The operator introduces the NIKE, Inc. Fiscal 2024 Third Quarter Conference Call and hands it over to Paul Trussell, VP of Corporate Finance and Treasurer. Trussell introduces NIKE, Inc. President and CEO, John Donahoe, and CFO, Matt Friend. He mentions that forward-looking statements will be made and non-GAAP financial measures will be discussed. Donahoe acknowledges the passing of a world-class athlete and NIKE family member, Kelvin Kiptum.

Nike CEO discusses the company's performance in Q3 and the need for adjustments in four areas: focusing on sport, driving product innovation, bold brand marketing, and partnering with wholesale to grow the marketplace. The company has aligned its organization to prioritize the consumer and sport, and has reinvested in consumer-led teams. They are also working on a multiyear cycle of innovation and increasing investment in wholesale to elevate the brand and industry.

NIKE recognizes the importance of their wholesale partners in scaling their innovation and newness in physical stores. They are confident in their innovation pipeline and are carefully managing their important franchises for long-term success. However, there will be a period of transition in their product portfolio. The company's success starts with innovative product and their focus is on their greatest innovation platform, Air. It is a double-digit billion dollar business and a source of competitive advantage. Air offers unique benefits for athletes and continues to be developed for the upcoming Olympics.

Air is set to release new footwear and innovations this summer, including the Alphafly 3 for distance running, new football and basketball footwear, and the fastest track spikes ever created. They will also be showcasing their full Olympics innovation lineup in Paris. In addition to performance innovation, Air is also focusing on creating new sensations of Air in their lifestyle portfolio, such as their new Dynamic Air technology which allows for a more responsive and comfortable underfoot sensation. This will be featured in the Air Max Dn, a new lifestyle franchise with a bold design identity rooted in youth culture.

Next week is Nike's tenth Air Max Day and they have a strong lineup of innovation, storytelling, and consumer activations. The new Air Max Dn will be debuting in over 4,000 stores globally and has already created a buzz for other Air Max products. Nike's focus on sport and commitment to product innovation was highlighted in their successful pitch for the German football contract. This partnership is a testament to Nike's ability to expand the game and make athletes global heroes. Nike's purpose as a company is deeply rooted in their DNA and they are honored to partner with the German Football Federation.

The paragraph discusses how purpose is the foundation of NIKE's strategy and guides their commitment to the future of sport and service to athletes. The company has made progress towards their 2025 purpose targets and remains focused on delivering results despite macro volatility and an organizational restructure. The third quarter showcased the company's operating discipline, with revenue growth and expanded gross margins. The focus is on creating value for consumers through new product innovation and greater brand impact.

In the last quarter, newness and innovation have been key drivers for brand distinction in an ever-changing macro environment. NIKE is accelerating its multiyear innovation cycle and has seen success with new footwear models, particularly in the performance and women's fitness categories. New product launches, such as the Air Zoom Alphafly 3, have been met with high consumer demand and a world record in the marathon. The upcoming Paris Olympics will serve as a catalyst for the brand's newest innovations, and with a strong portfolio of new concepts and capabilities, NIKE's innovation teams are poised to continue driving breakthroughs in performance and lifestyle in the future.

In order to make the most of their new product cycle, the company is taking several actions to increase the impact of their brands and products. These include improving the consumer experience at retail, focusing on key brand and sports moments, and shifting their product portfolio towards innovation. They will also be reducing supply of certain products to make room for new releases.

In the third quarter, NIKE has seen a slight increase in revenue, with low single-digit growth in the NIKE brand and declines at Converse. This follows a strong growth period in the previous year. The company is taking actions to fuel brand momentum and return to stronger long-term growth, including restructuring the organization and increasing investment in consumer-facing activities. In Q3, NIKE Direct was up slightly, with NIKE stores up 6% and NIKE Digital down 4%, while wholesale grew 3%.

In the third quarter, gross margins for the company increased by 150 basis points, driven by pricing strategies, lower freight rates, and supply chain improvements. However, restructuring charges had a negative impact. SG&A expenses grew by 7% due to investments in demand creation, but were partially offset by cost management. Excluding the restructuring charges, earnings per share would have increased by 24%. In North America, revenue grew by 3%, with strong growth in NIKE Direct and wholesale. Inventory levels were also down. In EMEA, revenue declined by 4%, with declines in NIKE Direct and wholesale, and a decrease in EBIT.

In Q3 of fiscal '23, EMEA revenue saw tremendous growth, but fell short of expectations this quarter due to increased macro volatility and softening consumer demand. However, new product launches and brand activations continue to drive momentum in the region. In Greater China, revenue grew 6%, in line with expectations, with strong performance in kids and basketball categories. The Jordan brand also saw double-digit growth in women's and kids, with the opening of a new retail concept in China this week. In APLA, revenue grew 4% in Q3.

NIKE's Direct division grew by 4%, with NIKE stores seeing an 18% increase and NIKE Digital experiencing a 6% decline. Wholesale grew by 3%, but EBIT declined by 3% on a reported basis. In Central and South America, the company saw double-digit growth and improved return on sales after shifting to a distributor model. In Mexico, strong growth in football helped boost brand strength. In Japan, running also saw double-digit growth. Across the APLA region, football and basketball saw double-digit growth, with the Mercurial, LeBron, and GT series driving sales. Women's holistic fitness also saw growth, particularly in Motiva and statement leggings. Looking ahead, NIKE expects to offset softer revenue in the second half with strong gross margin execution, cost controls, and healthy inventory levels. The company expects full year revenue to grow by approximately 1%, with Q4 revenue up slightly due to shipment timing and lower digital growth. The stronger U.S. dollar is expected to have a negative impact on reported revenue. NIKE also expects Q4 gross margins to expand by 160 to 180 basis points, thanks to strategic price increases, lower freight rates, and improved supply chain efficiency. The company will incur restructuring charges of $450 million in the second half, with $403 million incurred in the third quarter, which will impact SG&A and gross margins.

The company's outlook is affected by higher markdowns, franchise lifecycle management, and foreign exchange headwinds. They expect gross margins to expand, SG&A to be down slightly, and revenue and earnings to grow in the next fiscal year. However, they anticipate revenue to be down in the first half of the year due to product lifecycle management and macroeconomic conditions. The company's focus is on amplifying brand strength and creating consumer connections through sport. The call is now open for questions.

Jay Sole from UBS asked about the fiscal '25 outlook and the operating model of NIKE. Matt responded by saying that they expect low single-digit growth in the first half of the year, with growth in operating margin and EPS despite restructuring charges. John Donahoe added that they have made adjustments in their offense, putting the consumer and sport back into their strategy. This has resulted in consumer-led, sport-focused teams and a strong innovation pipeline. They are building a three-year pipeline to bring innovation season after season in each sport.

Nike's top leaders recently gathered for their spring meeting, where they discussed their plans for the next three years. The company is focused on elevating their brand and creating bold stories that connect with consumers. They are also investing in both their direct and wholesale channels to reach more customers. Fiscal year 2025 will be a period of transition as they focus on scaling newness and innovation in their product portfolio, which has already shown promising results with the majority of their top 20 growing footwear products being new releases. This shift in focus means managing some of their larger franchises to make room for the newness.

Nike's lack of new products has resulted in a decline in sales in the first half of the year, but they expect to see growth in the second half and in the following year due to their focus on newness and innovation. This will be driven by their multi-year innovation cycle and their strong pipeline of new products, particularly in the Air category. This focus on innovation is crucial for long-term growth and will not only drive sales but also create a significant impact on consumers. There have been no changes to their high teens margin target as they enter this next chapter of growth.

The company is focused on a three-year pipeline of innovation and improvement, with upcoming launches in the Peg, Vomero, and Structure product lines. The transition to this new strategy is expected to occur in the second half of fiscal year 2025. The company is also prioritizing meeting marketplace targets over serving consumer demand.

The company is shifting its focus to elevating its brand and positioning in order to better serve consumers and have a greater impact in the market. They believe there are still strong growth opportunities in the industry, driven by consumer interest in sports and healthy lifestyles. The company expects to continue growing and taking market share, while also achieving their long-term margin targets through disciplined cost management and investing in the consumer. They believe having a strong brand is crucial for long-term growth and profitability, and are focused on driving innovation and elevating their presence in the marketplace.

The speaker discusses the company's plans to update their algorithm and expectations at Investor Day later this year. They also address the pricing power of the NIKE brand and how their strong brand and innovative products give them the ability to expand profitability. They believe that strong consumer demand and high levels of full price realization are the key drivers of growth and margin expansion. However, in the near term, the digital business may face some headwinds due to a higher mix of popular franchises.

The speaker discusses the near term challenges in the supply and channel mix of their larger franchises, but emphasizes their focus on growing units across all channels in order to achieve their growth goals. They also mention their plans for expanding gross margins through cost initiatives and supply chain efficiency, as well as shifting resources to be more consumer-facing. The questioner asks for more insight into the trends in the Chinese market, which has seen faster growth in wholesale compared to DTC.

The speaker discusses the management of franchises and growth rates in the wholesale channel for the first half of the fiscal year. They also mention the strength of NIKE's brand in China and the growth in physical retail compared to digital channels. The company is gaining share against global and local brands in China and plans to expand into social commerce through Douyin. The speaker met with partners from China to discuss these developments.

John and Matt recently had a meeting with the team in China to discuss the company's innovation pipeline and plans for growth. The team was excited and optimistic about the future, as China is a monobrand market and allows for better control of the brand's expression and assortment. NIKE Direct has lower penetration in China compared to other regions, and franchise management will be focused on scaling newness and creating consumer interest in new products. The company is also focused on managing franchises for long-term health and avoiding excessive promotions.

The company's teams are focused on revenue and earnings growth, with an expected increase in operating margin. The revenue guidance for the first half of fiscal '25 is down single-digits, with no assumptions for improvement in international markets. The company acknowledges issues with their brand in wholesale and is working to improve it.

The company is focused on elevating the consumer experience with their brand, particularly in the wholesale market which represents three quarters of their sales. They plan to launch their new product in 4,000 stores and continue to scale it over the next few seasons. This will involve investments in marketing campaigns, product presentation, and assortment variety. The company's strategy and approach to the marketplace is constantly evolving to meet the needs of the consumer and create new distribution opportunities for growth.

The focus of NIKE is on its current partners and elevating the brand experience with them. According to John Donahoe, the reception from partners has been strong and they want newness and freshness from NIKE. The company is also investing in its ground game for running, with a focus on being present at local races and marathons. The Vomero 17 and Structure 25 shoes have seen double-digit growth, and the Peg family is expected to perform well in the second half of the year. There is also anticipation for sales growth from the upcoming Olympics.

The company has had success with a shoe exchange effort and increased focus on the RSG channel, resulting in increased expertise and presence in the running market. They have seen green shoots of progress in North America and strong bookings for fall '24, which they attribute to the upcoming Olympics and their Air for Athletes campaign. They plan to continue to ignite momentum in the running market with their innovative product portfolio and partnerships.

NIKE is excited about the innovation they are bringing to the market and see it as an ignition point for their brand and business. The upcoming Olympic Games will serve as a platform to showcase their innovative products and drive growth in the future. They are already working on future iterations of their Air technology and see this as an opportunity to reposition themselves as a leader in the sportswear industry. The conference call has now ended.

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