, we leveraged new tools to make dynamic pricing decisions during Black Friday. We also continue to scale RFID capabilities across our stores in EMEA, enabling better product allocation and replenishment, and we began testing consumer-facing RFID capabilities like self-checkout in our stores in Korea. In the marketplace, we will increase the pace of opening new stores as we create an elevated, differentiated and digitally connected experience for our consumers. In Q2 alone, we opened two Nike Live and six Nike Unite stores, which is our next-generation factory store concept. And we plan to open an additional 30 stores in the second half of this fiscal year and even more in fiscal year ‘22, enabling accelerated growth in women’s, digital and apparel. And finally, we will drive strong free cash flow growth and consistent balance sheet management as we target leverage down towards pre-pandemic levels. We recently announced a 12% increase in our annual dividend, and when appropriate, will resume share repurchase activity. The underlying benefits from our business shift towards NIKE Digital and NIKE Direct are becoming increasingly clear, and these principles will enable us to move faster towards our long-term strategic vision of Consumer Direct Acceleration. Now, let’s turn to the details of our second quarter financial results and operating segment performance. NIKE, Inc. revenue grew 9% in Q2, up 7% on a currency-neutral basis as NIKE Direct grew 30%, led by strong NIKE Digital growth of 80% and partially offset by declines in our wholesale business. Gross margin decreased 90 basis points in Q2 versus the prior year, resulting from higher promotional activity to reduce excess inventories. Performance in the quarter was impacted by nonrecurring costs associated with the organizational realignment, which reduced gross margin by approximately 30 basis points. SG&A declined 2% in the quarter as disciplined expense management and lower marketing spend on brand and sports events was partially offset by increased investments in digital marketing. This quarter, SG&A was also negatively impacted by approximately $135 million of nonrecurring costs associated with the organizational realignment. Our effective tax rate for the quarter was 14.1% compared to 10.7% for the same period last year, primarily due to changes in our earnings mix and an increase in tax associated with recently finalized U.S. tax regulations and increased benefits from stock compensation. Second quarter diluted earnings per share was $0.78, up 11% versus the prior year. With that, let’s turn to our operating segments. In North America, Q2 revenue grew 1% and includes non-comparable items in the prior year, such as the sale of Hurley and the transition of our NFL license business to Fanatics. And Q2 EBIT increased 17% on a reported basis. Q2 provided more clear evidence on the state of our marketplace transformation and shift in channel mix. Despite a 14% decline in wholesale revenue and traffic in NIKE-owned stores remaining well below prior year levels, North America was able to grow 1% overall due to more than 100% growth in NIKE Digital. NIKE Digital now represents nearly 25% of our North America business, and it continues to serve a broader consumer base. In Q2, Member Days drove records for weekly member metrics and engagement with strong NIKE Digital performance in women’s, apparel and sub-$100 product, all areas of significant growth opportunity. Within wholesale, we continue to shift the marketplace towards differentiated retail. And to give you some context on our progress leading up to the pandemic, over the last three years, we have reduced the number of undifferentiated accounts in North America by roughly 30%, while still delivering mid-single-digit growth on average. And in Q2, as we managed product supply in response to the pandemic, we took further steps towards account and channel consolidation by reprioritizing product allocations to benefit our strategic partners and NIKE Direct. As a result, undifferentiated wholesale revenue declined at an even faster rate compared to total wholesale. Looking forward, over the next two years, we will more aggressively accelerate change with larger undifferentiated accounts as we and our strategic partners together reprofile the shape of the marketplace and recapture short-term demand dislocation. In EMEA, Q2 revenue grew 12% on a currency-neutral basis and EBIT grew 29% on a reported basis. Despite a resurgence of COVID-19 and lockdown restrictions in November, EMEA continued to drive momentum in Q2 through strong weekly sales growth and a higher full price realization. NIKE Direct grew 25% on a currency-neutral basis, and wholesale grew 6% in the quarter, led by strong double-digit strategic partner growth in JD Sports and Zalando, partially offset by double-digit declines in undifferentiated wholesale. NIKE Digital grew nearly 100% driven by Cyber Week that broke records across revenue and member engagement. In our NIKE-owned stores, we continued expansion of services to consumers. We piloted virtual expert sessions at NikeTown London, driving increases in conversion and basket size with plans to scale this capability across EMEA. And we utilized digital queuing and additional self-checkout options to improve the consumer experience and safety. Our Express Lane offense in EMEA once again drove significant growth in Q2, increasing more than 30% versus the prior year. This is a key enabler to navigating the current environment through a more flexible inventory strategy. We lowered futures bookings for holiday and leveraged Express Lane to replenish inventory on a significantly shorter lead time and responding to current retail trends. And with the recent lockdown measures announced this week, we will be agile in managing ongoing uncertainty by leveraging our operational playbook. With that, let’s turn to Greater China, which achieved its first $2 billion quarter and grew an incredible 19% on a currency-neutral basis in Q2 with EBIT growth of 28% on a reported basis. As John mentioned earlier, Singles’ Day drove significant growth in the quarter with over $0.5 billion in digital demand. In order to fulfill the record level of orders, we implemented several initiatives to maximize flexibility and responsiveness in our supply chain. From enabling multi-node network fulfillment to employing robot delivery and green packaging, the Greater China team was prepared to deliver on elevated consumer expectations. And it paid off as we shipped out all units within 48 hours and delivered nearly half with same-day or next-day delivery. And digital wasn’t the only growth driver across greater China. Every marketplace channel grew versus last year, including year-over-year growth in traffic in our NIKE-owned stores, the first quarter to achieve this since the start of the pandemic, all while continuing to expand conversion rates versus the prior year. Finally, in our APLA geography, Q2 revenue grew 5% on a currency-neutral basis and EBIT grew 12% on a reported basis. NIKE Digital grew more than 90% on a currency-neutral basis as we significantly expanded our digital footprint with the local launch of Nike.com in Mexico and through key digital partnerships across Mexico, Japan and Southeast Asia. We opened the first Nike Unite store globally in Korea, and this generated the highest revenue in the first 10 days of any NIKE store opening ever. Nearly 90% of transactions were linked to a member, and it’s indicative of the broader engagement we are seeing across the geography and the strength of our membership offense. In December, we successfully transitioned our business in Brazil to a strategic distributor model in partnership with Grupo SBF, the largest sporting goods retailer in Brazil and across Latin America. We look forward to continuing to serve our consumers in Brazil through a more efficient and profitable operating model. That being said, NIKE and Grupo Axo have mutually agreed to terminate the sale and purchase agreement for the transition of NIKE’s business in Argentina, Chile and Uruguay. We will continue to own and operate the businesses in this region in the near term, while we assess future prospects to move to a distributor model in all three countries. I will now turn to our financial outlook. Fiscal ‘21 continues to be dynamic, including a new wave of government restrictions implemented across Europe and parts of North America. We remain focused on what we can control, deepening our consumer connections while we manage risk and uncertainty in this challenging environment. We are tightly buying inventory and are focused on ensuring the long-term health of all of our brands and product franchises. With that in mind, we are increasing our full year outlook for revenue and now expect low teens growth versus the prior year. In the second half, we will continue to take a cautious approach to supply and demand to maintain healthy marketplace inventory amidst continued uncertainty and to ensure that we set a strong foundation for growth and profitability in fiscal year ‘22 and beyond. Our gross margin outlook is also improving with stronger than planned return to normalized inventory levels and lower than expected markdown activity across our portfolio. For the full year, we now expect gross margin to expand up to 50 basis points versus the prior year, including 35 basis points of foreign exchange headwinds. We expect to continue to see quarterly sequential improvement with Q3 gross margin expansion to be roughly flat versus the prior year. For the full year, we expect SG&A will now grow low single digits, driven by increased variable costs associated with our improved revenue outlook as well as amplified investment in demand creation to further strengthen our brands and drive higher member engagement. Across gross margin and SG&A, we continue to expect approximately $315 million of nonrecurring execution costs associated with simplifying our organizational structure, of which approximately $220 million was incurred in the first half of this fiscal year. And last, we expect our effective tax rate to be in the mid-teens range, reflecting an increase in tax associated with finalized U.S. tax regulations. NIKE is navigating the current environment with an even clearer vision of our brand’s long-term future, along with a sharp focus of near-term and long-term priorities. The team is highly engaged and executing with the passion to win. While we expect continued volatility in the short term due to the pandemic, a faster first half recovery has mitigated the largest operational risks. We are now better positioned to accelerate investment in our business and create even greater competitive separation as we pursue our full potential with consumers around the world. I could not be more excited about the future. With that, let’s open up the call for questions.

Adrienne Yih:

Good afternoon. And congratulations on the progress, really nice to see the inventory ahead of plan. So, just sticking with that thematic on inventory. I was wondering if you can talk about the quality or the mix of the inventory entering this next quarter. Are the promotional aspects of it behind, were they -- was the promotional piece of the business in the sub-$100 category, or were there any characteristics that we can glean from the promotional activity? And then, as you look forward to the inflection, sort of the global reopening, how are you thinking about the capacity to chase inventory, particularly in the high heat product? Thank you very much.

Operator:

Our next question is from Bob Drbul with Guggenheim. Your line is open.

John Donahoe:

Well, we called to your assistant and we asked her whether -- when you would be most available, and she thought that this would be a better time.

Matt Friend:

Sure, Bob. So, what I would say is, is that the situation has been dynamic since March. And we’ve watched wave after wave of the pandemic hit different markets and different time lines around the world. And really, the only marketplace where we’ve seen continued sort of trajectory in terms of managing the virus has been China. But we expect the marketplace to continue to be pretty dynamic. I think, I mentioned that we’re seeing waves of more restrictions happening across Europe and in parts of the U.S. And we’re expecting that the situation is going to continue to be unique here as we finish the holiday season and enter into the later part of winter. However, we are looking at and have raised our guidance to low-teens revenue growth because we feel like the momentum that we have, the brand strength and the playbook that we’re employing is giving us confidence that we can continue to manage through this. As it specifically relates to what we’re seeing now, our retail sales across the marketplace for holiday have continued to track very well versus the prior year. But in Europe, where we’re seeing more restrictions of shutdowns, physical retail continues to be the area where we’re seeing the largest impact. Stores continue to open and close on different cadences. They have to manage through traffic capacity constraints. And at this point in time, as of today, about 80% of our stores are open in EMEA, but many of them are still operating under modified and/or reduced hours. So, the situation is dynamic, to say the least. We’re also watching carefully potential bottlenecks in the supply chain. And to-date, we’ve been able to continue to meet EDDs with consumers on our digital business. And we’re leveraging the relationships that we have with carriers and otherwise in order to manage our business through this time. But, it’s definitely something that we’re watching, Bob, and it’s dynamic. I guess, where I’d probably finish is just to say that we know the path isn’t going to be linear, and we’ve been saying that for several quarters. But, we think we’re better positioned at this point to manage through the uncertainty probably than we were prior to the pandemic. We’ve learned so much over the last nine months. And the way that we’re operating as a team gives us a lot of confidence that we can continue to manage through this. And as I said earlier, we’re just -- we’re focused on setting a strong foundation for growth and profitability in fiscal year ‘22 and beyond. And so, we’re making decisions in the midst of the uncertainty here to do that and to position ourselves to accelerate once the pandemic is behind us.

Operator:

Our next question is from Michael Binetti with Credit Suisse. Your line is open.

Matt Friend:

Sure, Michael. I’ll take that. And then, John, if there’s anything you want to layer in here, please do. Yes. So overall, wholesale was down 14% in the quarter, and we referenced that we had to make some real-time decisions in the quarter in order to address the realities of the situation in the marketplace. And I think in the last call, I said something along the lines of -- or maybe it was two calls ago, I said something along the lines of, as we were adjusting forward-looking supply, we took a more aggressive action in North America because we did not believe the recovery curve in North America was going to look the same is what we expected to see in China, Asia or even in Europe, given the way that we were seeing differences in response to the -- different countries’ response to the virus. And so, when we got close to the second quarter and into the second quarter, we had to make some decisions about how to allocate that inventory, and we focused it on our strategic partners and serving consumer demand through NIKE Direct. And so, we saw a greater reduction in undifferentiated wholesale. As we look forward, we’re going to be more aggressive in adjusting our plans with undifferentiated wholesale. But, what I would tell you is, is that we believe that we and our partners are very well-positioned to capture demand that gets dislocated from changing the profile and the shape of the marketplace. And so, I think looking at this quarter, I think this quarter was more indicative of the way we manage supply and demand in the face of the pandemic and the challenges that that created in the short term versus it’s an indication of trend for that line of channel of business. Okay? But, as we look forward, we are going to be more aggressive with larger undifferentiated customers that we have been working with. And we’re working closely with our strategic wholesale partners in a city-by-city, mall-by-mall, street-by-street basis to work together to determine how we’re going to recapture that demand. And that’s absolutely our plan because we believe longer term, as we’ve said before, we believe that a premium, consistent experience for consumers across the marketplace connected to digital is the type of market foundation that we think we need as a premium brand to create and to be the foundation for long-term growth in the North America marketplace.

Matt Friend:

Yes. I mean, it’s a great question. And as we’ve been working our way out of COVID in China, the thing that we’re just reminded of is how large of a market opportunity that is for us, and we continue to see it again this quarter. We’re not able to meet the full demand that we see in that China marketplace. And we continue to see the strength of our brand increasing quarter after quarter after quarter. I think that as it relates to cost, we’ve been in a really high -- we’ve been driving -- and forgive me for forgetting the number, but in the 10s, the 20s of quarters of double-digit growth in that Greater China marketplace, and we’ve done it while maintaining a very strong profit profile. So, what you saw over the last two quarters was more indicative of us working through the dynamics in China with inventory and those things as a result of managing through COVID versus there being an underlying theme of profit erosion long term. I think, we believe that the China marketplace continues to be a great opportunity for us. And we manage the business top to bottom, Michael. So, we’re looking at pricing. We’re consistently looking at opportunities to grow the business in dimensions where we have less of share. But, we’re really pleased to see the growth in our market share in that marketplace, and we believe that profits will continue to grow at an accelerated rate over time.

Operator:

Our next question is from Kimberly Greenberger with Morgan Stanley. Your line is open.

John Donahoe:

Matt, maybe why don’t I take the first part of Kimberly’s question and you take the second?

John Donahoe:

So, Kimberly, yes, our digital business has been experiencing tremendous growth, 80% globally, 100% in the U.S. Our Nike App grew 200%. Our Nike mobile app grew 200% this quarter. And I think what’s underlying that is that digital is the new normal in consumer behavior, and we believe the trends that we’re seeing are here to stay. In fact, as we’ve said now in a couple of quarters, we believe that we’ve well passed the 30% of our overall business, and we think it will be more in the range of 50% in the near future. And it’s an area we have a clear lead. When you ask about what’s driving it, again, we go back to a simple mindset, through the eyes of the consumer, which is consumers want to get what they want, when they want it, how they want it. And that means, obviously, great digital experiences mobiley, through our apps, SNKRS and others online, but also consumers actually, they don’t differentiate digital and physical in the same way they used to. So, they may want to buy online, pick up on store. They might buy online, have it shipped from store. They may want to go try it on and then have it shipped home. And so, we are driving our digital transformation end-to-end, right? So, yes, it’s impacting our digital experiences. No doubt that’s getting better and better and better where it’s better searched, better -- the digital experiences are getting better each quarter. I’ll come back to membership, which I think is key. As Matt said, we’re building out our stores, working with our strategic partners that offer that consistent, seamless experience that consumers expect. And frankly, the supply chain, don’t underestimate the impact of this digital on translating our supply chain. Matt talked about we’ve done in Greater China. 300% increase in digital fulfillment capacity in North America, 400% in EMEA. Robots played a huge role. Over 1 million boxes shipped by robots and the productivity that comes with that. So to be a great digital company, you’ve got to be end-to-end. But I would say, if there’s one thing I’d highlight is the backbone’s membership, right, having a direct connection with consumers. And we are growing our membership. And it’s simple. How do we bring more people into the top of the funnel and establish a direct connection with them? How do we engage them? Engage them through engaging, whether it’s NIKE Running Club, NIKE Training Club, SNKRS app, live streaming is a way to engage consumers. And what we know is more engaged consumers buy more. And one of the most, I think, exciting things we saw in the quarter was these Member Days where it’s really the first time we have really targeted our members, provided more personal recommendations. We’ve allocated scarce product for them, offered them first access. And the conversion rates were very impressive. And so, I think this is a virtuous cycle that we get better and better at the whole membership funnel, the full funnel that we can have a more direct connection with consumers, we can offer more personalized and targeted offerings. I think, the opportunity to expand with women digitally is significant. So, it’s no one thing. And I learned this from my days in the digital world. It’s a lot of little things that make a difference to be a great digital company. And we’re a clear leader here. I think, we’re extending our market share lead digitally and we’re going to continue doubling down. Matt, do you want to take the second piece of Kimberly’s question?

Operator:

Our last question is from Paul Trussell with Deutsche Bank. Your line is open.

John Donahoe:

Thanks, Paul.

John Donahoe:

Now, Matt, that is a great last simple question for the year. And I’m going to give you full permission to answer that in a very concise manner.

Andy Muir:

Thank you, Paul. John, were you going to say something?

Andy Muir:

Thank you, all.

Andy Muir:

Thank you, Operator. Hello, everyone, and thank you for joining us today to discuss NIKE, Inc.’s fiscal 2021 first quarter results. As the operator indicated, participants on today’s call may discuss non-GAAP financial measures. You will find the appropriate reconciliations in our press release, which was issued about an hour ago or at our website, investors.nike.com. Joining us on today’s call will be NIKE, Inc. President and CEO, John Donahoe; and our Chief Financial Officer, Matt Friend. Following their prepared remarks, we will take your questions. We would like to allow as many of you to ask questions as possible in our allotted time, so we would appreciate you limiting your initial questions to one. In the event you have additional questions that are not covered by others, please feel free to re-queue and we will do our best to come back to you. Thanks for your cooperation on this. I will now turn the call over to NIKE, Inc. President and CEO, John Donahoe.

Matt Friend:

Thank you, John, and hello to everyone on the call. NIKE entered the pandemic with unparalleled brand and business momentum, and while we continue to navigate through uncertain dynamics, sport has returned, interest in activity and health, fitness and wellness has never been greater, consumer connection and engagement with our brand is growing and NIKE is transforming the way we operate to better serve all consumers. Looking forward, we believe that NIKE is stronger and now even better positioned to drive separation than prior to the pandemic. As I reflect on the first quarter, there are three key strategic and financial themes that stand out. First, NIKE is recovering faster, fueled by brand momentum and our relentless focus on execution. Second, we are accelerating investments in capabilities and services that will create value for the consumer, while simultaneously accelerating productivity. And third, our consumer led digital transformation is clearly a catalyst for long-term revenue and earnings growth. Let me take a few minutes to walk through each of these points. First, as discussed on previous earnings calls, we implemented an enterprise wide operational plan at the onset of the pandemic. Our teams have navigated with agility and focus to recalibrate supply and demand, to increase digital distribution capacity, to secure liquidity and to tightly manage costs, all while ensuring the health and safety of our employees and consumers. As a result, NIKE, Inc. first quarter reported revenue declined 1% versus prior year and was flat on a constant currency basis. And reported EBIT grew 13% versus prior year, all a sharp acceleration from last quarter and exceeding our internal plans. There are a few elements that are important for me to highlight here. Despite ongoing uncertainty, more countries are emerging from containment and have returned to growth, China, Japan, South Korea, the U.K., France and Germany just to name a few. Marketplace inventory is healthy and within our targeted guardrails. NIKE inventory levels have improved since May, with Q1 inventory growing 15% versus prior year, as compared to 31% growth in Q4 and is on track to be normalized in the next 60 days. We are reducing excess inventory at lower promotional levels relative to the overall marketplace, highlighting the strength of our brand and the value of our key product franchises and we ended Q1 in a net cash position, generating positive free cash flow and increasing our liquidity to over $13 billion. These financial results offer clear evidence of a faster marketplace recovery for NIKE, fueled by consumer demand for all our brands. Our momentum is building, and more importantly, our market share is accelerating around the world. We now expect reported revenue to be roughly flat versus prior year in the first half of fiscal ‘21. This leads me to the second theme. We are accelerating investments in capabilities and services that will create value for the consumer, while simultaneously accelerating productivity. As you have seen over the last two quarters our priorities are clear. We will continue to both accelerate investment against our digital transformation and prudently manage other spending. At the same time, we are focused on amplifying our brand impact. Over the past two quarters, as we have seen demand for our Digital business rapidly accelerate, we have invested to further increase Digital fulfillment capacity and inventory visibility. Our new regional service center near Los Angeles went live this month and uses predictive modeling to anticipate consumer demand and ensure the product our consumers want is available and will arrive within one day to two days. We will achieve this level of service at a lower fulfillment cost over time. We scaled ship-from-store capabilities in North America’s NIKE brand in-line stores, which now represent over 20% of revenue in enabled doors. These capabilities will be enhanced by our RFID investments, highlighting dramatic improvement we are making in our O2O service performance. We are scaling robotics and automation in our logistics operations, accelerating digital throughput and cutting order cycle times by up to 50%, especially during times of heightened safety measures due to COVID-19, this allowed our teams to serve higher levels of digital demand with greater efficiency and precision. We have already deployed this automation in North America, Japan and EMEA, and we will continue to scale these critical improvements further as delivery becomes increasingly important in consumer buying decisions and while we double-down on the strategic capabilities required to fuel our digital acceleration, we are simultaneously driving a sharper prioritization and sequencing of our investments. For example, we drove significant leverage in our demand creation spending versus prior year in the last two quarters, creating fewer, but significantly more impactful brand campaigns. We were also able to increase the return performance marketing investment, driving accelerated digital demand and greater digital engagement. The NIKE and Jordan brands are stronger than ever, delivering historic records of engagement through nearly 5 billion social media impressions just this quarter. Another example is how our organizational restructuring will simplify the way we work, eliminate duplication and redundancy and realign our resources to focus on our biggest growth opportunities. While we will incur a nonrecurring charge to affect this plan in fiscal ‘21, this restructuring will also create a similar level of recurring annual cost savings that will help fuel the acceleration of our digital transformation. In this moment, the pandemic has allowed us to accelerate where and how we will invest. Ultimately, we will drive deeper consumer connections and continue to amplify our brand strength, using technology to operate more efficiently and at greater scale. This brings me to my final theme. Our consumer led digital transformation is clearly a catalyst for long-term revenue and earnings growth. Our Digital business grew 83% in Q1 on a currency-neutral basis. And as John mentioned, Digital, across owned and partner, now represents over 30% of our total business, up more than 10 points of share versus the prior year. But more importantly, we saw tremendous momentum in the measures of success that matter most to create scale and drive long-term profitability. These include member engagement and owned digital market share. In Q1, NIKE active members increased nearly 60% with even higher growth in buying members. We also drove strong double-digit growth in contactable members. We saw owned digital market share gains across both the U.S. and key countries in EMEA, which gives us confidence in our ability to sustain and to grow our digital penetration even as physical retail traffic continues to recover. What’s even more important though is that we can see several strategic and financial benefits from accelerating our digital transformation. First, by leveraging data to enhance membership, personalization and consumer-oriented O2O services across the marketplace, we can drive greater inventory efficiency and unlock accelerated growth in key opportunities like women’s and apparel. Second, in a normalized period, we earn roughly 10 points higher gross margin rate on our digital revenue versus wholesale. And while we will need to continue investments to expand digital fulfillment capacity, we can improve operational efficiency through predictive modeling tools, data-driven member personalization and inventory staging. And finally, we will manage digital transformation within our SG&A guardrails. As we accelerate the pace of investment, our technology foundation will enable us to unlock operating efficiency through automation and increase productivity across the organization. Further, as we grow digital engagement and we retain a higher proportion of engaged members with increased buying frequency, we will be lowering customer acquisition costs, increasing our return on ad spend and changing the shape of our demand creation investment. As John said earlier, we know that digital is the new normal and as we drive continued separation in the market, through a connected, seamless and modern consumer experiences, we will fuel growth and profitability. Now let’s turn to the details of our first quarter financial results and operating segment performance. NIKE, Inc. Q revenue declined 1% and was flat on a currency neutral basis, as NIKE Direct grew 13% led by strong digital growth offset by declines in our Wholesale business. Gross margin decreased 90 basis points in Q1 versus the prior year, as a result of impacts from COVID-19 including higher promotions to reduce excess inventory across the marketplace and higher supply chain costs. These factors were offset slightly by favorable full price product margins and the reversal of certain reserves associated with purchase order cancellations due to higher than anticipated consumer demand. SG&A declined 11% in Q1. We tightly managed operating expenses including lower and more effective marketing spend as live sporting events slowly started to resume, while investing to support accelerating digital growth and transformation. Our effective tax rate for the quarter was 11.5%, compared to 12.4% for the same period last year, primarily due to benefits from stock-based compensation, offset by a reserve for a discrete tax matter. First quarter diluted earnings per share were $0.95 up 10% versus prior year. With that, let’s turn to our reported operating segments. Despite varied recovery curves and macroeconomic dynamics, our geographies have some key themes in common in Q1, first, strong digital growth and increasing member engagement, second, women’s outperformance versus men’s and a growing Jordan brand, and third, lower physical traffic in our NIKE owned stores versus last year, although substantially improved versus the prior quarter. Traffic trends were partially offset by higher conversion rates and higher spend per transaction. In North America specifically, Q1 revenue declined 1% on a currency neutral basis and EBIT increased 18% on a reported basis. Digital was up nearly 100% driven by triple-digit growth in full price sales and fueled by strong momentum in iconic styles like the Air Force 1 and Air Jordan 1, along with women’s apparel, which grew nearly 200% in the quarter. Demand on the NIKE App grew 150% in Q1, highlighting the continued shift to mobile experiences. Finally, as we cut purchase orders to recalibrate supply and demand in North America during the first half in fiscal ‘21, we shifted product allocations to fuel higher demand in NIKE Digital and our smaller group of strategic wholesale partners. The result was high single-digit growth in differentiated wholesale, offset by a decline of over 20% in undifferentiated wholesale, all with a higher full price realization versus the prior year. This is a trend that we expect to continue throughout this fiscal year as we change the shape of the North America marketplace. In EMEA, Q1 revenue grew 5% on a currency neutral basis and EBIT grew 14% on a reported basis. Recovery in Italy and Spain continues to lag recovery across the rest of Western Europe. NIKE Direct grew over 25%, with over 100% digital growth driven by lifestyle products as the consumer focus on comfort continues. Apparel in EMEA grew 11% on a currency-neutral basis led by the performance categories of running, training, basketball and global football, which featured our biggest club launch ever with Liverpool FC. EMEA also continues to lead globally with our Express Lane offense, maximizing supply availability and actively managing inventory, while capturing emerging trends. Express Lane drove revenue growth and generated higher full price realization in the quarter. With that, let’s turn to Greater China, which continued its strong momentum with 80% growth on a currency neutral basis, with Mainland China delivering double-digit growth. NIKE Direct grew over 20%, with more balance channel growth as digital grew nearly 30% and NIKE owned stores were up double-digits fueled by key consumer moments like 6/18 where NIKE was the number one sports brand on Tmall. NIKE Sportswear and Basketball grew double-digit growth in the quarter, with strong sell-through of key innovation launches like the Alphafly NEXT%, Space Hippie and the AJ 1 FlyEase. Retail sales in the China marketplace are accelerating, with an increasing proportion of full price sales. Physical retail traffic continues to grow and is approaching prior year levels and we are also well positioned for Singles’ Day in November. Finally, in our APLA geography, Q1 revenue declined 12% on a currency neutral basis, including digital growth that exceeded 90%. We continue to see varied impacts of COVID-19 across countries in the region, with growth in the Asia-Pacific region being led by Japan, Pacific and South Korea, while recovery in Latin America and certain countries in Southeast Asia continues at a slower pace. Performance footwear resonated with consumers in APLA this quarter, as we saw strong results from the Alphafly NEXT% and the Pegasus 37. Jordan has also continued to excite the consumer with locally relevant product, like the AJ 34, Rui Hachimura, which was Japan’s best selling basketball launch ever. As I have said last quarter, fiscal ‘21 will continue to be a time of uncertainty, because virus containment patterns around the world remain volatile. Therefore, each market recovery will not be linear and the comparisons with prior year will become increasingly less intuitive. We are focused on what we can control, deepening our consumer connections while we manage risk and uncertainty in this environment. We are tightly buying inventory and are focused on ensuring the long-term health of all of our brands and our key product franchises, with the first quarter now complete, I will update our full year financial outlook. Despite the continued uncertainties, we now expect revenue to be up high-single digits to low-double digits versus prior year. Stronger than anticipated demand for our brands will be constrained in the near-term due to supply decisions we took in the face of the pandemic, with growth in the second half to be up significantly versus prior year. Our gross margin outlook will continue to be a function of prioritizing a return to normalized inventory levels by the end of Q2. In the second half, we expected again seeing sequential improvement in full price sales, but we do expect a continuation of higher markdown activity in our factory stores to sustain conversion rates on lower traffic. For the full year, we now expect gross margin to be flat versus prior year, including 40 basis points of foreign exchange headwinds. We now expect SG&A will be flat versus prior year, including approximately $200 million of $250 million of non-recurring execution costs incurred in the first half associated with simplifying our organizational structure. NIKE is poised to emerge from the current environment stronger and better positioned, with a sharper focus, a clearer view of our brand’s long-term future and with a team that is energized to compete and to win. At the same time, we are managing our business to deliver financial results that will set a strong foundation for growth and profitability in fiscal year ‘22 and beyond. The future for NIKE is bright. I wouldn’t trade our position with anyone. With that, we will now open the call up for questions.

Bob Drbul:

Hi, guys. Good afternoon.

Bob Drbul:

I guess just, the first question that I have really is, on -- if you could maybe spend a little bit more time on the gross margin performance. And can you just give us the buckets in the various units, is there any quantification around the promotions the supply chain, the full price selling, just help us get our hands around the various drivers of the gross margin this quarter. And maybe Matt, if you could just a little bit more around and you gave some commentary for the full year, but maybe just the drivers of that performance for the remainder of the year would be very helpful? Thanks.

Bob Drbul:

Great. Thanks.

Bob Drbul:

Perfect. Thanks, Matt. I guess, just a follow-up quick question is, have you guys considered with the Cactus Jack, maybe some sort of collaboration with McDonald’s in terms of do the happy meal with the Cactus Jack and get a pair of shoes or anything like that, is that in the pipeline at all?

Bob Drbul:

All right. Thanks very much and nice quarter guys. Way to go.

Operator:

Our next question is from Kimberly Greenberger with Morgan Stanley. Your line is open.

Matt Friend:

Sure, Kimberly. You almost answered the question for me there hitting the points. But, yeah, so it starts with where John was in his prepared remarks. We obviously believe that scale for our digital business is going to drive significant financial benefits as we continue to grow the size of that business and leverage the capability that we continue to develop. I think there’s probably three key drivers of operating margin improvement that we see from leveraging scale of our digital business. The first one just relates to leveraging data and the data that we continue to gather as a growing business to create personalized product offerings for consumers. And the benefit that will drive is higher price realization and less markdowns of product that we are selling digitally to consumers. The second piece is also kind of connected to data, which is where do we place our inventory and how do we flow it, so that we can be closer to the consumer, and ultimately, lower our fulfillment costs, and we believe that will continue to -- that will be a driver as well of continued gross margin expansion. And then the third piece kind of ties back to what I referenced on our performance marketing investment in marketing. We have got to move deeper into the funnel, less new member -- moving from attracting and acquiring new members to retaining members, knowing those members and driving more engagement and frequency of purchase within our existing member base. And we believe that by running that offense, we will see more productivity in our demand creation spend and a higher return on our demand creation spend. And by doing that, we should be able to also drive additional operating margin expansion.

Matt Friend:

Thanks.

Michael Binetti:

Hey, guys. Thanks a lot for taking my question and a nice job in the quarter in a very tough backdrop. I guess, looking at the North America and maybe, I mean, EMEA EBIT dollar growth significantly outpacing revenue growth in those markets. I guess, dovetailing off Kimberly’s question, how helpful was improving digital markets, I am sorry, digital margins in those markets in this quarter? Is that something that’s already on the move as you see the growth rates that you are seeing in those markets with the digital business?

Michael Binetti:

Got you. And then I guess as a follow up, as you look at North America, John, as you have gotten into the business and had a chance to kind of think about the different regions, the sales growth in North America has been very strong for a couple years gathering few billion dollars over the last few years but the margins been fairly stagnant there, despite the brand being very strong, obviously, gaining momentum. As you saw more pronounced shift in the business in wholesale here in the quarter, some of that probably forced on you by the macro backdrop. But what do you think about the margin evolution in North America from here as we normalize and get on the other side of this COVID period and look out to the second half of this year and into 2022?

Michael Binetti:

John, thanks a lot for the help.

Operator:

Next question is from Omar Saad with Evercore ISI. Your line is open.

Matt Friend:

Sure, Omar. Why don’t I take the first part and then maybe John will grab the second piece of it. So, yes, when we had our last earnings call, we referenced that we were seeing strong triple-digit growth in digital in the month of June. And what I’d say is that in North America, EMEA and APLA, we continue to deliver above or at 100% -- triple-digit growth in digital in the quarter. The place where we saw more balanced growth in the quarter was in Greater China, where retail traffic has recovered closer to prior year levels and is approaching prior year levels, but digital was still the fastest growing channel in that marketplace at over 30% growth. So the only thing that I would say that that might even remotely sound like a deceleration is Greater China growth as the marketplace is normalized. But we continue to believe that digital will lead the way of growth for Greater China.

John Donahoe:

And Omar on the second, how cool is it to be able on a weekend to watch literally within hours NBA, NFL, MLB, NHL, college football, U.S. Open Tennis, a major golf tournament. And first thing I’d just add is to just congratulate the commissioners of the major sports leagues who have just done a fabulous job of bringing sport back safely, safely for the players and coaches and then providing what are unprecedented viewership opportunities. And so, we are thrilled about that, we are trying to work very closely with them to help encourage that wherever possible. We think that’s good for consumers and it’s ultimately good for NIKE. Does that continue and does it cascade down to college and high school and youth, I say my prayers every night and hope so. I think the -- I’d say safety is paramount and the more you get in a distributed environment and a less controlled environment obviously the more challenging that is. And so we completely embrace balancing safety but also return to sport. And I think the other part of this is not organized sport but we are seeing is and I think these things are related. People are more engaged as sort of this movement toward health and fitness and wellness, which I think started when people being confined to their homes. We are seeing it continue to accelerate. You watch a game on TV and you want to go out for a run right or you go shoot baskets in the driveway and so I think sport is so healthy for the world right now and we are going to do everything we can, including, by the way, some of the brand moments that we are trying to celebrate to reinforce. I just love the Venus and Serena spot. It just celebrates the power sport has in connecting with consumers and so you hear the excitement in my voice, I can tell you, all 75 people here at NIKE love sport, love sport coming back and we are cautiously optimistic that will continue until we get through this pandemic.

John Donahoe:

Thanks, Omar.

Jim Duffy:

Thank you. Hello, everyone. Terrific rebound in the business. My question, I am hoping you can provide an update on the RFID implementation and any benefits you are seeing with inventory management, demand forecasting? And then maybe talk about how these benefits materialize in the model in coming quarters and years? What are some of the key metrics we should watch for the progress on that?

John Donahoe:

And I’d just build on that, what Matt talked about last quarter. The real issues -- the real story is data, right? The way data then infuses that with the Celect acquisition, where we are able to forward deploy inventory to be able to predict demand reliably enough, where we can forward deploy inventory, so it’s within one to two day ground shipping to a large number of consumers across the country. And again, that’s where the scale competitive advantage comes from in our supply chain because we will be able to forecast demand, get the right inventory in the right places to get it to consumers quickly both for ourselves and maybe even over time, that’s an added benefit for our strategic wholesale partners.

John Donahoe:

Thanks, Jim.

Jamie Merriman:

Thanks very much. John, and Matt, you both talked about some of the examples of the digital investments that you made so far, the app ecosystem, the omnichannel fulfillment capabilities and RFID. So I am wondering as you think about the business from here, Matt, you talked a lot about continuing to invest. Are there particular areas where you feel like you need to invest further? Is it greater data capabilities? Is it just building out more fulfillment options like the one you have on the West Coast or are you now at the point where you can start to leverage some of the investments behind data and RFID, is it really just a matter of scale?

Operator:

[Inaudible]

Operator:

Our last question comes from the line of Matthew Boss with JPMorgan. Your line is open.

Matt Friend:

Well. Hey, Matt. Thanks for the question. As I mentioned in the last call, we believe that the Consumer Direct Acceleration is clearly a tailwind or a fuel to our long-term financial model. Our goals and our principles related to how we financially manage the business are really unchanged to deliver sustainable, profitable and capital efficient growth over time, obviously, right now, we are in the middle of a quite an uncertain moment and pandemic. And while we are sharing with you our perspectives on the opportunities that we see as we look toward the future, the reality is that this environment right now is quite uncertain. And so what we are going to be focused on over the next 90 days to 120 days is continuing to clean our inventory, continuing to create those consumer connections like we have been talking about and really focus on our OneNike marketplace strategy, exiting undifferentiated wholesale distribution and focusing on the opportunities that we see for NIKE Direct and our strategic partners. And we believe that this strategy will fuel growth and profitability in line with the long-term financial model that we have previously communicated. Obviously, there are a number of factors that are outstanding that may create disruption over periods of time as we look at it and the most obvious one right now is just the pandemic and the impact it has on consumer demand and consumption in the near-term. And so, we are continuing to focus on the strategy and the shift because we think it’s the right thing to do long-term and that’s where our focus and attention is going to be at this time. We are investing in building this business for the long-term and that’s where our focus is.

Andy Muir:

Thank you, Matt, and thanks, everyone, for joining us today. We look forward to speaking with you next quarter. Take care.

Operator:

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation and you may now disconnect.

Andy Muir:

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss Nike, Inc.'s fiscal 2020 fourth quarter and full year results. As the operator indicated, participants on today's call may discuss non-GAAP financial measures. You will find the appropriate reconciliations in our press release, which was issued about one hour ago or at our Web site, investors.nike.com. Joining us on today's call will be Nike, Inc. President and CEO, John Donahoe; and Chief Financial Officer, Matt Friend. Following their prepared remarks, we will you’re your questions. We would like to allow as many of you to ask questions as possible in our allotted time. So, we would appreciate you limiting your initial questions to one. In the event you have additional questions that are not covered by others, please feel free to re-queue, and we will do our best to come back to you. Thanks for your cooperation on this. I will now turn the call over to Nike, Inc. President and CEO, John Donahoe.

Matt Friend:

Thank you, John, and hello to everyone on the call. I also want to take a moment to welcome Andy Muir to her first call that she expands her responsibilities and provides leadership over Investor Relations. Before discussing our fourth quarter results, I must recognize and thank our incredible team around the world. I have personally been inspired to watch everyone come together to face our current challenges, embracing new ways of working, and decisively taking actions to serve our consumers in the face of unprecedented conditions. I could not be prouder to be a part of this team. This quarter was certainly like no other in Nike's history. As John mentioned, to protect the safety of our employees and to help prevent the spread of COVID-19, 90% of our own stores outside of Greater China and South Korea were closed from operation for roughly eight weeks in the quarter. Similarly, our wholesale partners largely followed the same pattern and the sale of product through physical retail channels came to a halt. Digital quickly became the primary channel that we could engage with and serve consumer demand, and Nike was well positioned to respond. We accelerated growth of our digital business to 79% on a currency neutral basis and drove nearly triple digit acceleration in member digital demand. All told Nike digital represented nearly 30% of our total business in the fourth quarter, and reached $5.5 billion for the full year. The net result of these two marketplace dynamics was that Nike, Inc. Q4 revenue declined 38% on a reported basis. And yet, even in the midst of this global pandemic, we saw the power and distinction of the Nike brand translate into growing business momentum throughout the quarter continuing into June. Greater China returned to growth in Q4 and Nike digital also accelerated growth each month in the quarter, including triple digit growth globally in May even as physical retail reopened. These trends have sustained through the first three weeks of June. And in some markets digital growth has accelerated even further. We believe this digital acceleration is more indicative of a strategic shift towards a new future marketplace, rather than being a reflection of temporary challenges to the mostly physical marketplace of the past. Now as we look ahead to fiscal year '21, three key themes standout from a financial and operational perspective, Nike supply and demand management, Nike's financial strength and Nike's digital acceleration. Let me take a few minutes to unpack each of these. First, at the end of q4, inventory increased 31% versus prior year. In mid-March, we immediately went into action to rebuild our plans to recalibrate marketplace supply and demand around the world. As we have said before, supply and demand management is critical to sustaining a healthy premium brand. And over the past three years, we have enhanced our capabilities to manage through situations like this. Let me share a few specifics regarding what we have already done. First, we modified our near-term inventory buying plans and proactively cancelled pre-COVID-19 factory purchase orders for the fallen holiday seasons by roughly 30% on a unit basis. And while this had a negative impact on gross margins in Q4, it was the right decision to tighten future inventory movement through our supply chain and utilize the inventory we have on hand. Second, we implemented a plan for a seasonless flow of inventory by shifting product to offer dates, so we can use relevant summer and fall product to meet near-term demand. We also edited product lines by up to 15% to improve SKU productivity. Third, we quickly shifted available inventory to digital and we increased digital fulfillment capacity by more than 3x in North America and EMEA. And finally, we've invested in targeted promotions and markdowns to accelerate the liquidation of excess inventory. While we protect the long-term health of our product franchises, including increasing the volume of liquidation through our factory store fleet. In Greater China, this playbook has worked and we expect our business will return to normalized marketplace health metrics by the end of June. In fact, we are already seeing inventory levels globally improve as well and with our deliberate actions, we are confident that Nike inventory will be right sized and in a normal position in Q2. This leads me to the second theme. Nike's financial strength enabled us to stay focused on the long-term, creating even greater competitive advantage in times of dislocation. In an environment where most companies are solely focused on survival, Nike's financial strength, scale and adaptability allows us to make appropriate near-term decisions, while investing to fuel long-term growth. We finished the quarter with $12.5 billion in total available liquidity, including nearly $9 billion of cash and short-term investments all supported by a strong investment grade credit rating and a high return on invested capital. We continue to operate from a position of strength and I would not trade our position with anyone. Our current focus is to reduce discretionary spending, while we invest in the digital capabilities necessary to further our competitive advantage in the marketplace. This includes improving the user experience on our digital platforms through enhanced digital commerce analytics, marketing technology for better consumer targeting and segmentation, online to offline marketplace capabilities, and enhanced inventory pricing and supply management tools. We will continue to increase the scale and efficiency of our digital fulfillment capabilities. In Q4, we already pivoted our new adaptive distribution facility in North America to fully support digital demand. And we plan to open a new regional service center on the West Coast before the holiday season to forward deployed digital inventory, leveraging advanced analytics and demand sensing capabilities from our acquisition of Celect. Simply put, we have operating principals in place to prudently manage costs in the short-term, while we scale investment in key capabilities underpinning our digital transformation. We will continue to do this while managing SG&A tightly in the first half of fiscal year '21. And last, a more digitally connected Nike is a more valuable Nike. The underlying value proposition of Nike's Consumer Direct Offense is that the consumer adoption of digital across all aspects of life now provides Nike with an opportunity to create deeper, more direct to consumer relationships at scale without disintermediation. As we've said before, the transformation to a more digital and direct business is financially accretive to Nike. Our business results over the last seven quarters pre-COVID-19 proved this point. As compared to our long-term financial model, Nike has driven hire constant dollar revenue growth, and roughly doubled the annual gross margin expansion on an operational basis, excluding the impacts of foreign exchange headwinds and tariffs. The current economics of this transformational shift illustrates my point. On average, a sale of an incremental unit via digital generates double the revenue versus a sale to wholesale, with a higher gross margin, translating into 2x the operating income dollars. And so to reiterate what John said and why this is so important, we now see that our owned and partner digital could grow to 50% of our total business in the foreseeable future. Plus our measured investment in mono brand stores will further catalyze digital growth and create new distribution for our largest growth and market share opportunities in women's and apparel. We are calling this next phase of the Consumer Direct Offense an acceleration for a reason because it will drive greater growth, it will scale Nike's direct consumer connections in our most profitable channels driving higher consumer lifetime value, and it will enable us to reposition our resources to accelerate our transformation to a digital first company. Now let's turn to the details of our fourth quarter financial results and operating segment performance. Nike, Inc. Q4 revenue declined 38% down 36% on a currency neutral basis, reflecting the impact of Nike owned store closures and lower wholesale shipments partially offset by growth in Nike digital. Gross margin decreased 820 basis points in Q4 as higher full price average selling prices despite increased wholesale discounts were more than offset by higher product costs, including factory cancellation charges and increased inventory obsolescence reserves as well as the adverse rate impact of supply chain fixed costs on lower wholesale shipments due to COVID-19 dynamics. SG&A declined 6% in Q4. We reduced costs through clear enterprise wide cost management principles, including reduction of marketing spending, due to the cancellation of live sporting events and retail store closures. It's important to note that the decline in SG&A in the quarter included a roughly $180 million charge related to bad debt reserves. Our effective tax rate for the quarter was 1.7% compared to 20.4% for the same period last year, due to the mix of earnings tax in the U.S., and favorability attributable to the use of foreign tax credits. Fourth quarter diluted net loss per share was $0.51, reflecting lower revenue and gross margin related to COVID-19 partially offset by lower SG&A expenses. And full year diluted EPS was $1.60 which includes a one time non-cash charge associated with the anticipated strategic distributor partnership transition in South America, which reduced EPS by $0.25. With that, let's turn to our reported operating segments. Last quarter, we discussed how each of our markets would progress from a business perspective as they emerge from the COVID-19 outbreak. First, a recovery period including the ramp up of store reopenings; second, a period of normalization of supply and demand; and third, a period in which we returned to growth. In Q4, Greater China and South Korea returned to growth. North America, EMEA and the remainder of APLA are still in the recovery period, as stores began to reopen throughout May and early June. In North America, Q4 revenue declined 46% on a currency neutral basis. However, Nike digital grew 80% and the Nike app grew triple digits and now represents 30% of our North America digital business. Women's full price apparel grew 200% and was powered by strong new member growth, with women representing over half of new member acquisition in the quarter. As retail began to reopen in mid May, we saw a strong double-digit growth in retail sales for our brand across the total North America marketplace. These trends have continued into early June, including Nike digital growing triple digits. Physical retail traffic remains below prior year and is being offset by higher rates of conversion due to promotional activity, as well as significant shifts to owned and partnered digital. And as of today, approximately 85% of Nike owned stores are open. In EMEA, Q4 revenue declined 44% on a currency neutral basis, digital grew nearly 100% with continued brand momentum and significant new member acquisition and engagement across the Nike training club and the Nike running club apps with active new member growth of over 200% and more than 18 million workouts logged in the quarter. And Nike gained market share across both footwear and apparel, becoming the number one apparel brand during Q4 in key markets for the first time. As retail began to reopen in May, we saw a slight growth in total retail sales versus the prior year across the marketplace, with better performance in Germany, France and the U.K. offset by slower recovery in Spain and Italy. Retail sales have now accelerated in June, including triple-digit Nike digital growth. Traffic levels, conversion trends, and consumer shifts towards digital are similar to what we are seeing in North America. And as of today, approximately 90% of Nike owned stores are open. With that, let's turn to Greater China, where we returned to growth of 1% on a currency neutral basis, and the sixth consecutive year of double-digit growth. Growth improved each month of the quarter, including strong double-digit growth in May on a currency neutral basis. Digital grew 53% outpacing the industry and the Nike app, which launched in Q3 is already resonating with consumers with nearly 11 million downloads, driving over 10% of total digital demand in the fourth quarter. As of today, 100% of Nike owned stores are open. In June, we have seen a return to positive comparable store sales in Nike owned stores with higher conversion and higher units per transaction more than offsetting lower traffic. Nike digital growth has accelerated to triple digits. Finally, in our APLA geography, Q4 revenue declined 39% on a currency neutral basis. We saw varied COVID-19 impact across countries in the region, with South Korea emerging the fastest, delivering 8% growth in the quarter. And digital growth was nearly 80% led by strength in Japan, Korea and Brazil, with women's growing 2x the rate of men's on Nike digital. As of today, approximately 65% of Nike owned stores are open, with a higher percentage in South Korea, Japan and Australia, while stores across Latin America remain largely closed due to efforts to contain the spread of COVID-19. Fiscal year '21 will continue to be a time of uncertainty as economies rebound from the effects of COVID-19 and seek to contain further outbreaks of the disease. We will be agile and resilient, because we understand that each market recovery will not be linear. We remain focused on what we can control so that Nike can manage risk and aggressively attack opportunities created in this environment. Given the uncertainty that still remains, we will not be providing specific guidance. Today, however, I will share the approach we are taking to fiscal year '21 planning. In general, we expect to see sequential quarterly improvement in our financial results as retail reopens and each market normalizes supply and demand. We expect revenue in the first half of the year to be below prior year levels, but less of a decline than experienced in Q4, as we continue to reopen stores and fuel our digital business. We expect revenue in the second half to be up significantly versus the prior year with a healthy marketplace and normalizing full price sell through across our channels. For the full fiscal year, we expect revenue to be flat to up versus prior year. And of course, we will have greater clarity on our full year outlook 90 days from now. Gross Margin will continue in the short-term to be a function of our supply and demand management actions as we prioritize the return to normalize inventory levels in Q2. As I said earlier, we have tightened our buys in the first half and are focused on moving through the inventory we have as profitably as we can. We expect SG&A to decline versus the prior year. The financial and operating principles that will carry us through these unprecedented times are the same ones that have guided us over the decades, and our brand momentum and deep consumer connections, our differentiated product and continuous flow of innovation, our digital advantage, and our operational capabilities have never been stronger. In addition, consumer interest in sport, fitness, health and wellness has never been greater, leaving Nike's market opportunity larger than ever. And though we can't predict short-term trends due to the dynamic nature of this pandemic, interestingly enough, we can now see our brand's long-term future even more clearly. With that, we will now open the call up for questions.

Alexandra Walvis:

Good evening. Thanks so much for taking my question here. And thank you for all the comments in the prepared remarks; very interesting on the longer term outlook for the business. I wanted to dig a little bit more into the consumer direct acceleration that's hit out in your remarks there. Can you talk about the plans for new stores? Do you have any color on the number of new stores that you're planning to roll out? And can you talk about, what is being planned for the wholesale business perhaps in terms of points of distribution, or partners that you're targeting over time?

Matt Friend:

And I might just jump in Alex and say that, as John mentioned, we've been testing the Nike Life concept. We started in Melrose in Southern California. We've opened a store in Long Beach and in Glendale. We've also been testing the concept in Shibuya in Tokyo. And in the first half of the year, we intend to ship to Nike owned doors in New York to the Life concept. And as we've continued to test the concept, we've been testing the assortment, we've been testing member engagement, we're seeing that members engage more frequently. It's serving to help us retain members. And so as John mentioned, this is why we see this as being a catalyst to digital growth having local stores that members can engage with.

Operator:

Our next question is from Omar Saad with Evercore ISI. Your line is open.

John Donahoe:

Omar, the first thing I'd say is the category offense is working, right? And triple double makes complete sense and our growth drivers are spot-on. And they were working, frankly, when we came into the pandemic. And the pandemic, in many ways was a stress test for them. And it really proved that our current strategy is working. So what we're talking about here is how do we take -- how do we take what might have taken us three to five years to make it happen in two. And we think there is some pretty fundamental shifts in consumer behavior that give us this opportunity to accelerate our progress. One shift is digital, right? As I said a minute ago, digital is now fundamental and central to everything consumers do. And we are the clear leader in digital, we'll double down on that. The second I just talked about was the marketplace of the future, right, where we believe we can drive for OneNike marketplace with our own capabilities and those of our partners. But third, and directly your question is, aligning our organization against, A) a more simple construct of men's, women's and kids, but also ones that help us unlock what we think are great growth opportunities, right? Women's apparel, kids and frankly, the emerging health and wellness of the opportunity. So this is not to be crystal clear not abandoning the consumer direct offense. This is accelerating it and refining it so that we're more directly connected to the biggest opportunities. Like women's, great example women's, we have less than 10% of the women's apparel market in the U.S. Women's grew this quarter, two times the rate of men. And this will allow us to align our organization and focus our resources more directly on that opportunity, as well as on others. And so we view it as an acceleration and I think will result in more directly connecting and building deep consumer relationships which will result in higher growth market share. And as Matt said in his remarks, we believe also, this is also healthy for profitability.

Operator:

Our next question is from Erinn Murphy with Piper Sandler. Your line is open.

John Donahoe:

Erinn, this gets to membership and why we think membership is at the center of everything we do. And if you think about it, in simple terms, membership is a big word but in my mind it breaks down three simple things. Do we have a one-on-one relationship, an identified one-on-one relationship with a consumer? Can we increase our level of engagement with that consumer in value-added ways? And then, does that increased engagement lead to greater retention and share of wallet if there are other purchases? And in terms of acquiring new members in a quarter we had a phenomenal quarter, 25 million new members registered that's up over 100%. Half those came from our activity apps and half the new members were women, which is a very encouraging sign. And then, those new members and our existing members were highly engaged, particularly around Nike Training Club, Nike Running Club, our Sneakers App. The stats are just -- I think I listed a few of my remarks and Matt did, but NTC weekly active users which is a really important metric, because someone may only buy footwear and apparel a few times a year, but engaging with us each week maybe even each day brings Nike into their lives and so we grew weekly active users triple digits in the quarter, 25 million workouts with women alone in Q4 and that which is -- and so we think the activity levels and the engagement's growing. And then it's really clear that increased engagement leads to increased purchases. And so the Nike commerce app saw triple-digit growth in both downloads and monthly active buyers, as well as the Sneakers app over $1 billion in first time use. And so directly connecting with consumers, engaging them with our powerful portfolio of activity apps, and then translating that into the kind of both digital and online and offline relationships where they purchase more is kind of core to the strategy that the OneNike marketplace, if you will, is designed to address that direct need.

Matthew Boss:

So maybe as we think about the acceleration of the Consumer Direct strategy that you outlined, how best larger picture to think about the impact on gross margin annually, as we think about 50 basis points a year prior. SG&A, I think the prior target was slight leverage multiyear or maybe just said differently, is there any constraints hindering this overall acceleration being a relative acceleration of your mid-teens bottom-line annual algorithm?

Operator:

Your next question is from Bob Drbul with Guggenheim. Your line is open.

Matt Friend:

Sure, Bob. As you know, Nike has always tried to carefully manage supply and demand, and as a premium brand, we maintain our premium nature because we try to optimize a full-price marketplace across our channels season after season after season. And so when the pandemic hit it became clear that there was going to be excess inventory for a period of time. And we pulled many of the levers that we have at our disposal in order to be aggressive in addressing this issue. And in particular, we said our first and primary principle was to get inventory clean in the marketplace as fast as we possibly can. And so we now feel confident based upon the actions that we've taken that we will have inventory right-sized and clean by Q2 or in Q2. And in China, as I referenced, given they faced the pandemic a little bit earlier, they're going to clear and come out of the situation from an inventory perspective by the end of June. And so we feel very good about the actions that we've taken. To your point, the marketplace is more promotional. We have shifted more units of liquidation through our factory store fleet because that's a brand-right way for us to liquidate our inventory at a higher profitability level. But, we are also seeing some discounting that's happening across the marketplace but our discounting is less than what we're seeing across the broader marketplace, and our strong brand and our consumer connection is causing us to liquidate and move through inventory faster than what we are seeing across the rest of the marketplace. And so through the first three weeks of June as I referenced, we feel like we're on track against this plan or we are on track against this plan and are confident that we're going to be positioned for the consumer and for the market in the second half of the year.

John Donahoe:

Bob, we are so happy that basketball is going to be back. We just want someone wearing a Nike uniform to win. We feel pretty good about that prediction.

Jay Sole:

Matt, you talked about the shift of inventories to direct consumer and increase the digital capacity 3x to meet the demand to digital. Could you just talk a little bit more about that like what that means and going forward is there any constraints that will from a capacity perspective that will slow the company's growth to you getting the ecommerce to be 50% of the total business going forward?

John Donahoe:

And I may just to add a little bit of color on that. The week before last, I had a chance to go out and visit our teams in Memphis along with Andy Campion. By the way, Andy's not on the earnings call any more, but he's working full-time as our COO on just what Matt was talking about, doing a great job. And Andy, Venky and I went out and saw our teams in Memphis and got to see this adapt facility that Matt talked about. It was initially constructed to serve wholesale, but has now been completely redeployed to serve direct-to-consumer. And I think, Matt, you referenced the power of data, right, the power of that Celect acquisition where advanced analytics and demand sensing capabilities can allow us to get the right product as close to the consumer in the right time which offers enormous efficiency opportunities, right? And by the way, that's a scale gain and that's going to allow us to build scale that others won't be able to match and we want to share that scale with our wholesale partners and others as we embrace this. And so it was really great to see that team and they've done a phenomenal job as their counter parts in Europe and in China.