Good afternoon, everyone. Welcome to NIKE, Inc.'s Fiscal 2023 First 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, Vice President 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 reference 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, investors.nike.com. Now I would 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 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.

Thank you, Paul, and hello to everyone on today's call. Before we get started, I want to give a special shout out to the greatest of all time, Serena Williams, following her final tournament at the U.S. Open. Serena doesn't like to use the word retired, so I won't either. But on behalf of the entire NIKE family and sports fans around the world, we're going to miss seeing her play. We're thrilled to see what she does next as she continues to serve as an inspiration and everything she does. Serena, on behalf of everyone at NIKE, thank you. Turning to our Q1 performance. Our teams continue to prove their ability to operate through volatility while also staying focused on the long term. For the quarter, our revenue growth was 4% on a reported basis and 10% on a currency-neutral basis, led by double-digit growth in our North America, EMEA and APLA geographies. I'm proud of our results this quarter as our brand momentum, culture of innovation and proven operational playbook delivered yet another quarter of strong revenue growth. Our brand strength continues to give us confidence in sustaining our top line momentum. These results reflect our deep connection to consumers around the world as we keep them in the center of all that we do. Our Consumer Direct Acceleration strategy enables us to create value around consumer creation, consumer demand in an entire marketplace fueled by the lifelong relationships we maintain. This significant momentum that we're seeing is fueled by structural tailwinds that continue to create energy for us. NIKE's growth is strengthened quarter-by-quarter by the expanded definition of sport, by the societal movement toward comfort and health and wellness and by the fundamental shift in consumer behavior toward digital. These advantages, along with our scale, the strength…

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…

[Operator Instructions] Your first question comes from the line of Bob Drbul with Guggenheim. Your line is open.

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.

Sure, Bob. Well, as I mentioned on the call, our inventory grew 44% this quarter, which was led by 65% growth in North America. And maybe just as a point of context because you're right, it is North America where we're focused, where we saw the most significant - where we've seen the most significant volatility and disruption in the supply chain. In Greater China, as an example, our inventory was down 3% versus the prior year, and we feel quite confident about our inventory levels in EMEA and APLA. In North America in particular, we saw in-transit growth of 85%, and in-transit inventory now represents approximately 65%, so almost two-thirds of North America's total inventory. And that's really being driven by a couple of factors. The first one is the disruption that started over a year ago when our factories closed for almost 15 weeks in Vietnam, and for a lesser extent in Indonesia, and the decisions that were taken after that with regards to inventory that was in process to be made. Secondly, we've seen quite a bit of volatility in transit times. We saw an increase in the second half of last year. And then most recently, this quarter, we saw a significant improvement in transit times after we and many others had made the strategic decision to buy the holiday season earlier because of the longer transit times. So when we look at our overall inventory, we think that there's about 10% of the inventory that we're focused on in terms of trying to drive more accelerated liquidation. And while our inventory was high at the end of the first quarter, we do expect to see sequential improvement in inventory balances from here over the next three quarters. We plan to compete, as I mentioned, in a more promotional environment. And given the macro uncertainty that's out there for the consumer, we're taking a more measured approach and we're tightening our inventory buys around the world based on some of the risks that could materialize in the second half. But we're confident that the actions that we're taking, which we started a bit in the first quarter and now we're more aggressively accelerating in the second quarter, are going to position us and our strategic partners very well for fiscal '24.

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.

Great. Thank you very much. Good luck.

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

Great. Thanks. So maybe John, to that point, could you speak to the inflection in demand that you've seen in North America? What have you seen in early fall with full price selling? Does any of this change your pipeline of innovation? And how will you balance this pipeline looking forward of newness and technical innovation while, at the same time, taking the aggressive inventory actions that you've outlined?

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.

I might just add, Matt, that when we look at our performance in Q1 and then to date in September, we're seeing double-digit growth in retail sales. And we're bringing what we call fresh assortments, so new product into market. We are seeing strong consumer demand, strong average weekly sell-through and high full price realization. And I think the distinction here that we're trying to make is a distinction between footwear strength and seasonally appropriate product and innovation and late-arriving apparel that has been impacted from the factory closures a year ago, and some of the decisions made around what to continue to make and bring to market and then what's been impacted by transit times. And so we're really focused on trying to clear through that late off-season apparel inventory that we have predominantly in North America, but we do have a little bit of it in EMEA and APLA as well. We continue to see strong month-to-date sales in EMEA and APLA as well. So our brand momentum is pretty clear around the world, and we continue to be encouraged as we see the way the consumer is responding to a greater availability of supply than we've been able to have over the past year.

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

Thanks. Curious how you're thinking about the international markets. Curious what your - curious what the promotional levels look like in those markets. And how do you think about balancing the sales gross margin of closing? More likely to go for market share in the international markets versus the margin? If you can maybe share your thinking on international, anything outside of North America. Thanks.

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.

Yes. I'll just give you a couple of specifics in a couple of geographies, Paul. In EMEA, as I mentioned, we saw significant gross margin expansion again this quarter and a very high level of full price realization. And so our performance and our approach in that marketplace has been one that's driving growth and profitability. And that strength has been true across channels, so in our own channels but across the wholesale channel as well. When we look at Greater China as an example, where we know that the marketplace has been more promotional because of what's transpired with regards to the COVID-related disruption that everybody is facing in that marketplace, we overdelivered our plan in Q1. And that wasn't just in our financial results. We saw stronger retail sales across the marketplace than we had planned. We were able to liquidate more units than we planned, and we saw a higher full price realization in Greater China than we had planned. And as a result of that, we're increasingly confident that our inventory will be normalized by the end of this coming quarter and in a position to compete on a full-price basis. The last thing I would probably just say, and I sort of alluded to it in my prepared remarks, but NIKE is at its best when we are able to bring together product, storytelling and a retail experience for the consumer. And when you look at the depth and breadth of our product portfolio and the way that we dimensionalize our products for the consumer, it's a competitive advantage for us that makes our brands stand apart relative to others. When we think about the way we're going to navigate the excess supply and liquidation relative to the way that we're trying to maintain a full-price marketplace for the new inventory that's flowing in, we're prioritizing the flow of new products to our strategic partners and to NIKE Direct. And so we'll use our factory stores. We'll use digital a little bit in order to liquidate some of this excess apparel, and we'll use other partners in wholesale to liquidate it. But we will - we are focused on ensuring that the holiday product at the starting season that's arriving on time is going to be set in the marketplace in our strategic partners so that we can put our best foot forward with the consumer.

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

Great. Thanks so much for taking my question. I wanted to just hit on macro fears, which are obviously top of mind for investors right now, particularly as it relates to potential recession. Can you just talk about what your guidance assumes as it relates to any potential recession? And can you just remind us how NIKE has performed in previous periods of economic pressure as well as if you've seen any signs of trade down so far within the business? Thank you.

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.

Yes. And I just would add specific to the guidance that, as John mentioned, in the first quarter, we exceeded our own internal plan with double-digit currency-neutral growth. My guidance for second quarter was continuing to see strong consumer demand with reported revenue growth growing low double digits and 900 basis points of foreign exchange. And given where we sit today, we're confident in the next - the plan we have for the next 90 days and the way that the consumer is responding. We're closely monitoring consumer confidence. And to give you an example, we've seen double-digit growth in retail sales in EMEA in Q1 and in - sorry, not in Q1, in September season to date. But we're seeing some softness in the U.K., and it's being more than offset by strength across the rest of the EMEA portfolio, in France, Germany, Italy, Spain, et cetera. And so we're taking a measured approach to the second half. And that specifically relates to the way we're planning inventory. For us, the decisions we take and the commitments we make to inventory end up mattering most in the context of the way that we look at the Forward plan. And our full year forecast of low double-digit currency-neutral growth, given our performance in Q1 and what we anticipate for quarter two, is reflecting a more modest growth rate in the second half. And that's us taking a measured approach. At the end of the day, like John said, we're going to focus on the consumer and leverage the operational playbook that we have. There are some very specific things we're doing with regards to excess inventory in North America. But we're going to keep our - keep focused on the consumer. And we're confident that to the extent that something more significant happens, we're taking some of the right actions now in order to position us well in that scenario.

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

Hi, good evening. Thank you for taking my questions. So a couple of questions. First off, with regard to China. Is there something you can point us to, to maybe help us understand better or help us frame better the underlying demand - the underlying healthy demand in that market? The reason I ask, you talked about it qualitatively. We see that numbers are still be there but that's been primarily a function of the ongoing COVID disruption. So is there something more quantitative that we can see that really help us understand the underlying demand? And then the second question I have, with - I know there's been a lot of questions on inventory already. But as you think about this sort of say, pocket of excess inventory that's now in the system, is it simply just delayed? Or is there something else that makes - - that encourages you to want to clear it as opposed to just work it through over the normal course of time at full price? Thank you.

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.

Yes. And I would just say - I would add that when we referenced that China grew ahead of our plan, 13% decline was better than we were anticipating in light of the fact that our team was planning for disruption, given the episodic closures by city that are occurring. Now given the performance that we saw in the quarter, we saw retail sales across the overall marketplace increase relative to our plan aligned with that. And what I would say, Brian, is that this encouragement that we've been noticing for the past three quarters is really giving us confidence from across the marketplace that while we've been navigating through some near-term issues, that NIKE is positioned to grow in Greater China. And the fact that we're moving quickly to move through an inventory will be a competitive advantage for us in that marketplace, and we're ready to compete beginning next quarter. And so we've got a great team, as John mentioned, and we think that we're toes-on-the-line ready to serve the consumer in the ways that we've talked about. I think on your second question on pockets of excess inventory, I think that was a more broad question. That wasn't for China. What I would basically tell you is this. Because we had late product arriving for the spring, summer and fall seasons, because of the disruption that we've seen in North America and then the decisions of early order holiday and to have that arrive earlier, we effectively have a few seasons landing in the marketplace at the same time. Because we have a portion of that inventory being seasonally out of relevance, we've decided to take that inventory and more aggressively liquidate it so that we can put the newest and best inventory in front of the consumer in the right locations. So that's where we're focused. It's predominantly apparel. It's in North America predominantly. And that's where our focus and attention is. And when we look at our full year guidance, it's a 150 basis point annual impact, which we believe is transitory. In other words, we will incur it this year in order to be able to move that inventory through. And then we've got a foundation for growth and expanded profitability in fiscal '24 pursuing a full-price innovation - sorry, full-price realization against our new product and innovation pipeline.

We have time for one last question.

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

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.

Well, as it relates to inventory, Michael, the answer - you don't usually get a yes or no question, but the answer to your first question is yes. We do expect total inventory to improve as we go from the first quarter. So I highlighted North America because that's obviously the geography where we've seen this most significant increase. But we do expect to see it reduce. And then as it relates to - reduce on a dollar basis. And then as it relates to the margin impact, the second quarter will be the largest impact. We do expect that there will be some residual liquidation that takes place in the third quarter. And like I said just before, the total annual impact we see as a transitory 150 basis point cost to effectively liquidate the inventory that we want to liquidate and serve the marketplace with the fresh holiday product and then looking forward that we see.

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.

And still achievable.

And still achievable.

Thank you for the question, Michael. And thank you, everyone, for joining us today. We look forward to speaking with you next quarter. Take care.

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