Good afternoon, everyone. Welcome to NIKE, Inc.'s Fiscal 2023 Third 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 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 would like to turn the call over to Mr. Paul Trussell.

Hello, everyone, and thank you for joining us today to discuss NIKE, Inc.'s fiscal 2023 third 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 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. We delivered another strong quarter in Q3, with revenue growth of 14% on a reported basis and 19% on a currency-neutral basis, exceeding our plan. Our growth this quarter was broad-based across our brands, channels and geographies. We had strong digital growth of 24%, which once again was fueled by double-digit increases in traffic on mobile and our apps. And while Direct, led by Digital, remains strong and will continue to drive our growth, our wholesale channel continues to be an important part of our strategy as we access key consumer segments and achieve distribution scale across the marketplace. Wholesale grew 18% in Q3, reflecting strong retail sales with growth that over-indexed across our strategic partners. This quarter continued our positive currency-neutral growth in all four of our geographies. North America, EMEA and APLA all delivered double-digit revenue growth. Greater China grew 1% despite a very challenging December following the shift in the country's COVID policies. And we're making great progress on inventory with our inventory dollars down sequentially versus last quarter. In Q3, we had inventory growth of 16% year-over-year. Our decisive actions are enabling us to navigate through the shifting dynamics with continued improved efficiency. These results demonstrate yet again that we're on track to hit our fiscal '23 priorities of getting inventory in a healthy position and delivering revenue consistent with the financial goals we set earlier in the year. In an environment of increasing macro volatility, the distinction of our brands and our Consumer Direct Acceleration strategy set NIKE apart. Looking ahead, CDA continues to unlock our future growth potential by powering up our holistic offense across innovation, brand engagement and marketplace, all fueled by consumer insight. As we know, consumers today have rising expectations and…

Thanks, John, and hello to everyone on the call. NIKE's third quarter showed that in a dynamic environment, strong brands set the pace. Two quarters ago, we took clear and decisive action in response to changing marketplace and supply chain conditions. Our top priority was to strategically manage excess inventory and drive a quicker return to a healthy pull market, and our Q3 results prove that NIKE is leading the way. NIKE is more agile, responsive and resilient than before the pandemic with operational capabilities and an experienced team that enable us to create competitive separation. While we may continue to face heightened volatility, we are confident in our ability to drive sustainable and more profitable growth. Consumer demand for our portfolio of brands remains uniquely strong, fueling unit growth of approximately 10% despite increased macro uncertainty. NIKE, Jordan and Converse, all drove double-digit currency-neutral growth this quarter. NIKE Direct outperformed with member buying frequency increasing and store sales growing across all geographies. Another quarter of industry-leading digital growth, up 24% in Q3, drove our digital share of business up to 27%. Our wholesale channel delivered a second straight quarter of outsized growth with a planned recapture of retail partner open to buy on improved inventory supply versus the prior year and strong consumer sell-through. Revenue from performance dimensions grew double digits versus the prior year with strong momentum from the Phantom GX, Invincible 3, LeBron 20 and other new product innovations. Revenue from lifestyle dimensions also remained strong as consumers continue to shift wallet share towards sport-inspired products that provide innovation, comfort and style. NIKE has been fueling this shift for more than 50 years, built on our passion for serving athletes. We have created the lifestyle around sport and have forged a deep connection to youth culture through…

[Operator Instructions] We will go first to Matthew Boss, JPMorgan.

Great. Thanks. Congrats on a very nice quarter and progression with all of your priorities. So John, maybe as you break down underlying drivers of the current business momentum, could you just speak to market share acceleration opportunities that you see across running, basketball and women's? As from your tone, the forward-looking product pipeline sounds pretty robust. And then just, Matt, with increased confidence in the inventory on track to finish the year in a healthy position, help us to think about the timing or magnitude of margin headwinds from this year turning to tailwinds as we look forward?

Yes. Matt, so we feel very good about our ability to accelerate share in each of the three areas you mentioned and more broadly, and we feel very good about our product pipeline. Let me just briefly touch on the three areas you mentioned. Just -- let me start with running. As you know, we segment running into three segments based on consumer insights: Racing, where we continue to dominate Race Day with the NEXT% platform; Trail, where we're gaining share as we speak with shoes such as the Peg Trail 4 and other very innovative models. And then in road racing, as you know, we've really refocused over the past six to 12 months around six models. And in Q3, we launched the Invincible 3, which both Matt and I mentioned, was very well received in all four geographies across all of our channels, our direct channels, wholesale partners like DICK'S as well as running specialty doors. And so the Invincible which was just launched, we see a lot of legs left with Invincible in the coming quarters and years. And then in the next six to 12 months, we'll do major updates to the other five road running models, where we're taking some of the innovations from our racing platform, putting them in for everyday runners, very strong innovations around foams and other materials. So running is a very important priority for us, and we see some share gains currently and in road running a lot of focus in the coming six to 12 to 18 months. Basketball, as I mentioned in my remarks, our signature portfolio, I don't think it's ever been stronger, and it's refreshed. You take LeBron, Giannis, KD, new next-gen stars like Ja, Devin Booker, Sabrina. In Jordan, we've got Zion, Luka, Tatum. And by the way, the return of the Kobe. And then our GT Series will have major updates in each of the run, cut and jump silos. So our basketball portfolio is almost an embarrassment of riches that we want to continue driving through the marketplace in the coming six to 12 months. And then women's, we're really encouraged by early reception of Go and Zenvy and Alate, the Go and Zenvy Leggings, the Alate bras. And we're encouraged by the pipeline. In fact, coincidentally, this week, we've got several hundred of our global leaders on campus, planning our spring '24 season, which is, in essence, January through March of next year, next calendar year. And I've got to tell you the breadth and depth, while we can't talk about specifics now, the breadth and depth of the innovation pipeline is really strong. And what's clear is as we return to the office, as our teams are now back together in person, that NIKE magic of consumer insight driving product innovation, combined with storytelling, combined with the marketplace, is really picking up steam. So I'd say we're feeling very good about the future on the product pipeline front.

And I'll just jump in that on inventory. We've made tremendous progress on inventory. And two quarters ago, you'll recall, we made clear -- set clear goals and decisive actions in response to changing conditions in the supply chain and the marketplace. And we've been able to leverage our brand momentum into and through the holiday season and continue to be able to sustain it into spring. And we're increasingly confident that we're going to exit fiscal year '23 with healthy inventory levels across the marketplace, across channels in the marketplace. And in fact, I mentioned in my prepared remarks that within the financial parameters that we had set two quarters ago, we're going to exit with even leaner inventory than we had anticipated given the momentum that we're seeing. As it relates to the impact on gross margins and fiscal year '24, I mentioned that next quarter I'll provide full and complete guidance. But what I will tell you is that we've been talking about 350 basis points of transitory cost headwinds in our gross margins over the past two years between elevated ocean freight and logistics and then the promotions required to move through excess and early arriving inventory. And we expect that those transitory headwinds will begin to recover in fiscal year '24, and I'll give specific guidance about how much next quarter.

Next, we'll take a question from Omar Saad, Evercore Partners.

I'd love to ask my question on China. Maybe you could dive in a little bit deeper on the outlook for the recovery there, maybe across a few different dimensions, being the consumer recovery, how the consumer is behaving, what you're seeing there, the competitive landscape, especially vis-a-vis locals, which may have taken some share. And then also the marketing landscape. Are you having unfettered access to all the different marketing channels that you need to resonate with the consumers?

Yes, Omar, bottom line is we feel good about our momentum in China. And that's both Q3, where you saw in a post-lockdown environment, growth really pick up the second month of the quarter, and our inventory is in a very healthy position. But even more importantly, and to the -- some of your specifics, we look going forward, the fundamentals of this market are good, right? It is a large -- it is a very large market that's growing. Sport and wellness is a key trend and tailwind there. There's a desire for innovation and style. And the key to winning in this market is, simply put, having great innovation and connecting with Chinese consumers in a locally relevant way. And so that's what we're doing. On the great innovation front, our product innovation is resonating with the Chinese consumer, and it's a nice blend of global platforms like the LeBron 20, the G.T. Cut, which, by the way, was very well received in China, the Invincible, our lifestyle franchises, along with hyperlocal innovations through our gel of the examples will be the Chinese New Year pack, or we did a Year of the Rabbit pack focused on Gen Z and Gen Alpha that's really resonating with that constituency, and we're really focused on those younger consumers in China. And our brand strength, I think Matt mentioned this in his remarks, growing. We're #1 cool and favorite brand. That gap widened in Q3 in Beijing. And it's an environment where 6,000 monobrand stores are a real advantage. And so we're going to continue to invest in China for China. We have a great team there. We were delighted that they were able to come -- we got to see them in person for the first time this quarter in 3 years, and they are very optimistic and excited about our future. We're building, as you talk about, hyperlocal product and storytelling ability. And that enables us to, for the first time, we have locally driven apps there and our ability to do rapid storytelling there. And our tech stack is increasingly China for China. So there's really not been a time when we can serve consumers in China in a more agile and personalized way. And that is helping our competitive position in China. So we're very focused on it and very -- feel very good about our momentum.

Yes. And Omar, I just would add on some of the monthly trends that I commented on in my script that in December, we talked about the shift in COVID policy and the impact that, that had both on the amount of doors that were open in retail traffic. And our business in December was down high single digits. We flipped to growth in January, and we saw a rebound in brick-and-mortar traffic and strong retail sales performance. And then in the month of February, we saw our momentum accelerate even further relative to January, and that’s with comping the nine-month comp of Lunar New Year in the prior year. So when we look at our inventory position being down again this year versus -- or this quarter, I should say, versus prior year for the second straight quarter, the fundamentals are there for us to continue the momentum that we've been talking about for several quarters. And we absolutely expect that China continues to be a growth opportunity for NIKE.

Your next question call comes from Paul Lejuez, Citigroup.

Thanks, guys. Paul Lejuez. Can you give us an update on your shared apps and the partnerships that you've developed with certain retailers? Are they progressing as planned? And what are your thoughts on linking up with any new partners in the future?

Yes, Paul, as you know, our whole marketplace strategy is to allow consumers to get what they want when they want, how they want it across our own digital, across our own retail and across our wholesale partners, all tied together with our membership program, which is 150 million active members. And this notion of connected membership with our wholesale partners is really beginning to bear fruit. And some of the early examples with, let's say, DICK'S, you're seeing examples where we can provide a personalized experience to a shared NIKE and DICK'S member in a way they can't get elsewhere that benefits us and benefits DICK'S. A simple example might be, I guess, baseball season is about to be upon us. And so we can find a baseball consumer -- a DICK'S consumer is a baseball consumer, and we can send an e-mail focused on NIKE's baseball cleats, along with DICK'S, a bat and a mitt. And consumers are responding to that very personalized messaging from NIKE and DICK's. And so clear, early positive benefits for both. I think our Chinese partners and JD and others are feeling the same. So we'll continue to expand that in a very thoughtful way with our other strategic wholesale partners. And again, I think it gives us a competitive advantage of being able to serve consumers across multiple channels and having the largest and most engaged membership program in the industry.

Our next question comes from Alex Straton, Morgan Stanley.

Great. And congrats on another really great quarter. I saw that you guys took the SG&A guide up a bit for the full year. So I'm just wondering, can you just review what's driving that? And should we think about that as moderating next year? Or what are your priorities going forward? Then just one quick second one. I think you mentioned numerous quarters of ASP growth that you guys have posted. How much pricing have you taken versus pre-COVID levels? And are you expecting to take more in the upcoming seasons? Or how should we think about that?

Sure, Alex. Well, we wanted to sharpen our guidance as we finish this fiscal year. But maybe to take a step back for a second as it relates to SG&A, we started the year with an SG&A guide of high single digits to low double-digit growth. And at the end of the first quarter, when we saw the change in conditions, we decided that we were going to prioritize our efforts around inventory liquidation and getting back to a healthy pull market. And so what we said was that we were going to prioritize the investments that we've been making for several years in our consumer-led digital transformation, the capabilities and the ways of working that are enabling us to create a new operating model for NIKE. And we would manage expense growth tightly, and we would reduce our planned head count growth. And we've absolutely done that over the last two quarters and feel very good about the momentum that we've been making with regards to ensuring that our resources are flowing towards the priorities that we have. And we've got some exciting things that are going to land from a transformation perspective in the next six months. When you step back even further, our revenue guidance at that point in time was for low single-digit to mid-single-digit revenue growth. And given the brand momentum that we're seeing, our updated revenue guidance now being high single-digit revenue growth, I'm actually quite proud that we've been able to manage expense growth on a variable basis even as we've seen our revenue continue to increase. And that focus and attention on expense growth or managing expense growth and head count growth, we definitely intend to carry into our next fiscal year. As it relates to your question about ASPs and pricing, we've increased prices this year mid-single digits on average across our portfolio. As I think I've said in prior quarters, it wasn't a peanut butter across every product in style. It was a surgical approach, but on average, it averages out to mid-single-digit growth. As we look ahead to next year, we're absolutely continually looking at the profitability of our product, we're looking at inflationary costs in supply chain and also inflationary costs that are impacting the make of our product. And we will continue to focus on managing those levers together in order to try to drive profitable growth going forward. I'll give you more guidance next quarter on the specifics, but that's absolutely our strategy and the way that we've been managing product pricing and margin for many, many years.

Bob Drbul from Guggenheim is up next.

Just a couple of questions on inventory. You made a lot of progress with your numbers. Can you talk about two pieces I'm interested in, wholesale inventories, meaning at the wholesale level at your retail partners, where you see the channels, specifically in North America, maybe even in Europe. And then on the apparel side, that's been where you had a lot of excess inventory. Just wanted to understand your sort of learnings from working through all the apparel? And maybe you could give us an updated outlook on how you think apparel is positioned over the next few quarters in the pipeline there?

Sure, Bob. Well, as it relates to inventories across the overall marketplace, when we set the actions that we put into place two quarters ago, that was across channels with partners and NIKE Direct. And given the momentum that we're seeing and the momentum that we saw from the holiday season heading into holiday and into spring, we had very specific plans with our partners in order to balance promotions across the marketplace in order to be able to move inventory on slower moving products and also, in particular, as it relates to apparel to be more aggressive in order to be able to address some of the late-arriving seasonal product, which was part of our challenge at the beginning. And we've made great progress on it. So when we look across our wholesale partners or the wholesale channel, I should say, North America and EMEA overall, and we look at the rate of sales that we're seeing in those channels, we feel very good about the progress that we and our partners have made. And in fact, this quarter, our retail sales to the consumer in the wholesale side was larger than our sell-in. So we feel very good about our progress there. As it relates to specifics in apparel, I think that one of the biggest learnings we had was after our factories closed in the fall or in the late summer and early fall of last year, we decided to continue to carry forward with making late product because there was so much constraint in the marketplace. And I think in hindsight, that was -- we would take a do-over on that one and focus on getting seasonally right product in front of the consumer. And what I would tell you is that the benefit of us moving so fast against the excess and early rising inventory that we've had is that we're now actually watching the timing of delivery of current season product up significantly versus prior quarters and now starting to rival the levels of deliveries that we were seeing in pre-pandemic. And so having the right assortment, the right colors, the right materials, the right stories at retail is NIKE, it creates competitive advantage for NIKE because we can pull the consumer experience together in a way that is very difficult to match.

Yes, I'll just build on that. The learning is, don't have a supply chain crisis in a highly seasonal business. But I referenced earlier, Matt and I were overseeing our spring '24. Again, that's six months -- six to nine months away. And you just see when you have the right assortments in apparel and the right colors coming together in the right way, it's very powerful. And so the pipeline there looks very exciting.

Your next question comes from Aneesha Sherman, Bernstein.

I'm curious to know a little bit more about your trends through the quarter in China. I know you talked about December being a really tough month. Would it be possible for you to talk about December versus 2023 in terms of how the quarter behaved and possibly the exit rate out of the quarter so we can get a sense of how demand is trending at the moment? And then I have a second question around your sales guidance. Your sales guidance implies about flat quarter-over-quarter between Q4 versus Q3. Are you expecting inventory to be down kind of similarly to this quarter, so down a few percent quarter-over-quarter on a flat sales base?

Sure, Aneesha. I mentioned earlier in response to Omar's question, the monthly trends in China, but I'll just hit it again quickly. With the door closures and retail traffic under pressure and the shift of COVID policy in December, our business was down high single digits. We flipped to growth year-over-year in the month of January and saw an improvement in brick-and-mortar traffic in China. And then in the month of February, we saw an even greater improvement relative to January. And that includes lapping the Lunar New Year period in the prior year because it was in a different month. So we are encouraged. I mentioned that our inventory levels are healthy there. And so we're encouraged based on the momentum that we had as we exited the quarter. As it relates to our full year revenue guidance. We revised our full year revenue guidance again upward, and that was based on strong momentum this month -- this quarter. But also when I look at Q4 in particular, our fourth quarter outlook at this point in time is higher than it has been in the previous two quarters. So we're continuing to see our brand momentum and our confidence continue to build. The largest driver of our Q4 revenue guidance is six months ago, we made the decision to cut our spring and summer buys to help ensure that we finish this fiscal year in a healthy place from an inventory perspective that we and our partners finish this year in a healthy place from an inventory perspective. And we're making great progress against that. So we expect to continue to see improvement in Q4 in our inventory and are confident that we're going to finish this year in a position of strength as we look ahead to fiscal year '24.

We'll take our next question from Kate Fitzsimons, Wells Fargo.

Curious if you can just expand on some of the movement we've seen in digital margins over the last couple of quarters. Sounds like you continue to see benefits associated with reduced digital shipments. It seems like you're pleased with some of the movement on the ROAS front. So I'm curious now if you can just kind of speak to more detail about the margin delta maybe you're seeing between the wholesale and direct channels. And just how should we think about the digital margin flow through at this point?

Sure. Well, we've been talking for some time about the -- how our consumer-led digital transformation is transforming NIKE's financial model. And you really see it both in terms of revenue and in gross margin. And if you look at the momentum that we've been driving from a top line perspective, I would say that we've benefited from roughly 3 points of benefit related to a higher mix of business going through our digital and our direct channels. And you can see that not only in the algorithm that we provided around high single digit to low double-digit growth, but just looking at our ASP performance and the continued momentum that we're seeing as digital goes from being about 9% of our business in fiscal year '19 to exiting this quarter at 27% of our mix of business. We've always said that the margin contribution from our digital business is higher than the wholesale channels. And that had fueled gross margin expansion from fiscal year '19 to fiscal year '22. And as we look at some of the dynamics that I referenced on the call this quarter, what I was really trying to highlight is that not only is the channel mix a tailwind for us as we grow our digital business, but we actually think there's opportunities for us to improve the profitability of the digital channel. And those two examples that I gave this quarter really were intended to reflect that. One, we talked specifically in EMEA about some of the efforts that the team is making to lower our fulfillment cost from a digital perspective through O2O, through reducing split shipments and adding pickup points. And then on the membership and marketing side, the idea that if we've got more members coming in through the top of the funnel who are more engaged and buying more frequently, we should start to see an improvement in our ROAS or return on ad spend from a digital perspective and give us a lot of confidence that we're building a moat to be able to continue to serve and grow our digital business. So those are two examples, in particular, of us working hard to improve even greater the profitability of our digital channel. I think as we look longer term, we remain confident in our ability to continue to drive towards the long-term goals that we've provided. Obviously, this year, we've seen higher markdowns and promotions in our direct channels as we've been moving through excess inventory, but we think those are transitory costs, and we should begin to see the recovery of those beginning in fiscal year '24.

We have time for one last question.

That question will come from Gaby Carbone, Deutsche Bank.

My question is on EMEA. Curious if you can dig into what you're seeing in the region? It seems like it continues to be quite resilient despite the macro environment. But are you seeing any meaningful differences between countries?

I mean I'd just say a broad statement, and then Matt, you can fill in some of the specifics. The EMEA consumer has held up remarkably well. And what's clear is our brand strength has really strong across demand. That's both for NIKE and Jordan. You saw really strong across channels, digital, very strong this entire year as well as this quarter as well as our direct and wholesale channels. So the brand connection with NIKE across our major fields of play across NIKE and Jordan is as strong there as it is anywhere.

Yes. And I just would add that we're running a complete offense in that marketplace, and we've seen strong growth across brands, across performance and lifestyle, across different genders, sport dimensions, up and down price points. I mean we're -- that team is doing a phenomenal job running a complete offense there. And when we look across the country portfolio, several quarters ago, we had highlighted some softness in the UK, but we're continuing to see strong growth across all of our Western European markets and including the UK, which has bounced back. And so as we look at the dynamics that John referenced, we're continuing to focus on driving authenticity for the brand through sport and in lifestyle in that important region. And I'll be honest with you, a lot of things that resonate and incorporate and sneaker culture around the world find their place starting in the Europe market. And so our closeness to the consumer in that market is critical not just to drive growth in that region, but to drive trends and behavior in markets outside of that region.

Thanks for the question, Gaby, and thank you all for participating in our Q3 earnings call. This concludes the conference call for today. We'll talk to you next time. Thank you.

Thank you, everyone. Once again, that does conclude this call. You may now disconnect.