The paragraph introduces a conference call for NIKE, Inc.'s fiscal 2025 second quarter results, led by Paul Trussell, the Vice President of Corporate Finance and Treasurer. Participants on the call include NIKE's President and CEO, Elliott Hill, and CFO, Matt Friend. It mentions that the call will include forward-looking statements with inherent risks and uncertainties, and will cover non-GAAP financial measures. All growth comparisons will be year-over-year and currency-neutral. Elliott Hill, who is expressing enthusiasm about returning to NIKE, begins with prepared remarks and then opens the floor for questions.

The author, a long-time former employee of NIKE, expresses their deep commitment to the company and desire to see it succeed amid current challenges. In the first two months of their efforts to reposition the business, they have engaged directly with teammates, partners, and consumers across various global cities and visited key industry figures and distribution centers. These interactions revealed strong support and enthusiasm for a successful NIKE, emphasizing the brand's ability to energize and elevate the sports market when performing at its best.

The paragraph discusses NIKE's current business challenges and future direction. The company emphasizes returning to its roots by prioritizing sports and placing athletes at the center of decision-making. It acknowledges underutilizing its strengths, like iconic brands, a vast product range, and global reach, and plans to refocus on deep athlete insights to drive innovation and storytelling. NIKE intends to shift from capturing demand to creating brand demand through inspiring stories and critical product launches. Additionally, the company plans to decentralize resources to empower local teams and strengthen their presence with everyday athletes and influencers.

The paragraph discusses NIKE's plans to revitalize its marketplace by integrating digital and physical channels to enhance consumer experience. The focus is on being consumer-led, utilizing the company's strong mission to inspire and innovate for athletes globally. The author expresses confidence in NIKE's talented and motivated team, emphasizing their expertise in various areas such as supply chain and technology. The goal is to provide clear direction and focus, with near-term actions planned to sharpen product offerings across men's, women's, and kids' sports segments, referred to as "fields of play," to drive growth.

The paragraph discusses NIKE's strategy to drive growth by leveraging cross-functional teams to understand sport-specific athlete needs by gender, enabling innovation and growth. The company is focusing on effective inventory management and revitalizing classic footwear franchises while also developing new franchises. Key products include the Pegasus 41, NIKE Shox, and the Kobe lineup, with upcoming releases like the Vomero 18 and Pegasus premium. NIKE aims to enhance its product portfolio and deliver impactful marketing campaigns that resonate globally and locally, leveraging athletes and sports moments to advance the brand.

The paragraph outlines the company's strategy to drive growth through sports marketing by partnering with iconic sports organizations and athletes. The focus is on building relationships with athletes, influencers, and local communities to create strong consumer connections and insights. The company has been actively re-signing deals with major sports entities and plans to support its teams in key countries and cities. However, there is a concern about a lack of newness and inspiring stories in their product offerings, leading to decreased traffic and a reliance on promotions. The company aims to shift from a promotional model, with digital platforms seeing an equal split between full-price and promotional sales.

The paragraph discusses Nike's strategy to enhance its brand by minimizing markdowns and focusing on maintaining premium pricing, especially in digital and physical retail spaces. This involves improving consumer experiences, offering comprehensive product assortments, and fostering deeper connections with wholesale partners who felt neglected. Nike plans to build these relationships by delivering innovative products, sharing inspiring narratives, and providing marketing and educational support. The goal is to support mutually profitable outcomes and ensure partners have access to the best products, ultimately making them feel valued and supported.

In the paragraph, the speaker reflects on their rewarding first two months back with Nike, expressing confidence in the team's alignment and focus on impactful areas. Key near-term priorities include enhancing company culture, expanding the product portfolio, increasing brand investment, empowering teams in strategic locations, and improving the marketplace. While some actions may negatively impact short-term results, the emphasis is on long-term brand health and shareholder value, with growth driven by sports. The speaker then hands over to Matt Friend, who plans to discuss Nike's Q2 financial performance and outlook, including marketplace trends and operating segments.

The paragraph discusses NIKE's current financial performance and strategic outlook, highlighting a decline in revenues and gross margins due to franchise management and inventory liquidation efforts. The company reported an 8% revenue decrease, with NIKE Direct and Digital seeing significant declines. SG&A expenses were down, with earnings per share at $0.78. Despite challenges in traffic and retail sales, digital and physical traffic improved in November, notably during major consumer events like Black Friday and China's 11/11. The digital platform has been more focused on capturing demand rather than creating new demand for the brand.

The paragraph discusses NIKE's current strategy and performance. The company aims to enhance the consumer experience, increase organic traffic, and address excess inventory by aligning supply with demand. While inventory was flat compared to the previous year, footwear inventory decreased, and apparel and accessories increased. NIKE plans to reduce aged inventory and boost marketplace capacity for new products. The quarter showed growth in sports performance but a decline in sportswear, with varying results across different categories such as training, global football, basketball, and running. The company is shifting its product portfolio away from classic footwear franchises, which are declining faster than the overall business. In North America, Q2 revenue fell by 8%.

In the reported quarter, NIKE faced declines across several segments, with NIKE Direct down 15%, NIKE Digital down 22%, and NIKE stores down 3%, while wholesale dropped 1% and EBIT decreased by 10%. However, there were highlights in growth, particularly in kids' apparel and performance footwear, men's and women's training, and basketball, where Ja's line had double-digit growth, Kobe became the top signature franchise, and Sabrina 2 was the NBA's second most worn sneaker. NIKE's branding around key sports events and releases, like the Winning Isn't Comfortable campaign and the Kobe cleat drop, gained significant attention. Revenue in EMEA fell by 10%, with a 20% drop in NIKE Direct, 32% in Digital, and a 4% drop in wholesale, while stores saw a slight increase. Momentum continued in sport performance with global football and running, and the new sportswear lines also showed promise. NIKE repositioned its Digital platform in EMEA to focus on premium sales, which improved full price realization but impacted short-term traffic. In Greater China, revenue declined by 11%.

The paragraph discusses NIKE's financial performance and strategic initiatives in a challenging macro environment. NIKE Direct and Wholesale saw declines, affecting EBIT and gross margins. Despite the difficulties, NIKE focused on product innovation and brand engagement, particularly in China and APLA. Key highlights include strong sell-through of specific products and successful events like the Shanghai marathon. While facing short-term challenges, NIKE continues to see growth opportunities, especially in China, and is adapting its product offerings in APLA to align with regional consumer trends.

In this paragraph, the speaker details strategic actions being implemented to reposition NIKE and boost brand momentum. These actions include transitioning NIKE Digital to a full-price model, reducing performance marketing investments, and addressing excess inventory through less profitable channels. The plan involves investing in marketplace returns, increasing wholesale discounts, and amplifying promotions at NIKE factory stores. The company aims to decrease the supply of classic footwear and is ramping up brand marketing activities for key product launches. Additionally, investments in sports marketing and rebuilding commercial teams are part of the strategy to strengthen partnerships and revitalize growth.

In the near term, the actions taken by the company are expected to lead to lower revenue, additional pressure on gross margins, and higher demand creation expenses, particularly affecting the fourth quarter more than the third. For the third quarter, revenues are anticipated to decrease by low double digits due to initial strategy implementations and increased foreign exchange challenges, partially mitigated by Cyber Week timing benefits. Gross margins are expected to decline by 300 to 350 basis points, and SG&A costs will slightly decrease, accounting for the prior year's restructuring charges. Other income and expenses, including net interest income, are projected to be $30 million to $40 million for Q3. Elliott Hill emphasizes a commitment to reposition the business to drive consumer demand and promises transparency about strategic progress and marketplace strategies while reaffirming his dedication to leading NIKE and its community to new achievements.

In the paragraph, Elliott Hill expresses his desire to be part of a team like NIKE that celebrates sports moments in unique ways, supports athletes, and builds new sports markets, with the ultimate goal of changing lives and helping athletes achieve their potential. During a Q&A session, Bob Drbul from Guggenheim questions Elliott about retail relationships and regaining shelf space NIKE has lost. Elliott emphasizes NIKE's commitment to a consumer-led marketplace and providing strong brand representation across various shopping channels. He highlights his extensive experience and relationships with key wholesale partners and mentions NIKE's strategic investments in specialty sports channels.

The paragraph discusses NIKE's efforts to re-engage with wholesale partners through key account planning and product engagement meetings, with a focus on returning to their core strengths of innovation across all sports and price points. The partners are eager for NIKE to deliver bold brand statements that drive traffic and mutually profitable growth. NIKE plans to achieve this by consistently providing innovative products, enhancing brand presence, and increasing sell-through. There's optimism about rekindling business relationships. Additionally, there's a brief exchange about the NCAA, hinting at the potential success of the Ducks in the college football playoff. The conversation transitions to a welcome for Elliott Hill and mentions ongoing business investments.

The paragraph discusses the strategy for revitalizing a brand over the next 60 days and beyond, focusing on returning to growth past fiscal '25. Key elements include prioritizing sport at the core of operations, cleaning up the product lineup, and reallocating funds from performance to brand marketing. Investments will be made in fields of play to drive innovation and distinctiveness, along with demand creation through sports and brand marketing. The strategy involves concentrating efforts on five sports (running, basketball, training, football, and sportswear) and focusing on three key countries and five key cities. The company plans to manage expenses and pace investments over the next 18 to 24 months, with an emphasis on brand and demand creation.

The company is committed to long-term sports partnerships and plans to increase investments in sports marketing and brand promotion in the coming quarters. While their SG&A expenses decreased by 3%, demand creation increased by 1%, and is expected to drive SG&A growth in the near term. The company is also making significant investments to manage inventory, including liquidating aged stock and planning markdowns in factory stores, to prepare for new product assortments in fall and holiday 2025. They anticipate these efforts to continue in the short term to rebalance and reposition the business for future growth. In response to a question, there is concern about the incremental pressure on 2026 sales due to accelerated work on lifestyle initiatives in fiscal 2025, but the timing for new products to offset this pressure is uncertain.

The paragraph discusses Elliott Hill's perspective on NIKE's strategies to manage inventory and create space for new innovative products, emphasizing the importance of franchise management. Through brands like NIKE, Jordan, and Converse, the company aims to cover a wide range of sports and products. Hill expresses excitement about upcoming products that focus on running, training, and sportswear, which have garnered positive feedback from key retailers. Matt Friend notes that the efforts to decelerate certain franchise lines have been effective but have negatively impacted NIKE's digital business due to these franchises' digital concentration. The company expects this strategy to create a financial headwind in the mid-single digits for the rest of the year, and Elliott Hill, 60 days into his role, is accelerating efforts to reshape the product portfolio.

The paragraph discusses the company's strategy to prioritize inventory management and margin improvement over immediate sales growth. The speaker expects significant impact for the rest of the year and plans to reduce weeks of supply over the coming seasons to return to full price levels sustainably. There's a slight decline projected for summer 2025 due to accelerated actions, but innovation is helping to nearly offset that impact. Adrienne Yih-Tennant from Barclays inquires about the company's ability to replace liquidated products with innovative alternatives and questions if inventory adjustments are affecting gross margins. Elliott Hill responds by confirming that the company is segmenting its sports business and focusing on margins before sales growth, with efforts that began over a year ago.

The paragraph discusses the successes and innovations of the company in various sports categories, emphasizing new products and strategies being introduced into the market, particularly in the footwear and basketball segments. The company is seeing consumer-driven innovation in their product lines, including in running with models like Peg and Vomero, training with Metcon, and basketball featuring stars like Tatum, LeBron, and Sabrina. The paragraph also highlights excitement around a new women's basketball program and sportswear offerings. From a financial standpoint, the company is implementing actions to accelerate growth, particularly focusing on repositioning NIKE Direct and NIKE Digital as premium channels.

The paragraph discusses the company's current focus and strategy 60 days into implementing new actions. Despite facing challenges such as a decrease in revenues and margins, the company is committed to transparency and provides guidance on a 90-day basis. They are accelerating some actions to improve the marketplace and aim to return to a healthy, full-price business model for both partners and NIKE Direct. A significant focus is on managing inventory to showcase new and seasonal products effectively. The company expects greater challenges in the fourth quarter due to varying timelines for implementing changes across different regions, noting progress in areas like product rebalancing and digital business repositioning.

In the paragraph, Jay Sole inquires about Nike's strategy concerning short-term pain for long-term gain, questioning how far the company is willing to go to reset the marketplace and invest in key areas. Elliott Hill responds by emphasizing Nike's urgency in taking action, highlighting the focus on placing sport at the center of their strategy. He mentions the company's product and marketing efforts, citing investments in sport-centric initiatives and successful marketing campaigns like the "Winning Isn't Comfortable" ad, which won Ad Age's 2024 Ad of the Year, as indicators of progress and positive direction for the future.

The paragraph discusses Nike's ongoing investments in sports marketing and marketplace strategies, including pulling inventory and enhancing in-store presentations at various levels. Matt Friend explains that these initiatives are leading to two types of financial headwinds: near-term headwinds from repositioning channel mix and product portfolio, and transitory headwinds from inventory clean-up and supply chain issues. Despite these challenges, Nike is confident these actions will reposition the brand and provide future growth opportunities. The operator then introduces a question from Matthew Boss of JP Morgan, asking Elliott to rank potential opportunities by category.

The paragraph discusses the strategic focus of the company on specific areas of growth, referred to as "fields of play," which include running, basketball, football (soccer), training, and sportswear, broken down by men's, women's, and kids' segments. Elliott Hill emphasizes the potential for product innovation and merchandising opportunities within these areas to drive growth. The strategy allows for the brand to be versatile, showing as either a running or women's brand when needed, aiming for incremental growth. The discussion touches on how this approach can be applied to more sports in the future, indicating excitement about this potential. Additionally, Jon Komp from Baird follows up on the margin recapture potential, questioning whether efficiency can be improved in the digital channel and supply chain or if it relies on scaling recent investments.

Elliott Hill discusses strategic moves to foster long-term sustainable and profitable growth at the company, emphasizing product, marketing, and marketplace cleanliness. He highlights appointing Venky as Chief Supply Chain Officer to enhance margins through improved logistics and supply chain efficiency. Matt Friend adds that historically, the company has maintained double-digit margins and outlines the challenges of profitably selling through digital channels, which rely on full-price sales. He notes current business is equally split between full-price and discounted sales, impacting profitability. The focus is on reducing inventory, cutting fulfillment costs, decreasing reliance on paid media, and leveraging brand investments to drive organic traffic and profitability in the NIKE Direct channel. The paragraph concludes with a transition to a new speaker, Brooke Roach from Goldman Sachs.

Elliott Hill discusses plans to accelerate Nike's growth in North America and Greater China over the next 12 months. In North America, under the leadership of Tom Petty, the focus will be on cleaning up the marketplace, strengthening relationships with wholesale partners, investing in the brand, and elevating NIKE Direct, with significant actions starting in January. In Greater China, despite increased competition, the strategy is to engage the large consumer base in sports and lifestyle, leveraging past experiences and resetting growth strategies to revive business growth. Hill expresses confidence in both regions' teams to execute these plans effectively.

The paragraph outlines Nike's strategic focus in China, emphasizing local product innovation and development through a team called GEO Express Lane. They also have the NIKE Sports Research Lab in China, focusing on product design tailored for the Chinese market. There's an emphasis on redefining the marketplace with bold, consumer-led concepts to enhance brand expression and store productivity, mentioning partnerships with Topsports and Pou Sheng. The discussion then shifts to financial queries from Ike Boruchow of Wells Fargo regarding expense guidance for the third quarter, specifically addressing if the figures are comparable to previous expenses considering restructuring charges, and clarifying comments about anticipated headwinds affecting revenue, gross margin, and demand generation spending.

In the paragraph, Matt Friend addresses two questions. He confirms that the SG&A guidance includes the full amount and restructuring charges from the prior year. He also mentions that certain actions are occurring on different timelines across various regions and predicts that the net impact of these actions on revenue, margin, and demand creation will be more significant in the fourth quarter compared to the third quarter, noting a more pronounced year-over-year impact. The operator then announces the conclusion of the question-and-answer session and the conference.

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