Good afternoon, everyone. Welcome to NIKE, Inc.'s Fiscal '22 Fourth Quarter Conference Call. For those who want to reference today's press release, you'll find it at 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 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 the performance of the business eliminating foreign exchange fluctuations. Participants may also make references 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, 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 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.

Thank you, Paul, and hello to everyone on today's call. This quarter, NIKE celebrated our 50th anniversary. On May 1, 1972, NIKE became its own company, a new standalone brand with its own mission and vision. As Phil and I put it recently, back then all we had was a dream, a ton of ambition, a trunk full of shoes and a big Swoosh on all of them. And over the 50 years since, NIKE has been a growth company. For 5 decades now, we innovated for athletes, redefining sport for generation after generation. And today, we're the biggest champion in the world for athletes and for sport, and we've inspired a global community and remain driven by the power of sport to create a better world. This spring, we've been celebrating our 50th anniversary across the globe, and these moments have been particularly special as many of us have now returned to our workplaces. It's been great to see the collaboration and creativity as we strengthen our culture of innovation, team and community. I have personally loved feeling the energy of our teammates being back together again. In fact, I got to feel that energy, not just here in our campus in Oregon, but also across Europe when a group of us visited our team there a few weeks back. After a couple of years of virtual meetings, it was great to finally spend time with our European teammates in person. Another highlight from that trip was touring our European Logistics Center in Laakdal, Belgium, and getting to see first-hand how efficiency and sustainability help us serve our consumers while minimizing our environmental impact. And I love getting a chance to spend some time with some of the players on England's Women's National Football team, The Lionesses, who were…

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,…

[Operator Instructions]. Our first question comes from Bob Drbul with Guggenheim.

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?

Yes, Bob. Let me start simply by saying we're continuing to do what we've always done. As you know, NIKE been in China for 40 years. We've always taken a long-term view. And to be clear, we believe that China remains a growth market with significant potential to unlock. And we've got very strong equity with Chinese consumers, our team. I think Matt mentioned it, I mentioned it, our team has just done a phenomenal job over the last 10 weeks, but also over the last several years. And the fundamentals haven't really changed. So delivering innovation and inspiration in locally relevant ways is what the Chinese consumer cares about. I was talking with Angela a couple of weeks ago. She said they've just done some additional research and they're seeing in the market, Gen-Z loves innovation and inspiration. And that's what we're delivering it. Our cool -- NIKE's brand is the #1 cool brand. It's increased its strength in Beijing over the past year, I think driven by Chinese New Year and Beijing Olympics. NIKE Digital landed the quarter with growth, so our direct connections with consumers. And as Matt mentioned, we're going to digital -- local digital apps in the coming 6 months. And then our product, the localized product through our Express Lane continues to drive great energy. I think Matt mentioned, the Pegasus, the Dunk, the G.T. Cut, the basketball shoe, huge heat for that, Air Force Low. So we continue to think that has huge potential, and we're going to continue to invest in that and then ensure that we are building China for China with our tech stack, with our hyper local technology center and ability to link and serve that Chinese consumer. And so we're taking a medium- to long-term view, and we're as confident today as we ever have been. And coming out of this lockdown, we're seeing increased energy from the Chinese consumer.

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.

Our next question is from Michael Binetti with Credit Suisse.

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?

Sure. I'll go ahead and take that question. Why don't I start by just saying that as we mentioned last quarter, we thought that the variables that were coming together were positioning us for another year of strong growth in fiscal year '23. And it really reflects, Michael, the power of NIKE's portfolio. Inventory supply is normalizing against a healthy pull market across North America, EMEA and APLA. And we've seen 3 consecutive quarters now where consumer demand has significantly exceeded available inventory supply. And so when we look at our brand strength and momentum, our product pipeline against some of the biggest growth opportunities that we have, we think we're well positioned for growth in fiscal year '23. Having said that, we did take a cautious approach to Greater China. And we're doing that because as we look at what disrupted our performance in the fourth quarter and focusing on what we can control, we felt strongly that prioritizing a healthy pull marketplace is the right action for us to take given the ongoing risk that we see in that marketplace. But longer term, we continue to believe that the growth potential that we see in that marketplace is significant. So underlying drivers of growth, we feel quite confident. We continue to closely monitor consumer behavior and we're not seeing any signs of pullback at this point in time. And so we continue to execute the strategy and the plan we have, which is working. As it relates to SG&A, what I would say is just that we're planning for high single digit to low double-digit SG&A growth for the full year. And that's really us continuing on this multiyear investment plan that we have to create the capabilities that we need to be able to serve consumers directly…

Our next question is from Aneesha Sherman with Bernstein.

So in the past, you've talked about a sizable gross margin benefit from the shift towards the Direct business. And it's been hard to see that this year with a lot of other moving parts. But if you were to strip out the supply chain and the FX and the other moving parts, are you seeing an underlying mix benefit from that move? And should we -- are you still confident that as some of these transitory costs roll off that you're still on track to get to that high 40s gross margin target in a few years? And then another quick question on gross margin is you talked about markdowns normalising. So given the commentary around premiumization of the assortment, higher percent Direct and Digital, I would have expected you to have a lot more control over markdowns and pricing this year than, say, a couple of years ago. So is that a fair assumption that we should expect markdown breadth and depth to settle at a kind of permanently lower rate given the tighter control over the channel that you have now?

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…

The next question is from Gaby Carbone with Deutsche Bank.

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, you want me to go first looking at the product piece?

Sure.

Okay. Look, we continue to see transit times be elevated relative to pre-pandemic levels. It's about 2 weeks longer than where we were. This is specifically in North America. We're about 2 weeks longer in the low 80s days in the fourth quarter relative to where we were in the fourth quarter of last year. And that's obviously a big impact on our in-transit inventory and the flow of goods into the marketplace. Right at the end of the quarter, we did start to see a little bit of improvement vis-à-vis the boat backlog at the West Coast ports. But at this point in time, given all the variables that we see there, we're not planning for a significant increment in transit times in fiscal '23. So we're managing our inventory accordingly. We're making decisions about our assortment, product life cycles. We're taking some of our styles to seasonless that we can manage it on more of a rolling basis. And we'll continue to leverage the experience that we've had over the last 2 years, navigating through this environment from a supply chain complexity and congestion perspective.

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.

Our final question today is from Lorraine Hutchinson with Bank of America.

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?

Lorraine, we're going to be guided by the consumer. This is -- you heard me say before, the key to winning in this future is giving the consumers what they want, when they want it, how they want it. And consumers don't think about different channels. They just want a seamless and premium and consistent experience. And so everything we're doing is to offer that to them and to make us indifferent, frankly, about where they transacted. So they'll start their shopping on one of our mobile apps or online. They'll do their product investigation or they're looking. They may go ahead and just buy it in one of our mobile apps or they may go into 1 of our stores who they want to try it on. Or if one of our partner stores is closer to them, they'll go there and try it on. Or if they're in a DICK'S and they see what they want and they don't have it in stock, we can fulfill it through our connected inventory. And so the whole goal is to give the consumers what they want, when they want it, how they want it. And we believe we're building what will be a source of competitive advantage that's grounded and having a direct connection with the consumer a membership program is going to be as strong, whether it's through NIKE Direct, owned and digital and physical or through our partners. And if we achieve that, we then can give the consumer true choice and the actual channel mix will land in its most natural place and will evolve in its most natural place.

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.

That concludes our question-and-answer session. I'll turn it over to Mr. Trussell for any closing remarks.

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.

Thank you, everyone.

Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for participating. You may now disconnect.