Paul Trussell, Vice President of Corporate Finance and Treasurer, welcomes everyone to NIKE Incorporated's Fiscal 2024 Second Quarter Conference Call. He introduces NIKE, Inc. President and CEO, John Donahoe, and CFO, Matt Friend. Participants may make forward-looking statements and discuss non-GAAP financial measures. All growth comparisons are presented on a year-over-year basis and are currency neutral. John Donahoe emphasizes NIKE's role as the market leader in sport and their commitment to creating innovation and expanding the world of sport.

NIKE is a brand that draws inspiration from athletes and sports, and this quarter was particularly successful for both the company and the athletes who inspire them. Examples of this success include breaking records, winning championships, and receiving prestigious awards. NIKE's focus on pushing boundaries and redefining what is possible sets them apart from other brands. In addition to innovation, the company also prioritizes strong execution, leading to impressive growth and performance in the second quarter. During the holiday season, NIKE outpaced the industry and saw record-breaking numbers in both online and in-store shopping.

In Greater China, NIKE saw double-digit growth in brick-and-mortar sales during the National Day holiday and outperformed the industry during Double Eleven on Tmall. This, combined with strong Q2 earnings and healthy inventory, demonstrates their ability to execute against their priorities in a highly competitive and volatile market. NIKE is accelerating their innovation and executing with excellence across their winning formula of innovative products, storytelling, and marketplace experiences. Examples include their successful launch of the Ultrafly trail shoe and strategic athlete partnerships in global football, leading to double-digit growth in their trail running and men's football portfolios.

NIKE is seeing success in their women's led geo marketing campaign and their retro running shoe, V2K. They are focused on driving progress in their business and have identified three key areas of focus: product innovation, storytelling, and marketplace execution. They are starting a multi-year product innovation cycle and have identified areas of growth potential, such as Women's Jordan brand and running. They also recognize the need to be faster and more agile in order to drive long-term profitable growth.

The company plans to increase savings through simplifying products, automation, streamlining, and leveraging scale. They will invest in the Women's and Jordan brands, with a focus on performance and lifestyle. The Women's business has grown high single digits and the company has a plan to accelerate growth by responding to the needs of female consumers through both performance and lifestyle products. They have already seen success with their current collection of bras and leggings.

NIKE is expanding their product offerings for women with statement leggings and versatile footwear options. They are also establishing a leadership position in women's sportswear with iconic franchises and fueling the retro running trend. NIKE is taking steps to better serve their female consumers and has a clear plan for Jordan brand to become the number two footwear brand in North America.

The Jordan brand is experiencing strong momentum in Jordan through a diverse product portfolio and a focus on growth. They have expanded beyond retro and footwear, and are investing in areas like merchandising and marketing. The brand's performance product is outpacing overall growth, and they are expanding into new areas such as golf, global football, and American football. The women's and kids' business is also driving growth, and the apparel business has seen significant growth over the past three years. The iconic AJ1 franchise is being expanded with new dimensions and the remix footwear line has surpassed $1 billion in annual revenue.

In summary, Jordan's share in international markets continues to grow, with successful pilot programs and retail concepts. Nike's second quarter financial performance showed proactive marketplace management and disciplined execution, resulting in slight revenue growth and expanded gross margins. Despite a highly promotional market, earnings per share and free cash flow increased. Nike believes they are turning the corner towards more profitable and sustainable growth, but there were some challenges and adjustments in the quarter. In the prior year, they took steps to reduce excess inventory and wholesale sell-in.

Despite a decrease in reported revenue growth, total retail sales grew in the second quarter, driven by higher-priced products and strong results in key consumer moments. However, there are indications of more cautious consumer behavior and softer demand outside of these key moments. As a result, NIKE is adjusting its channel growth plans and reducing marketplace supply of its top franchises to focus on new and innovative products.

NIKE is focusing on accelerating growth and efficiency through innovation and consumer activations. They plan to invest in their Consumer Direct vision and identify cost-saving opportunities to fuel their next phase of growth. This includes simplifying product assortment, improving supply-chain efficiency, and streamlining organizational structure. The majority of these savings will be reinvested to have the greatest impact on consumer growth opportunities.

In the second quarter, NIKE, Inc. saw a 1% increase in revenue on a reported basis and a 1% decrease on a currency-neutral basis. NIKE Direct grew 4%, while wholesale declined 3%. Gross margins expanded due to strategic pricing actions and improved supply-chain efficiency. SG&A grew 1%, but the effective tax rate was lower. Diluted earnings per share increased by 21%. NIKE inventory decreased by 14% compared to the prior year. In North America, revenue declined 3% and wholesale was down 9%, but NIKE Direct grew 3%. EBIT grew 2% following extraordinary growth in the same period last year.

In the second quarter, NIKE saw mid-single-digit retail sales growth with key partners such as Dick's Sporting Goods and JD Finish Line. The Jordan and Women's categories were top performers, with double-digit growth in Jordan Remix footwear and a successful release of the AJ 11 Gratitude shoe. EMEA revenue declined, but NIKE Direct and NIKE Digital saw growth. In Greater China, revenue grew and wholesale saw a significant increase. Despite increased macro headwinds and a promotional marketplace, NIKE saw strong sales in brick-and-mortar stores and with strategic partners.

NIKE has maintained its position as the top brand among Chinese consumers and saw strong performance in performance products, particularly in basketball, fitness, and retro running footwear. The company also saw success with locally inspired collections and overall has a healthy inventory. In APLA, revenue and wholesale grew, with strong growth in Southeast Asia and India, Korea, and Mexico. The brand also saw strong momentum in Jordan and Kids products, including footwear and apparel. Despite potential risks in the operating environment, NIKE remains confident in its brand strength and long-term growth potential.

The company is adjusting its financial outlook for the year due to increased risks and headwinds, particularly in Greater China and EMEA. They expect a slight decline in Q3 revenue and low-single digit growth in Q4, with full-year revenue growing approximately 1%. The company also expects increased gross margin expansion in the second half, but SG&A growth is expected to improve to low-single digits, excluding restructuring charges. The company anticipates a restructuring charge of $400 million to $450 million in the second half, primarily related to severance costs.

NIKE expects other income and expense, including net interest income, to be between $275 million and $325 million for the full year. The company also expects its effective tax rate to be in the high-teens range. Despite softer second half revenue, NIKE's strong gross margin execution and cost controls are driving earnings growth. Excluding restructuring charges, the company is on track to meet its full-year earnings outlook. NIKE plans to continue operating aggressively and leveraging its strengths to create a competitive advantage. The company is focused on building a faster and more efficient organization and taking advantage of opportunities for sustainable and profitable growth. During the earnings call, John Donahoe and Matt Friend discussed the structural changes that will support a pivot to the front foot on innovation and the changes in the operating environment. Matt also addressed the breakdown of the second half revenue outlook between retail and wholesale.

The company had a strong quarter and met their revenue guidance, but noticed a difference in performance between the back-to-school and holiday periods and the rest of the quarter. This resulted in lower retail sales and the company has adjusted their guidance for the remainder of the year due to increased macro headwinds and digital traffic softness. The company's focus is on newness and innovation to stand out in a cautious consumer market. Recent product releases have been successful in this regard.

Six months ago, NIKE realigned its organization under co-Presidents Heidi O'Neill and Craig Williams, which has led to a focus on innovative products, storytelling, and marketplace experiences. This has resulted in early success, particularly in basketball with the launch of several new products and upcoming releases, such as the GT Cut, Book 1, and Kobe. This has translated into both on-court and off-court success, with athletes like LeBron wearing NIKE products in their daily lives.

The speaker discusses how their focus on driving performance innovation and translating it into lifestyle has allowed them to achieve success and consistency. They mention upcoming events like the 10th anniversary of Air Max Day and the Olympics in Paris, which will showcase their innovation in both performance and lifestyle. They also mention a $2 billion cost savings plan, with the majority being reinvested, and how it will help them reach their longer-term target of high teens margins. The second half revenues are expected to be impacted by macro factors, particularly in China.

The company has seen strong gross margin and operating margin expansion this quarter, driven by recovery of transitory headwinds, sustained price increases, and supply chain efficiencies. These are in line with long-term margin goals and the company is focused on driving more profitable growth by lowering its marginal cost of growth and reinvesting resources for higher return opportunities. The $2 billion save to invest plan will benefit the business across the value chain, not just in SG&A.

The company is focused on driving profitable growth and remains confident in their long-term margin goals. They are seeing adjustments in revenue due to macro headwinds in China and Europe, but are managing their franchises well. They are seeing success with new product launches and plan to accelerate their pace of innovation in order to continue driving growth. This will start with the products they have already announced for the rest of the year.

Nike's CEO, John Donahoe, discussed the company's focus on the running category during a recent earnings call. He stated that they have made running a key priority and have seen great success in the past few months with their Alphafly 3 shoe dominating podiums and setting a world record. They also plan to launch the shoe to the public in Q3. Donahoe mentioned that they are also seeing growth in the trail running category and are excited about the potential for further scaling in this area. Nike's focus on running is part of their overall strategy to target growth in three key areas: Women's, Jordan, and running.

Nike's innovations are driving the growth of its trail running category, with the Ultrafly trail shoe being the first with a carbon fiber plate. Trail running is also becoming more popular as a lifestyle activity, particularly in Europe. Nike plans to continue investing in this category and also focus on building its presence in the everyday running market by getting into RSGs and participating in races and running communities. The company's main focus in this category is on the Pegasus franchise, with updates planned for 2024. Nike is also excited about its product portfolio for everyday running under $100.

The speaker discusses the company's plans to introduce a new product offering in the upcoming quarters, which will help them regain their competitive edge and improve margins in various markets around the world. They also mention their strong position in China and the positive impact of the country's focus on promoting healthy lifestyles. Despite macro uncertainties, the company's brand continues to resonate with consumers and they are successfully combining global products and athletes with local culture to drive growth in the market. A recent example of this is their domination of the Shanghai marathon, which is helping to grow the running market in China.

In the paragraph, Matthew Friend discusses the profitability and competitive position of NIKE in the Chinese market. He mentions that despite some macro headwinds, the company is performing well and is able to expand margins. However, the highly promotional nature of the digital marketplace is holding them back in the near term. As a result, NIKE will not engage in heavy discounting and will instead focus on brand health and strength. This may impact their guidance for the rest of the year. In terms of operating overhead and demand creation, Friend does not provide specific details, but mentions that the company is prioritizing innovation and newness in the marketplace.

The speaker discusses the company's plan to reinvest in consumer-facing activities and product innovation in order to drive profitable growth and capitalize on opportunities in the market. They also mention a reallocation of resources and a potential leverage in SG&A, but emphasize the importance of reinvesting in areas that have an impact on sport and enable the company to tell their stories effectively. They also mention a question from an analyst about the need to reinvest given changes in the competitive environment and the need to reinvigorate the product cycle and marketing.

In the North American market, there has been growth in retail sales compared to the previous year, but it is not significant due to the high growth rates in the prior year. The company has taken significant actions to decrease their inventory, which has resulted in strong double-digit decreases. They feel confident about their partners' inventory levels and their ability to showcase new and relevant products to consumers. However, they are monitoring the marketplace closely due to cautious consumer behavior. Despite the high levels of inventory in the market, the company is focused on newness and innovation to drive sales.

The speaker discusses the impact of newness and innovation on their company's open to buy and top line growth. They also mention the cumulative freight drag over the past two years and the timing of recapturing it in 2024 and 2025. The speaker notes that they have seen some recovery in the second quarter and expect more in the third and fourth quarters. They also mention the impact of markdowns and their cautious approach to margin guidance for the rest of the year. Finally, they mention that product input costs are expected to become a tailwind in the fourth quarter.

The company is pleased with the progress being made towards achieving their long-term margin goals and credits the successful execution of their teams. The conference call has now ended.

This summary was generated with AI and may contain some inaccuracies.