Good afternoon, everyone. Welcome to NIKE, Inc.'s Fiscal 2024 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 Corporate Finance and Treasurer. I would now 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 2024 third quarter results. Joining us on today's call will be NIKE, Inc. President and CEO, John Donahoe; and our CFO, 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 nonpublic 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 are 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 questions to one. Thanks for your cooperation on this. I'll now turn the call over to NIKI, Inc., President and CEO, John Donahoe.

Thank you, Paul, and hello to everyone on today's call. Before I get into our Q3 performance, I want to take a moment to acknowledge the tragic passing of Kelvin Kiptum last month. Kelvin had just set the Marathon world record in Chicago. He was a world-class athlete and Champion and beloved member of the NIKE family. Kelvin was an inspiration to so many us, and he'll long be remembered and honored for the impact he had both on the running community and beyond. Looking at our business, Q3 performed in line with our expectations. That said, we know NIKE is not performing in our potential. While our Consumer Direct Acceleration Strategy has driven growth and direct connections with consumers, it's been clear that we need to make some important adjustments. Simply put, we need to make adjustments in four areas. We need to sharpen our focus on sport, we must drive a continuous flow of new product innovation, our brand marketing must become bolder and more distinctive. And while NIKE Direct will continue to play a critical role, we must lead in with our wholesale partners to elevate our brand and grow the total marketplace. And this is exactly what we're doing. Starting last June, we aligned our organization to put the consumer and a sharp focus on sport back at the center of everything we do. We integrated our leadership structure, appointing Heidi O'Neill and Craig Williams as Co-Presidents. We've reinvested in consumer-led sport focused teams that are the foundation of our offense, and we're driving our winning formula of creating a relentless flow of innovative product, combined with distinct brand storytelling, delivered through differentiated marketplace experiences. And while we still have much work to do, we are making significant progress. We're well on our way to building…

Thanks, John, and hello to everyone on the call. NIKE's third quarter showcased the operating discipline of our teams as we delivered revenues up slightly on top of the prior year's double-digit growth, outperforming our expectations in North America and more than offsetting dynamic conditions in some other geographies. We executed well to recapture transitory cost headwinds and expand gross margins even in a promotional environment. Our inventory position remains healthy with total marketplace units down double digits versus the prior year and weeks of supply at their lowest levels since the pandemic. Most importantly, our teams are focused on what matters most to capture the strong growth opportunity we see in the marketplace. This means creating more value for consumers by scaling new product innovation, with greater brand impact across the full marketplace with even more inspiration through sport and our athletes. Last quarter, we highlighted that particularly in an uneven macro environment, newness and innovation are what drives brand distinction. Consumers are moving quickly to access new products. Trends are igniting in different places and rapidly spreading around the world. NIKE needs to be faster. And so we are accelerating a multiyear innovation cycle. And while our new product cycle is just getting underway, this quarter showed that we are on the right track. Since the start of this fiscal year, new and updated footwear models have grown into a majority of our top 20 growing footwear franchises in Q3. Added up, footwear products introduced over the past several quarters are on track to generate a multibillion dollar run rate on an annual basis, and we see even more opportunity ahead. On the whole, we see momentum where we are focused most. Performance footwear grew high single digits this quarter, with double-digit growth from $100-plus franchises, including Kobe…

[Operator Instructions] Our first question will come from the line of Jay Sole with UBS. Please go ahead.

Great. Thank you so much. Maybe just to start, Matt, I want to ask you about the fiscal '25 commentary you made. You're talking about low single-digit growth for the first half year. You said operating margin, I think you said grow, actually restructuring charges and EPS growth. Can you give a little bit more to mention around what you expect for operating margin next year, like what kind of growth you expect? Will growth on the reported numbers from this year or will it be sort of below that? And then, I guess just a bigger picture, if we could take a step back. Just talk about the operating model. The company switched to a men's-women's-kids construct a couple years ago, away from the category offense. How has that changed? How have you perceived that change? Has it been what you expected it to be? Does NIKE plan to make any changes to the operating model? Thank you so much.

Matt, why don't I take the second part of that question and then you take the first. So Jay, as I mentioned, we are making, and started nine months ago, important adjustments in our offense. And that started with putting the consumer and sport squarely back into our offense. And so that allows a sharpness across men's-women's-kids and Jordan around sport. And so, there's a sharpness around running, end-to-end, around fitness, around basketball, around football, and around lifestyle. So we brought the best of the category offense right back in, along with the sort of gender umbrella. And that resulted in consumer-led, sport-focused teams that are back on our front foot, as we talked about, building a strong innovation pipeline. And in classic NIKE form, it's not just one or two products. It's building a three-year pipeline so that we can bring innovation season after season in each sport. In fact, we were just, this week, we had 300 or 400 of our top leaders here for spring '25. That addition of the next round of innovation, I can tell you, our teams are excited. And it's not just one season. It's a full three-year pipeline. We're combining that with elevating our brand and bigger, bolder stories, grounded in sport and athletes that cut through, and connect with impact. And again, you'll see that in the Olympics. And you saw that a little bit with Caitlin Clark and with Sabrina, most recently, little examples of it, getting back to what we do best, and we're doing that with brand. Then in the marketplace, while we have a sport focus, we're combining both the best of our direct offense. But a reinvestment with our wholesale partners, so we bring a more holistic offense that grows the market and gets in the path of our consumer. And so, that's what's driving our growth. We've made the necessary adjustments to bring the best of what's worked in our proven formula so that we move forward.

And Jay, the way I think about fiscal '25, is that we are taking our product portfolio through a period of transition. We talked about this last quarter, in terms of our focus on scaling newness and innovation, and the green shoots that we were seeing in terms of the way the consumer, is responding to the newness that we're bringing to market. And this quarter only gave us more confidence that that is where we need to focus and how we will continue to create greater impact, and distinction from a brand point of view. And so this quarter, we saw a majority of our top 20 growing footwear products, be new products that have been created this year. And those products are on a trajectory to deliver multi-billions of annual run rate of incremental revenue. And that's where our focus is. At the same time, we're managing some of our largest lifestyle franchises, and some of our performance franchises back, to make space for the newness. And that's going to have a corresponding offsetting impact. And because we've been missing some product newness at scale in our portfolio over the last several seasons, these actions are resulting in a decline of low single-digits, is how we're thinking about the first half of the year. But we believe we will inflect in the second half, and grow next year on the top line. And when we step back and think about the importance of newness and innovation, and not just to drive the top line, but to create consumer impact at scale, that's the foundation for us driving long-term growth.

Our next question will come from the line of Matt Boss with JPMorgan. Please go ahead.

Great. Thanks. So John, could you elaborate on the new multi-year innovation cycle and how best to think about the timeline for transition to the next chapter of growth that you cited? And maybe Matt staying on that topic, high level, any material changes to consider with the top line growth profile, or your high teens margin target, as we think about this next chapter of growth?

Yes, Matt. Well, I can't tell you the change in the feeling, of our innovation design and product creation teams, getting back on their front foot. And it's not just about a product or an item here and there. It's around building a robust pipeline of innovation. So I mentioned in my remarks, Air. Air has been probably the single largest innovation platform in NIKE's history. And we continue to innovate with Air, both in performance, which you'll see in the Olympics, and you'll see it impact almost every sport dimension. And you get to see that in a couple of weeks and measurable performance benefits. Again, classic NIKE innovation. And then also in lifestyle. Let me just take Air Max DN. We're launching Air Max DN next week, but we already have next year's Air Max and the following year developed, which are further innovations in Air. So that it's not just one year, its three years in the pipeline that we're working on improving and improving and improving, as we bring it with power to consumers. Beyond that, let me take running. I was over, Matt and I were over in the running room. It was yesterday, I think, Matt, wasn't it? It was yesterday. And the three-year pipeline of innovation is clear across Vomero, Structure, and Peg. So we'll have Peg 41 launch in June. Peg Premium will be as well as other members of the Peg family, Peg Trail, all coming in the second half of the year. And we're clear what's coming in '25 and '26 across Peg, Vomero, and Structure. Again, pipeline. Same thing in women's. We went into the women's room. Amy Montagne and team have lined up not just what's coming in the short-term, but what's coming season-after-season, which is what allows NIKE to drive innovation at scale and consistency.

And I'll just, I'll hit on the question, Matt. On the timeline of transition, I'll just reiterate what I just said, which is we believe that transition is going to occur in the second half of fiscal '25. You will continue to hear us talking about the way we're scaling newness and innovation from this point forward. The products that are already out in the market, we expect to continue to scale. And then John's referenced the DN, the Peg 41, and we've got other things that are coming in the first half of this year. And so that's what we're excited about, offset by the way we're managing some of our franchises. When I think about your question about material changes to the long-term, I'm going to hit on maybe a couple of points here. I think the first one I'd say is that, while our strategy over the last few years has been consumer-led. What I would say is that the - last year or so, we've been more focused on trying to achieve mix of marketplace targets than we have serving consumer demand where the consumer is shopping. And so, there's been more focus on trying to achieve the 40% digital metric or the 60% direct metric when that was always a consumer-focused strategy. The consumer is still clearly shopping in multi-brand retail. And we need to elevate our brand and our positioning, to be able to serve the consumer and to have the maximum impact, from the new innovations that we're bringing to market. And so, those measures are not measures that are guiding our forward-looking plans, okay. The second I'd say is that when we look at the industry and step back overall, stepping back from being in a moment of transitioning our product portfolio.…

Our next question will come from the line of Brooke Roach with Goldman Sachs. Please go ahead.

Good afternoon. And thank you for taking our question. I was hoping to get your updated thoughts on the pricing power of the NIKE brand and the markdown opportunities that you see as you build into this new multi-year innovation cycle. Are there any near-term or medium-term offsets that we should contemplate as you work through franchise management and the current macro? And how are you thinking about the most important drivers of operating margin expansion into next fiscal year? Thank you.

Yes, let me start. By talking about pricing power, one of the biggest benefits to a strong brand, an innovative brand, a brand that's continuing to bring freshness and newness to the consumer, is pricing power. And over the last couple years, given our brand strength, we've been able to implement strategic pricing in order to be able to offset, some of the headwinds that we've been facing. But as we look forward, we believe that more newness, more freshness, products that are more connected to stories that are relevant to consumers, should give us the ability on a structural basis, to continue to expand our profitability. And the point, I was trying to make in response to Matt's question is that when the brand is strong, the biggest driver of growth and margin expansion is strong consumer demand for the products we have. And high levels of full price realization. And that ultimately is the fundamental as we carry forward. In the near term, one of the headwinds that we're going to see is that not surprisingly, our digital business carries a higher mix of the biggest franchises that consumers love. And so, as we manage the supply of our larger franchises, we do expect that there will be a near term channel mix headwind, from transitioning our product portfolio. But we view that as being a near term factor, because ultimately for NIKE to grow at the rates that we aspire to grow to, we have to grow units across the marketplace. We have to go grow units in NIKE Direct, through digital in our stores, and we've got to grow units through our partners. And so that is where our focus is, dimensionalized through sport, our fields of play, the way we've always segmented the marketplace to grow. So that we can work and serve the consumer, where the consumer is at. As far as operating profitability long-term, we continue to believe that we can expand gross margins by running our operating model and also driving value out of some of the things that we've talked about in the past, like product cost initiatives to lower our input costs. We're actually already starting to see some benefits on that, in the back half of this year, continuing to drive supply chain efficiency. And then, as I mentioned, the way that we're thinking about managing our SG&A, shifting more of our resources to be consumer facing, we're focused on building an operating model that's got greater speed and drives greater productivity as we grow. And we think that will also be a source of long-term margin expansion for the company.

Our next question will come from the line of Michael Binetti with Evercore ISI. Please go ahead.

Hi guys, thanks for all the detail and diagnosis about - a lot of the moving parts in the business here today. Very helpful. I guess as we look at the second quarter in a row, I guess wholesale in China has grown a lot faster than DTC. Obviously, that's a very important market for you, a lot of important things for us to think about in that market. Can you help us a little color in the different trends in that market that you see? And then, I guess as we think about how you'll manage these franchises into next year, we've also heard some good growth rates in some parts of the wholesale channel, for the first half of your fiscal year. So, I'm assuming we'll see more of that franchise management on the DTC side. And if so, considering that's an important channel for the rest of the P&L, I'm assuming we can orient ourselves around gross margin pressure, in the start of next year as you work your way through that, before we see the influence of returning to growth down the P&L?

Yes, Matt, why don't I take the first part of that, you take the second. So, Michael, on China, interestingly, Angela Dong and her team and all of our top partners, were here for the last week. As you know, we have 6,000 model brand doors. They were here for innovation. And a couple of things are clear. Sport is strong in China and NIKE's strong in China. Our growth in Q3 was 6%, which was in line with our plan. And we're gaining share. We're gaining share certainly against the global brands, and we're gaining share against the local brands. So, NIKE's brand is strong in its back. With regard to channel mix in your specific question, part of what's driving that is the consumers back on the street. And so, I would say that the physical retail channel in China is stronger than digital. And then within digital, Tmall, which was historically the biggest digital driver, is experiencing less growth. We're still the number one sports brand on Tmall. And social commerce, Douyin is growing. And we're not yet on Douyin. We're just getting on Douyin. And so, you'll see us expanding our growth into social commerce, which is the growing digital channel in China. But I can tell you, Matt and I had a chance and Craig Williams and others to meet with our partners from China. They came away seeing our innovation pipeline that I've been talking about, Matt and I have been talking about on this call, what we've got in store coming. And they, it was the first time they'd been on our campus in four years since COVID. And they came away excited, leaning in. And so, we are very optimistic about the future in China. And we will grow across multi-channels to grow the market. It's probably the area of the world we do that the best.

Yes. And to John's point, not only do we have 6,000 stores, but China is a monobrand market. And so, whether it's owned or partnered, it's a monobrand market, which gives us the ability to have the best expression in front of the consumers, to be able to direct the assortment, so that as we bring newness and innovation and new stories, we partner with our partners. And the last thing I was going to say, Michael, is just the penetration of NIKE Direct in China is lower than what it is across our other geographies. In terms of your question about where we'll see the franchise management, yes, you're right. It will be more in NIKE Direct. And primarily because we continue to see a heavy level of promotional activity happening across digital, across all of our geographies. And while we continue to see, as we've supplied our largest franchises to our wholesale partners, we're actually seeing incredibly strong weekly sell-through on these franchises. We're seeing high levels, high above our targets of full price realization. And so, our franchises are healthy. In fact, we could sell more of these products if we wanted to. But we don't think that's the right thing to do, from a brand point of view. And we know that we manage these franchises for long-term health. And so, we're focused on scaling the newness and creating the consumer space, for us to tell stories about new things that, we're bringing to drive energy. And that's where our focus is. And so, that's ultimately where our teams are spending their time. And that's what's influencing the near-term transition that I highlighted a little bit earlier. As far as the margin question goes, what I'll say is that we're going to grow revenue and earnings next year. And we expect to drive operating margin expansion, excluding the impact of the restructuring charge. And that's going to come through gross margin expansion first. And then, continuing to be disciplined in the way we manage SG&A in order, to be able to drive more productive growth.

Our next question will come from the line of Alex Straton with Morgan Stanley. Please go ahead.

Perfect. Thanks for taking the question. Just a couple from me. On the front half '25 revenue guidance down those single-digits, can you give us any color on how you're thinking about it by geography or channel? And then, just bigger picture on this kind of wholesale reentering, are you having any trouble kind of rebuilding the muscle there, facing any difficulty as you reenter? Has NIKE's criteria changed at all in terms of how you think about the right partners or distribution going forward? Thanks a lot.

Okay. John, why don't I take the first part and then I'll start the second one

Okay.

If you want to jump in on that and go for it. So, Alex, I think the only thing I would say at this point, is the way that we're thinking about the geography splits, is we're not assuming that economic conditions in the international markets in particular get better. It assumes a status quo, relative to where we are today. And next quarter, I'll provide more tangible insights into not only the first half, but our full year growth over fiscal '25. On the wholesale side, what I would say is that I think the biggest thing to take away, is that we don't like the way our brand is showing up in wholesale. And we own that. And we need to focus, on elevating the experience for consumers, when they come into interaction with our brand. If you segment our marketplace by dimension and by, where we sell our units, our seasonal units on a full price basis. Our wholesale partners represent three quarters of the market, from a unit perspective. And so, the importance of being able to elevate, and to position our brand correctly and to tell stories about the products that, we're bringing to market in that environment, is an absolutely critical way not only, to help consumers fall in love with the products we have, but to also give consumers that tangible ability, to come into real life connection with the NIKE brand. And so, what we're focused on, beginning with the DN, is we're going to see and you'll feel the DN launch in 4,000 doors initially across the marketplace. And then when we look at the way we're going to scale that innovation over the next several seasons through product journeys with different partners, telling different stories in different parts of the marketplace, we continue to. We're very excited about the impact that that could have on the market. And we know that it's what we need to do. And so, the investments will be in things like seasonal marketing campaigns, elevating the presentation of our product, investing in the breadth and depth of the assortment, including color, so the consumer gets more choice off of the products that we care about the most, in order to be able to create that kind of impact across the market. We think we've got the right partners, but our strategy and our approach to the marketplace is constantly evolving, based on where the consumer is, based on where the consumer is shopping, and who's connecting most with the consumers. So, apart from some of the areas that we've been talking about where we need to create new distribution, because we see growth opportunities that don't line up with our current partners. Our focus is on our current partners right now and elevating the experience of our brand with them.

And I just build on what Matt said, Alex, the first part of your question. Our partners want us. They need NIKE to help grow the market. They want newness. They want NIKE freshness. They want us to lean in with them. And that's exactly what we're doing. So, the reception has been very strong and very good. And we'll continue to capitalize on that and leverage that, so that we collectively grow the entire market in service of the consumer.

Our final question will come from the line of Bob Drbul with Guggenheim Securities. Please go ahead.

Hi. Good afternoon. Just two quick questions from me. The first one is in the running area, you know, when you talk about wholesale, you talk about any progress that you're seeing with the RSG as partners. And then the second question is, Matt, you mentioned just the opportunity or the ability to see a catalyst in sales from the Olympics. Can you just talk about your opportunity to capitalize on, some of those products and your expectation from that? Thanks.

Bob, as I mentioned earlier, we've had a chance to be with Heidi and her teams on looking at the running pipeline, the everyday running pipeline. And there are clearly already some early green shoots. The Vomero 17 and the Structure 25 out in the market today, both growing double digits to very strong reception. As I mentioned earlier, the Peg family, starting with Peg 41, Peg Premium, Peg Trail coming in the second half of the year, the order book is looking good. We're also, in direct answer to your question, investing in our ground game, with more focus and specificity around running than before. That includes being where runners are. So, being at the marathons, at the local races, at the local runs. We had a strong presence of the LA Marathon and activations there with very positive response. In fact, we had a shoe exchange effort that went crazy, with so many people switching over to NIKE, because we're there with them. We'll continue to do that. And then in the RSG channel, as you mentioned, we've increased our focus and penetration and RSG's and other new partners that authenticate our brand. And we've doubled our EKINs. And as you know, our EKINs are the experts who provide our partners with even greater NIKE expertise and personal engagement. So, if you take the combination of strong, innovative product portfolio and pipeline with more ground game and presence where runners are. Combined with a greater marketplace distribution, including RSG's and with our EKINs in the field, we feel like we're already seeing some green shoots of progress in everyday running. And we'll continue to see that quarter-after-quarter. It won't happen overnight, but we're already seeing momentum in North America. And we believe that will continue around the world.

Yes, Bob. And another indicator of a green shoot for us, is that our bookings for fall '24, which is the fall season coming up in running footwear, delivered strong growth. And to John's point, that's across our $100 plus products, but also us coming back into market with a new line of core running footwear. And so, it's another green shoot for us that we see momentum in running in particular, and one that we're focused on continuing to ignite. And I think the Olympics actually will help that as a segue to your second point. The opportunity that we see starts with our brand. The opportunity starts with our Air for Athletes campaign that we're going to be bringing through the Olympics, combined with the products that John referenced. So, ones that you will see on the track, on the streets, vis-a-vis the marathon, to on the football pitch with visible Air, to the basketball court. With Air being visible, leveraging this similar technology that we've leveraged through the Alphafly 3. And so - we're excited about the innovation we're bringing, but it's an ignition point, because there is material value from the products that we will sell that we've sold in around these Olympic stories, but it's about igniting the Air platform as we go forward. And so, the way we think about it is that it's a catalyst from both a brand and a business point of view, because it will be an important moment on - the world's biggest stage to showcase the best and greatest innovations in these sports. And then, the connection of the innovation, to the pipeline of product that's coming that we expect will drive growth through their balance of '25 and into '26. Especially as you think about the next Air iteration and the one after that, which we already have in development. So, from our perspective, it's a tremendous opportunity to catalyze energy, but more importantly, to reposition NIKE at sport with the athlete and drive the next chapter of growth for us.

And that does conclude our conference for today. We thank you all for joining. You may now disconnect your lines.