Good afternoon, everyone. Welcome to NIKE, Inc.’s Fiscal 2022 Second Quarter Conference Call. For those who want to reference today’s press release, you will find it at http://investors.nike.com. Leading today’s call is Paul Trussell, VP of Investor Relations and Strategic Finance. Before I turn the call over to Mr. Trussell, let me remind you that all 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 the reports filed with the SEC, including the annual report filed on Form 10-K. Some forward-looking statements may concern expectations of future revenue growth or gross margin. In addition, participants may discuss non-GAAP financial measures, including references to constant dollar revenue. References to constant dollar revenue are intended to provide context as to performance of the business eliminating foreign exchange fluctuations. Participants may also make references to other nonpublic financial and statistical information and non-GAAP financial measures. To the extent nonpublic financial and statistical information is discussed, presentations of comparable GAAP measures and quantitative reconciliations will be made available at NIKE’s website, http://investors.nike.com. Now, I’d like to turn the call over to 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.

Thanks, Paul, and hello and happy holidays to everyone on today’s call. Before I get into our quarterly performance, I want to take a moment to acknowledge the recent passing of Virgil Abloh. Since 2016, Virgil has been a beloved member of the Nike, Jordan and Converse family. He was a brilliant creative force who shared a passion for challenging the status quo and pushing forward a new vision while inspiring multiple generations along the way. But what stood out to me personally about Virgil was his humility and his humanity. We offer our condolences to the many who shared a connection with Virgil. He will be missed greatly. As we look at Q2, the creativity resilience of our entire NIKE, Inc. team helped deliver another strong quarter. The results we delivered offered continued proof that our strategy is working, even as we execute through global macroeconomic constraints. Whenever there’s turbulence, I always go back to the fundamentals. And for NIKE, that means putting the consumer at the center and leveraging our long-term competitive advantages, which include a culture deeply rooted in innovation, a brand that deeply connects with consumers fueled by compelling storytelling, and an unmatched sports marketing portfolio. And we believe a fourth emerging competitive advantage for us is digital, as we’re one of the few brands that can directly connect with and serve consumers at scale. We also continue to benefit from structural tailwinds that have accelerated during the pandemic, tailwinds that include a larger movement of health and fitness that is taking place around the world, consumers’ desire to wear athletic footwear and apparel in all moments of their lives and expanding definition of sport, and last, a fundamental shift in consumer behavior toward digital plays to our increasing digital advantage. As I said before, challenges…

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…

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

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.

Sure, Kimberly, and thanks for the question. As I mentioned, our factories are back operational at this point in time, and I referenced an 80% number across footwear and apparel. It actually skews a little lower in footwear and a little higher in apparel. But as we watch employee attendance rates each week, we continue to grow increasingly confident in the guidance that we provided last quarter. So, last quarter, we said our factories would resume production on October 1, and we said it would take us several months to get back to weekly production capacity consistent with where we were prior to the factory closures. We’re on that plan. So, as we look at our guidance for the balance of the year, it reflects those continued assumptions. And relative to where we were 90 days ago, we’re increasingly confident that inventory supply will normalize and that we’ll be in a position to meet the incredible demand that we’re seeing across the marketplace.

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

Yes. Thank you very much. Also my kudos for navigating a tough landscape. John, I wanted to ask about China. Adidas on their call maybe a month ago, early November, had talked about too much inventory and actually having to redirect. It was very promotional in the China market. So, I was wondering if you can talk about the China competitive landscape, maybe some commentary on both [Indiscernible] the domestic brands versus the western brands, Nike, Adidas, Puma and the like. Thank you very much.

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.

I might just add one small thing, which is we restarted brand activity, as I mentioned in my prepared remarks. And our demand creation investment was up 40% versus the prior year. And if you look at it on a dollar basis, it’s an even greater percentage versus what we invested in the first quarter. And so, we -- and we’re seeing a favorable consumer response. And we expect those investments to pay dividends as we look towards the future and continue to engage in locally relevant ways with consumers.

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

We expect, as supply normalizes, to see sequential improvement versus the results that we delivered in the second quarter.

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

I wanted to see if you guys could maybe touch upon Omicron. I know it’s really still early, but you guys have, as you mentioned, tens of thousands of teammates all around the world. It’s obviously a fast-developing phenomenon. Maybe you could touch upon how you incorporated anything related to Omicron in your guidance? And is it something that we should not only be thinking about from the demand perspective, but is it the kind of situation that could also disrupt the supply chain again in the coming months, or do you feel like it’s fortified to the extent where we can withstand this latest variant? Thanks, guys.

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?

Yes, Omar. I mean, the reality of the environment we’re working right now, we’re all navigating through together. It’s uncertain, it’s volatile. But, what I would say as it relates to our fiscal year guidance, the overwhelming impact that we updated everyone on last quarter was the impact of the supply reductions, the 130 million units and the impact that had on our fiscal year revenue outlook. I think, we’re better positioned than we’ve ever been, and we’re two-plus years into navigating through the challenges and the complexities of the volatility as it relates to the pandemic, focusing on what matters most, and our teams have done a tremendous job doing that. And so, we’re going to continue to watch it closely, like everyone is. But at this point in time, given where consumer demand is relative to marketplace supply, we feel like our forecast is or our guidance is reflective of what we see in the intermediate term.

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

I guess, the question I’d like to focus on is like on the product launches, are you delaying -- if you have an issue in terms of the delay. When you have launches planned, are you pushing them out, or how are you prioritizing which ones get canceled versus which ones will just launch later?

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.

But, I got to just build on that and say while the launch is being delayed, our investment in innovation and commitment innovation has not been deteriorated or delayed at all. Matt and I were both we were over at innovation review in the LeBron James building, what was it, a couple of weeks ago, where Tom Clarke, John Hoke and their teams, Mike Splane, were going through remarkable pipeline of innovation. And again -- and innovation around platforms, around the NEXT% platform, around the FlyEase platform, around the Zoom platform. And so, the innovation pipeline we have coming in the coming months and years is very strong, and the commitment to innovation and the day in, day out relentless focus on a culture of innovation continues unabated. Again, to my prior answer, I just am so impressed with what our innovators, our designers, our product creators, our brand and storytellers have been able to do, even through this challenging circumstance.

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.

Got it. And if I could just ask a quick follow-up. I guess, on the RTFKT acquisition, is a Trussell coin in the offing?

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

It could be up there.

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

Your next question comes from the line of Laurent Vasilescu with BNP.

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?

Sure, Laurent. As I mentioned in my prepared remarks, the biggest drivers of gross margin expansion this quarter, and frankly, the biggest driver relative to what we had guided 90 days ago was the level of full price realization and lower markdown rates versus what we had anticipated for a holiday season. And so, we were surprised by it. And it just is reflective of the strength of the brand and the connections that we’ve got with consumers. As we look to the balance of the year, we are expecting full-price realization to stay high and above, especially in North America and EMEA, that goal that we provided at Investor Day a couple of years ago, and we expect discount rates to remain low. The impact, as you look at sequential quarters is that we started to see improvements in markdown rates in the second half of last year in those two geographies in particular. And so, the year-over-year impact from tighter supply, higher full price realization, lower markdowns has a lesser of an impact in the second quarter. What I’d say longer term is we continue to evaluate full-price realization and the goals that we’ve set. And while we haven’t changed them, we are above in a couple of markets. As inventory supply normalizes, we would expect that to come back down to where our goals are at, but we’re also operating a far more agile operating model at this point in time and so -- led by NIKE Direct. And so, we’ll continue to evaluate it especially as it pertains to the long-term margin outlook we provided. We still are confident in that high 40s gross margin outlook through fiscal ‘25. But I think the effects that we’re seeing in this first year with tightened supply may just change the trajectory of how we get there.

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

So John, you cited the NIKE brand in a much stronger competitive position today relative to 18 months ago. I guess, maybe help us to think about that statement on a global basis, if we think about the acceleration you’re seeing in North America, maybe relative to underlying trends in Europe and Greater China, just as we think about that statement in terms of where we stand today relative to 18 months ago.

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.

And in this fiscal year, we accelerated our investment against the brand to solidify that number 1 position and to continue to have deep connections with consumers. And despite the supply reduction, we remain committed to normalizing that investment because we’re focused on fiscal ‘25 and beyond and the opportunity that we see in front of us across the entire portfolio. And we’re leveraging our financial strength and our balance sheet to enable us to stay focused on the long term.

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

Hey guys. Thanks for all the detail here and for taking our questions, and nice job executing in a pretty tough quarter there. Matt, let me start with the comment, your improved confidence on the supply chain versus 90 days ago, confidence in inventory getting back to more normal flows in fiscal ‘23. Is that what it takes for the China market to get back to the kind of the long-term algorithm with sustained double-digit growth that you spoke about on the fourth quarter call?

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.

And I’d like to turn the call over to Paul for any closing remarks.

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.

Happy holidays, everyone.

Happy holidays.

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