Good afternoon, everyone. Welcome to NIKE, Inc.'s Fiscal 2022 Third Quarter Fiscal Conference Call. For those who want to reference today's press release, you'll 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 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 and 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 the performance of the business eliminating foreign exchange fluctuations. Participants may also reference to other non-public financial and statistical information and non-GAAP financial measures. To the extent non-public 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'll 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 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.

Thanks, Paul, and hello to everyone on today's call. I first want to acknowledge the deeply troubling crisis still unfolding in Ukraine. It's a time of great concern for all of us, and it is simply devastating to see the impact it's having on the lives of so many people. As always, our primary focus is the safety and well-being of our teammates and their communities, and we remain hopeful for a peaceful resolution soon. Now turning to our Q3 performance. More than 2 years since the start of the pandemic, our teams continue to prove their ability to operate through volatility while also staying focused on the long term. And we once again demonstrated that agility in Q3. It's clear that our strategy is working, with business results that reflect our deep connection to consumers around the world. Thanks to our brand momentum, culture of innovation and proven operational playbook, we stay in the lead and continue to drive further competitive separation. I'm proud of our results this quarter. We met and even exceeded what we said we would deliver 90 days ago. For Q3, our revenue growth was 5%, led by double-digit growth in NIKE Direct. This success, amidst the dynamic macroeconomic environment, is what continues to give us confidence in our long-term outlook and it's why I would not trade our position with anyone. The power of NIKE is our consistency and the strength of our global portfolio. Our investments are making us stronger and we're excited by what we see as we execute against our growth opportunities. As a team, we're driven by our shared purpose to move the world forward through the power of sport. And earlier this month, we released our fiscal '21 Impact Report. This report, which marks our 20th year reporting on…

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…

[Operator Instructions]. Your first question comes from the line of John Kernan with Cowen.

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?

Yes. Sure, John. Well, maybe I'll start by just saying that Vietnam at this point in time is operational and our production volume is on plan. And while transit times remain elevated, particularly getting into the North America marketplace, beginning in the fourth quarter, we're going to start seeing an improved flow of supply. And so we are increasingly confident in that reality and continue to manage that dynamic with our partners, our factory partners and our transit partners around the world. Consumer demand continues to be incredibly strong. And while we've not been able to meet demand over the past couple of quarters, we're in a healthy pull market with that strong demand. And as a result of that, we really believe that, that sets a strong foundation for growth in the first half of fiscal '23 but for fiscal '23 in total.

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

I wondered if you could talk a little bit more about the new model with your wholesale partners. Can we expect to see a further refinement of what your differentiated retail strategy is with this new model? And what is the timing of the rollout for this newer strategy?

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.

Yes. And I'd just add, Kate, that the point I was trying to make is that for the past several years, we have been editing our account portfolio. And at this pivot in time, we have made the edits and communicated those edits to our partners. And we're focused now on driving growth through our remaining wholesale partners. And to create the marketplace of the future, both through digital, our owned stores and our partners, it's going to require us to also invest with our partners in their consumer experiences so that the consumer has a premium consistent experience as they move across the marketplace and can find the NIKE product when and where they want it.

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.

Your next question comes from the line of Jay Sole with UBS.

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.

Yes, sure, Jay. So what I said specifically was we expect to see sequential improvement in the fourth quarter versus what we delivered in Q3. And that's based on the momentum that we're seeing in the marketplace. We're highly encouraged with our Q3 performance and a second straight quarter of metrics and facts around the way our teams are executing in the marketplace, that gives us confidence from a brand and consumer point of view. As I mentioned in my prepared remarks, we were rated the #1 cool and #1 favorite brand in China. And this is the second straight quarter where we've increased our investment in demand creation in order to reestablish and rebuild those consumer connections. And we're seeing the impact of it. John referenced 1 example in our brand campaign around the Beijing Olympics and the high levels of reach, engagement and positive consumer sentiment that we saw. We also saw this quarter an improvement in full price realization. And our team continues to do a great job navigating through the environment. But what we really see, as we dig deep into the full price metrics, is that the Jordan brand grew, as I mentioned, in footwear and apparel. And we see consumer demand around local storytelling and local dimensions of our product franchises like the Year Of The Tiger and then just general consumer demand around our most popular footwear franchises continuing to drive growth versus the prior year. And so we're encouraged by this momentum and what it says in terms of our optimism to be able to return to a long-term growth algorithm. In the short term, we're operationally watching the COVID-related lockdowns in the marketplace. And the impact on the fourth quarter of these lockdowns is unclear at this moment, but it feels different. And so we're looking at the fourth quarter and our revenue guidance for the quarter and feel confident that we can still deliver mid-single-digit revenue growth on a full year basis.

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?

Yes. We're looking at fiscal '23 and believe the foundation is set for another year of strong growth. And that's because our Consumer Direct Acceleration strategy is working. Our brand is strong and continues to have -- create consumer demand at all-time highs. We're going to see inventory supply normalize this quarter, which gives us increased confidence that we'll have supply to meet the heightened levels of demand. And we've got a robust pipeline of product, and we're excited about the momentum that we're building in our biggest growth areas. So as we look to the long term, Jay, we continue to be optimistic and positive as it relates to our fiscal '25 long-term algorithm.

We have the next question from Jonathan Komp with Baird.

One follow-up as a clarification. Given some of the sizable shifts in the North America wholesale marketplace, I think you referenced Foot Locker, are you expecting to see a negative impact or a headwind to your total North America revenue at any point? And then maybe just a broader question on your view of the health of the consumer and the ability to accept some of the pricing that's coming in, in the category and broadly the inflation and how that impacts your view on the gross margin outlook beyond fiscal '22.

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.

Yes. And just hitting the second part of your question, we continue to see strong consumer demand for our portfolio of brands. And that's been true for the past several quarters, and we know we haven't been able to meet marketplace demand with available inventory supply. We did implement a low single-digit price increase in the second half of this year or for the spring/summer '23 season to be more specific. And given the transit times delays, we'll start to see more of that hit the market in the fourth quarter. But our approach to pricing and to the consumer is a careful one. We evaluate the price value of our products on a season-by-season basis. And our financial model as a premium brand starts first with the value that we create for the consumer in our products. And so we're very careful about how we approach pricing, and we take a long-term view with regards to the consumer because of that relationship that we have. So as we look forward to the fourth quarter and fiscal '23, we're continuing to look at the opportunities for additional pricing, and we do see some. But as it relates to consumer demand for our brands, we continue to see strong consumer demand for our brands and for our products because they find value in our products.

We have your next question from Matthew Boss with JPMorgan.

Great. And congrats on a nice quarter despite the dynamic backdrop. So John, can you elaborate on the spring demand that you're seeing for the brand and just your excitement for the product pipeline into next year? And Matt, as we move into phase 2 of the marketplace model, is there any way for us best to conceptualize wholesale versus direct-to-consumer margins maybe today relative to the opportunity that you see moving forward?

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.

Yes. And just on your margin question, Matt, the underlying drivers of the CDA are what's fueling our gross margin expansion. Obviously, this year, we're incredibly proud by 150 basis points or at least 150 basis points of gross margin expansion, where we've absorbed more than 100 basis points of unplanned costs associated with supply chain, logistics and wages to move product. And the large proportion of that actually sits in the North America marketplace. So when you look at the revenue and EBIT performance or operating income performance in North America, you're seeing a larger impact of that in that geography. As we look ahead to the marketplace shift, the underlying drivers are the same drivers. It's a higher mix of full price. It's us continuing to leverage our supply chain costs and fulfillment in order to drive more productivity. And while in the short term, we might see some normalization as inventory supply starts to flow, some normalization of channels because wholesale has had a little less product over the last couple of quarters to the normalization of full price because with lack of supply, we've got a couple of our geographies with full price realization that's well above our definition of 65% for full marketplace health. But that doesn't change our confidence in our ability to drive high 40s gross margin by fiscal year '25 and beyond.

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

Let me add my congratulations. We really are going see the shift to digital DTC. Along those lines, Matt, would it be fair to say that obviously, the digital DTC is going to play a much bigger role to get to those fiscal '25 targets? And can you get there without China coming back to that algorithm, 13% to 15% growth? And are the EBIT margins in those 2 channels relatively similar?

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.

All right. Well, thank you very much, everyone, for joining us today. We look forward to speaking with you next quarter. Take care. Have a good night.

Thanks, everyone.

Thank you.

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