Good afternoon, everyone. Welcome to NIKE, Inc.'s Fiscal 2023 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. Now, I would like to turn the call over to Mr. Paul Trussell. Please go ahead.

Thank you, operator. Hello everyone, and thank you for joining today to discuss NIKE, Inc.'s fiscal 2023 fourth quarter results. Joining us on today's call will be NIKE, Inc. President and CEO, John Donahoe; and our Chief Financial Officer, Matt Friend. Before we begin, 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. All growth comparisons on the call today are presented on a year-over-year basis and our currency neutral unless otherwise noted. We will start with prepared remarks and then open up for 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. Fiscal 2023 was a milestone year for NIKE as we set new records while delivering on our operational and financial goals. It's clear that our strategy is working, and that NIKE's unique advantages continue to drive competitive separation. Looking at our results, we exceeded $50 billion in revenue, with growth of 16% on the year. This growth is broad based across our consumer construct of men's, women's, and kids, across performance and lifestyle and across all geographies. North America, EMEA, and APLA all saw full-year double-digit growth and Greater China returned to double-digit growth in Q4. We're also driving strength through our interesting-leading brand portfolio with NIKE, Jordan, and Converse, all of which achieved strong growth in fiscal 2023. In particular, I want to highlight Jordan's brand's record year. Jordan grew mid-30s with impressive growth across men's, women's, and kids, footwear and apparel and in both North America and International. In fact, Jordan is well on its way to becoming the second largest footwear brand in North America. And last but not least, we return to healthy inventory ahead of our competition. Our inventory is flat year-over-year in value and down in units versus 12 months ago. The actions we've taken position us for more profitable growth moving forward. Across our business, we continue to build a marketplace that addresses how consumers want to be served giving them what they want, when they want it, and how they want it. NIKE creates distinction across the marketplace by segmenting consumer experiences to drive deep direct connections with consumers and grow the marketplace. Today in the industry with digital and physical growth converging, we've accelerated investment to create a truly distinctive digital experience through our own platforms. Every year, we serve traffic…

Thanks, John and hello to everyone on the call. NIKE is a growth company and fiscal 2023 demonstrated our ability to deliver strong growth in the midst of rapidly changing market conditions. Throughout the year, we drove competitive separation by doing what NIKE does best. Serve athletes with product innovation, and rich storytelling, amplify our brand voice through key sport and consumer moments, deepen consumer connections across our portfolio, and actively manage the marketplace to drive sustainable profitable growth. For the full-year, we delivered mid-teens revenue growth with accelerating momentum in our performance business and sustained strength and lifestyle. We added $7 billion of revenue in total on a currency neutral basis, which included adding $3 billion to North America, our largest most mature market. In addition, our top franchises drove strong full price sales with mid-single-digit price increases, and we grew units and ASP across both product engines. In Q4, we saw another quarter of strong consumer demand, with traffic growing online and in our stores and total retail sales across the marketplace up double-digits versus the prior year. Beyond driving strong top line growth, we finished the year with a significantly improved marketplace position, with total marketplace inventory units, including NIKE and our wholesale partners, down year-over-year. We feel very good about the results driven by our decisive actions over this past year, as well as the sales momentum that we continue to see from NIKE Direct and our top strategic partners, including DICK'S Sporting Goods, JD, Sports Direct, and our city specialty partners. To go a little deeper on inventory, NIKE Inc. inventory dollars are flat versus the prior year, with units down double-digits across both footwear and apparel. Apparel units are down more than 20% versus the prior year. Our mix of in-transit inventory has normalized,…

Thank you, sir. [Operator Instructions] We'll take our first question from Tom Nikic with Wedbush Securities.

Hi everybody. Thank you very much for taking my question. I want to ask about North America and specifically the wholesale channel. And I think, you know, there's been some news recently about maybe some wholesale partners that you had either exited or deemphasized and now you're going back into some of those retailers. What drove that decision? And I guess, kind of what changed in your mindset that maybe a year or two ago, you saw – the [SW] [ph] was not somebody you wanted to partner with, but now you do and Macy's, et cetera? So just any insight or color there would be really helpful. Thanks.

Yes, Tom, I'll take that. Let me just saw right up front, our marketplace strategy remains the same as it's been over the last several years. And this is simply a continued evolution of the very same marketplace strategy. And I'll remind you that our marketplace strategy is driven by the consumer. I mean, at the end of the day, we start with the consumer, and consumers in this day and age want to get what they want, when they want it, how they want it. Consumers want digital and physical access. They shop across both channels, they want a mono-brand and multi-brand. They use different shopping occasions to use different channels. Consumers expect us to know who they are, and consumers have said to us they want a consistent and seamless experience. And so that is what has driven our marketplace strategy. And as you know, it starts with digital or a direct connection with the consumer. Our digital apps, our mobile apps are unmatched in the industry, and that's our fastest-growing channel that will continue to be our fastest-growing channel because we directly connect with the consumer digitally. We augment that with owned retail, where we are building out stores, NIKE stores in segments that are currently underserved by our wholesale partners, we would say women's is one of those cases in Jordan being another. So, we're selectively opening new doors. And then multi-brand wholesale partners play a really important role. And as I said in my remarks, there's different segments. So, we spent a lot of focus and attention, and we've talked a lot over the last couple of years about the larger multi-brand partners like DICK's and JD and Foot Locker and Sports Direct. We've talked some around neighborhood doors where we authenticate, that's such an important role. And then we have accounts that help us serve distinct segments of consumers or price points. And so what we've done over the past quarter is simply an extension of that. Our Direct business will continue to grow the fastest, but we'll continue to expand our marketplace strategy to enable access to as many consumers as possible and drive growth.

And next up is Matthew Boss, JPMorgan.

Great. Thanks. So John, with the expanded definition of sport and greater awareness of health and wellness that you cited, could you elaborate on how you believe the NIKE brand is positioned to capture market share globally? And then, Matt, on the revenue guide for this year, could you just help bridge 1Q relative to the full-year? Maybe some of the puts and takes, I think, would be really helpful in terms of getting from the first quarter to the full-year.

Thanks, Matt. And Matt Friend, I'll take the first. So Matt Boss, we see the same structural tailwinds you just described. We are blessed with structural tailwinds around an expanding definition of sport, particularly around health and wellness and a related structural tailwind around this movement toward athleisure. And our marketplace strategy is simply geared to expand, leverage our competitive advantages to not only gain share, but also grow the market by being where consumers are. And again, as I said a minute ago, to give them when they want, how they want it. Two examples come to mind. One is just digital. I cannot tell you how important it is, our mobile apps. In fact, in Q4, our four mobile apps, SNKRS, the NIKE Mobile App, NTC and NRC had over 500 million visitors within the quarter, and that's just in the U.S. or North America, APLA, and EMEA, doesn’t even count in China. So, there's no one else in the industry that has anything close to that. And what that means is, we are in – we're in the privileged position of being in consumers' pockets and on their home screens of their phones. That's cherish real estate. So, our mobile apps give us a huge advantage because it creates shopping occasions when they're browsing on SNKRS. It creates shopping occasions when they're working out. It connects us to consumers globally and will help us both grow the market and gain share. A second example will be around health and wellness in women's, and we talked in my remarks about the NIKE Well Collective. And what this really is, is, [Amy Montagne] [ph] is leading our women's team and just doing a fabulous job. Amy and her team have sharp consumer insight around through the eyes of the women consumer, the female consumer, this intersection of sport, wellness, community and it's all infused with style. The distinction of style and performance for women is a much more nuanced and integrated thing. And so, NIKE Well Collective is both a branding and a way that our voice to her and our storytelling to her will come to life, but also our retail doors. And we have been opening Nike Live Doors, as you know. We'll rebrand those NIKE Well Collective. I will tell you the NIKE Live doors, which are largely focused on women consumers, are performing very strongly around women's performance product, around women's fitness, leggings and bras, around lifestyle as well. And so in that way, we're expanding our access to women consumers. And so, we'll continue in our marketplace strategy. It really reiterates what I said a minute ago of being aggressive to be where the consumer is, so that we're there when they want us, where they want us and how they want us.

And Matt, I'll just jump in on the question around revenue guidance. Let me start by just saying we're incredibly pleased by the growth that we delivered in fiscal year 2023 with 16% growth on a currency-neutral basis. And if you look at our results in North America and EMEA on a currency-neutral basis, our growth was even higher. When you then compare our reported revenue growth to retail sales growth to the consumer across the marketplace, we drove strong double-digit growth in retail sales to the consumer throughout the year, including that trend continuing into the fourth quarter. And NIKE Direct in the fourth quarter grew 18% versus the prior year. So, in this fourth quarter, remember that we moderated the sell into wholesale, but continued in terms of trying to prioritize a healthy marketplace, and we still drove strong growth in retail sales across the marketplace. As we look ahead to fiscal 2024 and the mid-single-digit guide, it starts with the approach that we've been taking around assessing marketplace health and our consumer trends and then the pressure that we see – the potential pressure that we see on the consumer. And so, we made a decision to tighten our first half buys and continue the trend that we had done in the second half, but we are expecting retail sales to continue a trend, so retail sales to the consumer to continue a trend of growth versus the prior year. And actually, when we look at the first half and the second half of next year, we're actually planning for a fairly consistent level of retail sales growth to the consumer. The distinction with the first half is that we're continuing to manage marketplace inventory and continue to just manage marketplace health. NIKE Direct is going to continue to lead our growth. And when we look at next year in the second half, in particular, we're excited about the new products that we brought to market this year and scaling them next year. We're excited about new product introductions and then ultimately capturing the energy around the Paris Olympics, which is a wonderful moment for NIKE. But mid-single-digit revenue growth on the full-year, and that includes four points of non-comp headwinds from wholesale shipment timing in fiscal year 2023, plus some of the accelerated liquidation activities that we have. So, all told in this environment, we feel like mid-single digits is a great number.

And Jim Duffy from Stifel is up next.

Thank you for taking my questions. Some great progress on the inventories, and you spoke to an improved inventory posture in the marketplace. Just thinking about competitive dynamics, can you elaborate on your expectations for the promotional backdrop in fiscal 2024? And then related to that, you were very promotional clearing inventory across fiscal 2023, how does that factor into your outlook for the mid-single-digit growth and specifically the growth for the DTC business? Thank you.

Sure. Well, Jim, I would say, in general, the marketplace remains highly promotional. And when we step back and look at the actions that we took last year, we're very happy with where we finished the year. In fact, our inventory levels are ahead of our plan and ahead of the competition. We saw total marketplace inventory units down versus the prior year. And when we look at NIKE-owned inventory in particular, we feel incredibly good about where we are and the plans that we have going into the first half of next year. The large majority of our strategic partners have also done a beautiful job moving through the inventory and balancing the trade-offs of investing in consumer connections, elevating the retail environment, and moving through inventory. And so, we feel great about where we are, but we recognize that next year, the environment is going to continue to be promotional and that even puts pressure on our wholesale partners in terms of how they think about managing through the first half of the year. And so, we believe that the right focus and attention for NIKE is to focus on recovering a higher level of full price growth in fiscal year 2024, profitable growth, full price growth. The mid-single-digit guide does reflect four points, as I mentioned, of non-comp impacts, which are partially wholesale shipment timing because you recall last year, there was a lot of late supply from 2022 that came into 2023, but also a little bit of extra liquidation as we were more aggressive in moving inventory both through our own channels and our partner channels. But when I look at our growth plan for next year, adjusting for the comp headwind and look at the profitability recovery that we see on the margin – gross margin and EBIT line, I feel like it's a great plan and sets us up well for long-term growth and profitability.

Your next question is Kate McShane, Goldman Sachs.

Good afternoon. This is Brooke Roach filling in for Kate. Thank you so much for taking our question. You commented in the prepared remarks about seeing around the corner on transitory cost headwinds that have pressured your profitability and FY 2024, we'll start to see some relief there. Can you speak to the proportion of transitory costs that you anticipate to recapture in FY 2024? And what's still on the horizon for FY 2025 and beyond? Thank you.

Sure. So, when we look at where we ended the year and the progress that we've made on inventory, we feel really good about our ability to drive healthy growth in 2024. And so – and you see that in our gross margin guide. We're guiding to expand margins by 140 basis points to 160 basis points, and that includes a 50 basis point negative FX headwind. If we back out the FX, it's approximately 200 basis points of operational gross margin expansion. The large majority of the 200 basis points is the beginning recapture of transitory headwinds. We will continue to see structural benefits in fiscal year 2024, but those are being partially offset by higher product costs and inflation in parts of our supply chain. When I look at the large majority of our transitory headwinds, we've been talking about two for the past several years. One is, freight and logistics; and the second one is, liquidation. We've now negotiated our ocean freight rates with partners for fiscal year 2024, and we've negotiated rates that are near pre-pandemic levels. Those benefits don't kick-in until halfway through the second quarter. And so, we'll start to see that tailwind come in, in Q2 and then accelerate in Q3 and Q4 and then carry into fiscal year 2025. As it relates to the liquidation impact, we are planning for an improvement in full price mix and markdowns. And we've baked that into our plans for fiscal year 2024, but we recognize, as I answered the question for Jim a little bit earlier, that we continue to operate in a promotional marketplace. And so, we're going to continue to read and react. And as a result of that, we've planned for a modest recovery of those costs. And you'll also recall that in fiscal year 2023, we were comparing to extraordinary levels of full price realization, well above the 65% threshold that we had provided as our target. And so, at this point in time, we're not planning that we're going to recover back to that level of full price realization, but that instead, we will be operating at or around the 65% level, but we've also now seen a new way of living. And so, it gives us some optimism that there can be more opportunity than even the metric that we've provided. But those two things taking into consideration, as we look to our margins beyond 2024, there's going to be some structural tailwind that comes from freight and that – or sorry, some benefit that's going to come from freight. And then our focus is going to be on the structural drivers that give us confidence in achieving the long-term margins that we've been talking about.

Cristina Fernandez, Telsey Advisory Group has the next question.

Hi, good afternoon and thank you for taking my question. I wanted to see if you could talk about the recovery you're seeing in China? How big that progressed through the quarter? And just overall, when you look at the marketplace, how is it different today versus pre-pandemic and your ability to use your athletes and influencers to drive sales?

Yes. Cristina, probably the highlight of the last 90 days for me was getting back to China for the first time post-pandemic. And I will tell you, it just – it was such a palpable reminder, a, what a strong team we have there. And I just want to again call out our China team who has just done a spectacular job over challenge after challenge after challenge over the last three or four years. But what's also clear is the consumers back in China and NIKE and Jordan brand are strong. So, you heard our Q4 growth was 25%. We had a strong 6/18, and that's across different categories, performance and lifestyle men's, women's, kids, really strong performance in running and basketball wholesale fitness. But what was really clear is that the NIKE formula of the best innovation combined with great local storytelling, combined with the marketplace is connecting with Chinese consumers, particularly Gen Z. And so, the Gen Z consumer in China cares about innovation, and they're doing a great job of taking our global innovations and hyper-localizing them as well a great job of local storytelling. When I was there, we saw – Craig Williams and I were there together, we saw that live streaming studio where we do a lot of live streaming in a way that really connects with Gen Z. Social shopping is taking off in China in a bigger way than other places, and we're at the front edge of that. And then as you know, we have 6,000 mono-brand doors that provide such an advantage. I will tell you being in several of those doors in Shanghai and Beijing, what was – it was right when the Motiva was launched. And the far majority of those 6,000 doors, the first floor is dedicated to women's. And you walk in, it is some of the best merchandising of a great innovation like Motiva connected to her, pulling her off the street and into the doors. And so, we'll continue to invest in China. Our China for China strategy, I think, is going very, very well. And looking ahead, we're optimistic about NIKE's Brand, Jordan's Brand, the momentum we have as well, we think it's a structural tailwinds in the region make us optimistic over the long-term. Gen Z is the most active generation. There's a growing middle class, increased focus on health and wellness. So, a very energizing visit and makes us very confident about our brands and our business in China.

I think that the other thing I would just add is, the activity and the effort that we've taken over the last three quarters to improve our inventory position in the marketplace. We had another great quarter we reported. And where you really see that come to life in a mono-brand marketplace, where you can see the full breadth in our stores is that you get the full breadth of a seasonal assortment, which is when NIKE is operating at its best. Leading with innovation, China actually is our largest penetration of innovation of any geography that we operate in, and that connects well with what John referenced in terms of what the consumer is looking for. But this quarter, in particular, as we've improved our inventory position, we saw the highest level of full price selling that we've seen in eight quarters. And that just shows the strength of NIKE when we have a healthy marketplace and we can bring the breadth of the assortment and the depth of our stories to bear for the consumer and to drive consumer demand.

And our final question today will come from John Kernan TD Cowen.

Excellent. Thanks for taking my question. Matt, just wanted to go back to the margin puts and takes and maybe talk a little bit about the long-term margin targets that were issued way back in fiscal 2022. I know a lot has changed since then, but are we still thinking in terms of a high-teens operating margin long-term? And how do we think about the margin profile of DTC and the mix shift of the DTC?

Sure, John. Well, let me start – I'll start with the back and I'll come to the front in terms of the way you asked the question. We're making substantial progress towards the long-term goals that we had highlighted a couple of years ago. Our Consumer Direct Acceleration strategy has been a consumer-led strategy. And when we look at the mix of our business in Digital and in Direct relative to where we were in fiscal year 2019, we've made significant progress against it. And we continue to invest to grow based on the fact that consumer continues to choose to shop in our stores and in our digital channels or at least to engage in our digital channels before they go try to find the product that they want in the wholesale marketplace. And so, we're very pleased with where we are today. We finished fiscal year 2023 at a 44% mix in total Direct and a 26% mix in Digital. And the consumer will decide the ultimate endpoint. And what I mean by that is, whether we land exactly at 60% or not, it doesn't really matter. But what we are confident long-term is that we're going to be a more Direct and a more profitable company. And so, when I look at our guidance for fiscal year 2024 and the gross margin expansion that we're planning for on an operational basis, we're making significant progress to come back to where we were prior to the transitory impacts. And then we still see the benefits of structural opportunities to drive our margin long-term. We've talked about those before. Those include the price value that we create in our products and the opportunity that creates for us to raise prices to the impact of having an increasing channel mix to some of the cost – product cost opportunities we see through simplification of our SKU line and end-to-end efficiency. But the time line to predict when we're going to get there, as we've been talking about for a couple of quarters is, is difficult to predict. And a point on that in cases, we've got 150 basis points of foreign exchange headwinds between last year and this year. But we are confident that we're on the path towards achieving these long-term goals, even though it's a little bit more difficult to predict the exact time that we're going to get there, but we think that we're on a path to the high-40s long-term gross margin goal. And at this point, we're continuing to do within our control in order to move us in that direction.

And Matt, John, I'll just build on one of the things that Matt says, the key to the whole thing is having the best innovation in the industry. That's what brings people to our Direct channels that brings people to our Digital channels. And the momentum Heidi has had her team together offsite earlier this week and seeing the design, product creation, men's, women's, kids, storytelling and brand teams, really accelerating the pace of innovation, accelerating our ability to connect with the consumer is ultimately what's going to fuel not only our top line, but also our bottom line. And so, the feeling of momentum and confidence is really growing as we move into this more streamlined structure.

And everyone, that does conclude our question-and-answer session. It also concludes our conference for today. We would like to thank you all for your participation. You may now disconnect.