Good afternoon, everyone. Welcome to NIKE, Inc.'s Fiscal 2023 Second 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 NIKE's reports filed with the SEC. In addition, participants may discuss non-GAAP financial measures and non-public financial and statistical information. Please refer to NIKE's earnings press release or NIKE's website, investors.nike.com, for comparable GAAP measures and quantitative reconciliations. Now I'd like to turn the call over to Mr. Paul Trussell. Please go ahead.

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

Thank you, Paul, and hello to everyone on today's call. We delivered a strong quarter in Q2 with revenue growth of 17% on a reported basis and 27% on a currency-neutral basis. And looking at the quarter's results, we delivered our Q2 expectations on revenue, profitability and inventory. In this current environment, our consumer demand stands out. Today, we're creating more separation between us and our competition. Thanks to the meaningful relationships we have consumers and the continued success of our strategy. Our Q2 growth was broad-based across our brands, channels and geographies. We had strong double-digit growth across both our partners and our direct business, which was once again led by our industry-leading digital performance. The quarter saw more than 30% currency-neutral growth in our North America, EMEA and APLA geographies. And after nearly two years of unprecedented disruptions, Greater China grew 6% on a currency constant basis, translated to minus 3% on a reported basis due to foreign exchange. Clearly, our brand continues to not only be top of mind, but prioritized by consumers around the globe. In addition to our results, we're executing in the areas we spoke to 90 days ago as we take decisive action to clear excess inventory. We believe the inventory peak is behind us as actions we're taking in the marketplace are working. Later in the call, Matt will share more about our progress on inventory in North America and a return to healthy inventory levels in China. So overall, our Q2 results give us confidence that we will deliver the year, and we remain on a path toward our long-term goals as well. Our current headwinds, such as foreign exchange and inventory challenges are transitory, but our tailwinds are structural. Like the expanding definition of sport, the consumers move toward digital…

Thanks, John, and hello to everyone on the call. NIKE's second quarter of fiscal '23 demonstrated again the power of our portfolio of brands. Throughout the quarter, we leveraged our brand momentum and deepened our connections with consumers to drive strong revenue growth. Before going into our second quarter results and financial outlook, I want to provide more insight on the strong consumer demand that we continue to see and the progress that we have made over the past 90 days regarding our inventory. Consumer demand for our brands drove double-digit currency-neutral revenue growth across NIKE, Jordan and Converse. Within NIKE Direct, retail traffic was up, conversion rates expanded and member buying fueled record digital results. Within wholesale, we saw strong retail sales and market share gains across our top strategic partners. Since last quarter, our brand momentum has accelerated into the holiday season. In North America, our Black Friday and Cyber Week performance set record highs for demand and traffic, fueling strong double-digit revenue growth and exceeding our plan. In EMEA, we closed our biggest Cyber Week ever increasing demand by 75% from last year. In Greater China, our 11.11 demand grew mid-teens, outpacing the sports industry. And globally, our holiday season momentum has continued through the first few weeks of December. Despite operating a largely promotional marketplace, we are creating brand distinction by driving healthy, profitable growth. Full price realization remains strong after strategic pricing increases, especially for our top innovation products in our largest footwear franchises. NIKE Brand ASP is up year-over-year across our geographies, even with higher discounts to liquidate excess inventory. This quarter, we also leveraged targeted promotions to serve and acquire NIKE members, strengthening an important foundation for sustainable growth. Above all, our Q2 results reinforce our confidence that NIKE's brand and business momentum…

[Operator Instructions] With that, we move to our first question this afternoon from Jim Duffy at Stifel.

I'm hoping you can help with more insights on the composition of growth in North America and where you stand with clearance efforts. I believe, Matt, you said ASP was up in all geographies. Is that true for North America as well? And then looking at the split between footwear and apparel growth: footwear, very strong acceleration; apparel, more modest despite what I would have expected clearance efforts. Can you just speak to where you stand with respect to moving to those apparel balances?

Sure, Jim. We saw strong growth in the North America marketplace, up 31%. And really, as you noted, it was really strong across channels, NIKE Direct and our wholesale partners as well as across gender. Our Jordan brand delivered incredibly strong growth in the quarter as well as our footwear business. Yes, our ASPs overall for the geography were up. That was definitely benefited by strong performance in our footwear business. I mentioned our strong demand that we saw over the holiday season. And in particular, the consumer moments right at the end of the quarter. But throughout the entire quarter, we continue to see strong levels of full price realization in footwear, which continue to give us confidence in our most important product franchises, the stories that we continue to tell to refresh and make them relevant as well as the new products that we continue to bring to market on a seasonal basis. Specifically to your question about inventory and our actions there in North America, I referenced that we saw our units down versus Q1 levels, low double digits. And our focus in the quarter was really around our apparel liquidation as well as managing apparel closeouts. And both those dimensions were down mid-teens from a unit perspective versus the prior quarter. We continue to see strong demand from our value partners on the wholesale side for our out-of-season apparel. And we continue to be very confident in our ability to continue that liquidation through the balance of this fiscal year.

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

I guess just on the inventory, Matt, is there a number, as you think through the next few quarters, could you give us an idea of where you think you'll land in terms of the inventory levels or when you might sort of have a more normalized number either in North America or overall?

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

We'll go next now to Matthew Boss at JPMorgan.

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

Yes. Sure, Matt. The -- one of the refrains we've been using repeatedly, frankly, for the last 2.5 years is in times of turbulence, strong brands can get stronger, and that is our ultimate -- that's our ultimate goal, which is whatever challenges or opportunities get faced by everyone, we want to make sure that we capitalize better than others and get stronger and gain share. And that's what you're seeing through the last couple of quarters, and we believe continuing in the next several quarters. And frankly, the fundamentals are simply leveraging our competitive advantages. It's that sort of unique NIKE combination of great product, product innovation, like the Mercurial or combined with great roster of athletes and teams with great storytelling that you really bring to life in moments like the Euro chance for women's last summer and Men's World Cup this year, combined with distribution where we're getting consumers what we want, when they want, how they want it. And so it's that combination that certainly -- and as we come out of more and more COVID, we're being able to pull together time and time again, the LeBron 20, another great example, great product, great storytelling. I hope everyone enjoyed those commercials with a great athlete, and that sold through throughout the globe very, very quickly. And if there's one dimension that I would say is kind of a fourth source of competitive advantage from our historical ones, it's this digital advantage. And it's -- you see we grew digital 34% in an e-commerce -- global e-commerce market that most people would say is low single digits. And that is where having the direct connection with consumers, having the best apps in the industry allows us to leverage the full funnel of membership base. And we believe that's going to be an important fourth source of competitive advantage throughout the globe, and that will continue for quarters and years to come. So we're staying focused on the fundamentals to be honest. And with the strong mantras let's make sure we get stronger and create greater competitive separation regardless of what the environment throws us.

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

We take our next question now from Kate McShane of Goldman Sachs.

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

Well, on membership, the way we think about membership is along the full funnel. And so the first thing I'll say about that I think is a really important dimension of membership is membership is no longer just something that happens in NIKE channels. Having connected membership with our strategic wholesale partners now allows the consumer to have a member experience regardless of where they shop and allows our wholesale partners to have the same advantages that we have by knowing who the consumer is, what they’ve bought and being able to serve them in a more personalized way. And so I would say we're still in the relative early innings of what we believe we can do on the membership on the membership front. We have 160 million active members. We're working on engaging them more frequently, whether it's through NIKE Training Club, NIKE Run Club, the SNKRS App where it's more than just what they buy, but it's their engagement. We think there's a lot of content that we can be bringing to those members and you're going to see some, I think, interesting announcements in the coming weeks about partnerships and things we're doing to drive engagement across NIKE members. And then down to the bottom of the funnel, it's making sure we're getting them as I say repeatedly what they want, when they want it, how they want it, knowing what products they want, making sure they have the best possible experiences making sure that repeat buying is made easy and convenient. I would say the supply chain dimensions and what we've been doing with our membership is just phenomenal, having gone from 10% digital to 27% delivering fast delivery times, fewer reduced and split shipments. And so it's really kind of a holistic approach, and we're going to just keep leveraging that and keep building upon that. As I said, I think we're in the roll days. And then our digital growth, I think, is a function of having the best apps in the industry or on the home screen of people's mobile apps, which is that scarce and valuable real estate. And we have a really clean experience across our apps and digitally, including NIKE.com. So there's -- we have good full price realization, and when need to move things, we move it through discounting. And so it's obviously very fair product category and varies by time. But the quality of the business through NIKE Digital is among the highest quality that we have across any channel.

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

We take our next question now from Tom Nikic at Wedbush Securities.

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

Yes, Tom, well, maybe I'll take a piece of it and then, Matt, you can comment as well because it's such an important topic. You heard both of us talk about that given all the short medium-term challenges, we are very pleased with the results in China this quarter. And the thing that we've been really focused on is the consumer, the Chinese consumer and their connection to the NIKE, Jordan and Converse brands. And the 11.11 holiday was one that we focused on a lot because it's really, in many ways, the first time in over two years that we could fully compete. We had the supply of the right product, including some of our hottest global and local product. We had a full local marketing capability going full stream, and we had our kind of entire offense. And the results of the 11.11 holiday were quite strong, both versus what our plan was and versus competition. We had mid-teens growth overall. We've been very focused on youth in China, the young consumer, both kids and Gen Z. You heard Matt say, our Gen Z grew 45% in demand on Tmall through 11.11. And as I said in my script, we're #1 in traffic and brand and flagship and member acquisition. And the quality of that growth is quite strong underneath it. When you look at the Jordan brand, you look at I mentioned LeBron 20, great full price realization. So we felt very about the consumer fully back with NIKE, with Jordan, our ability to compete with both global and local competition. And we take that into the coming quarters.

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

We take our next question now from Adrienne Yih of Barclays.

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

Sure, Adrienne. On your first question, I think I answered it in the last question. But as it relates to our performance this quarter and how we're planning for the second half of this year. We've obviously been measuring the China marketplace very carefully given the COVID-related disruptions that we've been experiencing. We've sort of gone from one policy in terms of the way that the marketplace is being managed and to control the spread of the virus to this new approach. And I referenced the door closures that we saw at the end of the quarter. As it relates to our guidance and our expectations, I guess what I can say is that we're taking a very careful approach. We have a lot of empathy for the consumers in terms of what they're going through in that environment. And we're watching traffic closely. But having inventory cleaned at the end of the second quarter really gives us a position of strength to deal with whatever uncertainties that are in front of us. As far as the longer term goes, it's a little bit too early to tell, except we continue to think about the encouraging signs that we're seeing from a consumer perspective. And as John mentioned, 11.11 was really one of the first moments in several years that we felt like we were able to align the complete offense up in order to be able to engage across products -- product engines, gender and brands. And we saw very strong consumer response. And so when we look at the underlying macro drivers long term of the consumer interest in sport health in Greater China, we continue to view it as a growth driver for our business long term.

We go next now to Abbie Zvejnieks at Piper Sandler.

So looking at the strength in wholesale, I know you said there was better inventory availability to ship to those wholesale channels. But can you just talk about how you're viewing the wholesale channel considering your direct strategy? And with that growth, did you enter or reenter any new doors? Or was this growth mainly within those current partners you've already talked about?

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

Yes. And I would just say that from a revenue growth perspective, we think this quarter was clearly a peak in terms of year-over-year revenue growth in the channel. And that's primarily driven by timing implications. There's the prior year comparison because we were low on available inventory for the wholesale channel, which depressed our growth in the prior year. And secondly, because we're seeing current season product becoming available earlier, we saw a stronger pull of shipments from Q3 into Q2 into our revenue growth this quarter. And I think that's indicative of the demand that we're seeing and the strong sell-through that we're seeing through to the consumer. So we continue to view this channel as being a channel that will drive growth. But for the balance of this year, the comparisons are going to be difficult to understand when compared to the prior year due to the supply constraints we had in the prior year.

We go next now to John Kernan of Cowen.

Excellent. Congrats on a nice quarter and the acceleration. Just, Matt, as we look at the constant currency revenue guidance implied for the back half of the year, it does assume a bit of a deceleration. Just talk about some of the assumptions regarding the macro? And is there a level of conservatism as you look at the back half of the year.

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

And ladies and gentlemen, we have time for one further question this afternoon, and we'll take that from Michael Binetti at Credit Suisse.

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

Sure, Michael. Well, as it relates to North America and the marketplace, we're seeing the momentum from a consumer perspective, building across both channels over this holiday season. So yes, promotional activity is higher than it was in the prior year. But we do see strong full price sales in footwear and in our seasonal inventory, and we see more promotional activity in areas that are -- where inventory has built and/or there's just broader inventory availability in the marketplace. I think our focus continues to be in this environment on prioritizing our brand getting to a healthy inventory position by the end of this fiscal year with why we've taken more aggressive action. But I think we've been pleased at seeing the year-over-year ASP growth, not just in North America but across all our geographies and high levels of full price realization in the areas where our consumers are most interested, and it's hard to get access to the products that they desire, which means that from a brand health perspective, even amidst the promotion, the consumer continues to choose NIKE. As it relates to your question about the long-term margins, I guess the way that I think about it is we have structural drivers of profitability, and we have transitory impacts that we've been dealing with since fiscal '21. At this point in time, the transitory impacts roughly equate to about 350 basis points of gross margin pressure, which directly drops to the EBIT margin. And those specifically relate to two successive years of elevated transit and freight costs; and then secondarily, the cost to liquidate some of the excess inventory in North America. And we do expect those to be transient or transitory. We should expect to start to see some recovery in fiscal year '24. We…

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

Happy holidays, everyone.

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