Nike, Inc.

Good afternoon, everyone. Welcome to Nike Inc.' 's fiscal 2020 first quarter conference call. For those who want to reference today's press release, you will find it at http://investors.nike.com. Leading today's call is Matt Friend, CFO, Nike Operating Segments, and Vice President, Investor Relations. Before I turn the call over to Mr. Friend, 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 the reports filed with the SEC, including the annual report filed on Form 10-K. Some forward-looking statements may concern expectations of future revenue growth or gross margin. In addition, participants may discuss non-GAAP financial measures, including references to constant dollar revenue. References to constant dollar revenue are intended to provide context as to the performance of the business, eliminating foreign exchange fluctuations. Participants may also make references to other non-public financial and statistical information and non-GAAP financial measures. To the extent non-public financial and statistical information is discussed, presentations of comparable GAAP measures and quantitative reconciliations will be made available at Nike's website. http://investors.nike.com. Now, I would like to turn the call over to Matt Friend, CFO, Operating Segments, and Vice President, Investor Relations.

Thank you, Operator. Hello, everyone, and thank you for joining us today to discuss Nike, Inc.' 's Fiscal 2020 First Quarter Results. As the Operator indicated, participants on today's call may discuss non-GAAP financial measures. You will find the appropriate reconciliations in our press release, which was issued about an hour ago, at our website, investors.nike.com. Joining us on today's call will be Nike Inc. Chairman, President, and CEO, Mark Parker, and our Chief Financial Officer, Andy Campion. Following their prepared remarks, we will take your 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 two. In the event that you have additional questions that are not covered by others, please feel free to recue, and we will do our best to come back to you. Thanks for your cooperation on this. I'll now turn the call over to Nike Inc. Chairman, President, and CEO, Mark Parker.

Thanks, Matt, and good afternoon, everyone. Now, many of you know Matt. I'd like to welcome him to his first call as he takes on the responsibility of investor relations. And then, of course, on behalf of the whole team, I'd like to thank Nitesh for his partnership over the last several years. Turning to the results, we feel very good about our performance in the first quarter of fiscal year 20, growing revenue 10% on a currency neutral basis. It was a quarter that proved the depth and balance of our complete offense, building on the strengths of our foundational business drivers and capitalizing on the untapped dimensions of our portfolio. For the quarter, this is reflected in the broad-based growth in all geographies led by our international business, which grew 16%, in double-digit growth in our women's business, off the back of an incredible summer of celebrating female athletes. In both footwear and apparel, with our strong lineup of innovation and style, which continues to feed the growing consumer demand for comfortable athletic product. And in digital, which grew a very strong 42%, showing the power of more personal relationships with the consumer. Mobile continues to lead the way and within mobile, app experiences are fueling the most growth. And while this trend has held true in our own channels for some time, we're beginning to leverage our digital experiences with our retail partners. As we set out to do, we're creating a differentiated marketplace for Nike by scaling our learnings and best-in-class experiences with our partners. The key to expanding our competitive edge continues to be our total commitment to the consumer through the consumer direct offense. We're focused, we're investing in our brand in key markets, and we're accelerating in the high growth dimensions of our business. And that's especially important in the volatile macroeconomic and geopolitical environment that we see today. In relation to tariffs, we've been clear that we strongly believe in the power of free and fair trade. Historically, we've effectively navigated through excessive duties, and we're confident that we'll continue to do so under the current dynamic. In China specifically, we continue to extend Nike's lead. In our key cities of Beijing and Shanghai, we serve a generation of digital-first consumers, and we support their love of sport by helping to grow participation through grassroots programs. As I've said before, Nike is a brand of China for China, and the results continue to prove it out. We've driven double-digit growth in Greater China every quarter for more than five years. This quarter, we continued that momentum with an outstanding 27% revenue growth on a currency-neutral basis. In any environment, Nike's foundation for success has always been great product. We continue to see that today with another huge quarter for Nike innovation. We're delivering more choice and fresh options on some of our hottest products, an expansion of both new and existing platforms, and a deeper commitment to serving a wider range of athletes. Sportswear continues to lead all categories in both footwear and apparel, growing strong double digits. One of Nike's greatest strengths is how we mix style and innovation. And the Air Max React 270 is a perfect example. We've created a runway hit by blending Air Max and React with multiple bulb colorways. In fact, the 270 Air Max React led to the largest gains in footwear revenue for the quarter. Another strong addition to our lineup this quarter is the Air Max 200. The layered upper with a new visible air sole unit continues to build on the energy we're driving and running Silhouettes. We're also reimagining and clearly segmenting our top sportswear franchises like the Air Force One and Tech Police. By adapting the Air Force One into models like the N354 and the Sage, we grew the Air Force One businesses with women's and kids faster than men's this quarter. It's an approach we're using with our tech fleece collection, too, adding new silhouettes and shapes throughout our lines. Our strategy of designing apparel through themes and collections continues to connect with the consumer as we drove double-digit growth in sportswear apparel for the 22nd consecutive quarter. Our kids' business is one that doesn't get a lot of attention on our calls, but it is, in fact, a critical part of our business. Overall, kids' footwear and apparel just experienced its biggest back-to-school season ever, driving double-digit growth for the quarter. And kids were earning significant gains through core footwear and apparel for both boys and girls, and in basketball and the Air Max 270, which drove triple-digit growth for kids' power franchises. How we present and distribute kids' product also provides new opportunities. We see more parents buying on our apps, so we continue to invest in more dynamic imagery on our digital platforms. And we're testing new business models through membership to make it easier for parents to buy at the pace that their kids need new product. In performance product, we saw very strong momentum in basketball, internationally this quarter, especially with the alpha dunk. With Giannis, we're excited about the long-term potential of his signature line. Not only did the Zoom Freak 1 become the largest initial signature launch in Nike basketball history, his apparel line sold out quickly as well, with the Freak T-shirt becoming the top-selling apparel item on Nike.com. This quarter, we were all inspired by the incredible athletes and performances at the Women's World Cup. It was also a tremendous stage for Nike innovation. During the All-Nike Final, we also debuted our top football boot innovation, the Mercurial 2019. In addition, apparel revenue from the 2019 Women's World Cup was four times bigger than it was for the 2015 event. Across the wider business, we stayed intensely focused on the apparel classifications that matter the most to the female athlete, bras and tights. The light support Indie Bra led the way, and our Nike OneTite is creating incredible demand, especially in Nike Direct and strategic retail partner doors. The Nike One collection is a great example of our edit to amplify approach that will stretch to other categories, putting more focus on our most profitable items across price points and distribution channels. In running, we launched JoyRod. which was designed to encourage more everyday athletes to get moving. We're excited about the incredible comfort this system delivers, with responsive beads that conform to the foot. The customer response to the running silhouette this quarter was very strong, and we're just now beginning to scale the Joyride platform across multiple categories through women's, sportswear, and kids. As we began to communicate through Joyride, one of the biggest opportunities for Nike is to continue to serve an even wider range of athletes. As leader in our industry, we will add to the growing movement of health and wellness around the world. We've been broadening our definition of sport through our brand, but more and more we're doing it through product innovation. From competition to fitness to light activity to play, our more inclusive view on design is opening up new lanes of opportunity for growth. For example, we're studying the fit of our products to serve more body types with our successful plus-size line. Our teams are designing for modesty to match more people's preferences, and our fly-ease system has been updated for easier entry and exit to appeal to even more people. It will be expanding into a new high-performance basketball shoe and one of the most coveted sneakers of all time, the Air Jordan 1. Making more athletes comfortable and confident can be an incredible catalyst to bringing more people into sport. And that's a theme we'll continue to champion as we lead into the Tokyo Olympics. On last quarter's call, we told you that the Jordan brand was accelerating and finished with over $3 billion in revenue for fiscal 19. Jordan followed up that record-breaking year with a quarter of healthy double-digit growth in all geographies. including mid-teens growth in North America. We're growing at an accelerated pace in new areas like performance basketball, women's international, and apparel. And the Air Jordan 1 franchise continues to create incredible demand all over the world. This quarter, we were incredibly excited to announce that Zion joined the Jordan family. We're proud that Zion will wear the Air Jordan 34 to start this season. and we're already developing new innovation with one of the NBA's most anticipated rookies. Looking over the next few seasons, our pipeline is set to fuel growth in our biggest businesses, while also carving out new space for future opportunities. New LeBron and Kyrie signature models will arrive as the NBA season gets started. Women's apparel will lead with new materials and performance tights. Training will introduce a new franchise designed for a range of fitness activities, including high-intensity workouts, station-based training, and spinning classes. Running will introduce more innovation that's proven to help make athletes faster as we head into Tokyo. And our adaptive platform will continue to evolve with new features like voice activation from your phone. There's much more to come from Nike innovation in fiscal year 20. While products are usually the first to grab the attention of our consumers, we deepen those relationships through the power of digital. To do that, we're investing in three areas. We're building industry leading personal experiences. We're quickly ramping up our back end capabilities to capture more of that demand. And the final critical piece is to create scale. through our own channels and with our partners. Membership sits at the heart of that strategy, giving consumers a more personal relationship with Nike. Fundamentally, that gives them easier access to more tailored products and services. With product, there are multiple advantages to being a logged-in member. In some cases, it means they have early access to our latest innovations. like we did this quarter with the launch of Joyride and the Air Max 270 React. It can also be as simple as giving better access to the product they want in the moment so you're capturing more full-price demand. Connected inventory is critical to that capability. With services, we're bringing real value to our members' lives consistently. Our teams are obsessing different ways to engage with more people completely and have them coming back for more. Over the last three years, we've more than doubled the number of active users across all of our apps. With more active engagement, we create more value for both our members and for Nike. In this quarter, for example, over 50% of our Nike Direct digital growth came from members. Becoming personal at scale is the ultimate objective. We start in our own channels and then amplify those experiences through partnerships. The Sneakers app has truly redefined our connection with the sneaker community. It's now in 22 countries with more room to grow in EMEA and APLA and grew roughly 50% this quarter. We've also begun a test to test a new opportunity within sneakers on high heat apparel. The early read from our members on our pilots has been very positive. As I've said before, the Nike app is the most comprehensive one-stop shop for Nike. It's become the largest and fastest growing platform in our portfolio, growing almost triple digits this quarter. The Nike app is already in 21 countries and will go live in China in holiday. Just as exciting is the impact that the Nike app is having on the physical shopping experience. It's scaling in North America, and its features can be now activated in every store-owned Nike location, including most factory stores. And in this quarter alone, we added nearly one million new Nike members from interactions in our North America doors. Nike Fit is our new technology that scans the foot eliminating a significant consumer friction point by providing an accurate read of a user's shoe size. The in-store experience is currently available in all North America locations and is moving quickly into Europe and Japan. We'll also be launching an at-home in-app experience later this fiscal year. We're moving at an impressive pace in the channels that we control. and while we continue to invest in stronger, more distinctive partnerships. When coming together with another platform or retailer, our objective is to create a better experience in the path of the consumer. We want them to be able to move seamlessly from online to offline and easily find the product they want, when they want it, across the marketplace. Ultimately, by recognizing serving and rewarding members they will engage with Nike more often across multiple channels and touchpoints. Our teams continue to be very active in this space. Nike App at Retail is already showing the ability to scale with partners. This quarter, for the first time, Nike App at Retail features and Nike membership were activated with a wholesaler through a pilot with Foot Locker's Washington Heights store. We plan to integrate Nike App at Retail in more Foot Locker doors in North America and bring new experiences to Zalando in Europe and Top Sports in China later this fiscal year. Our inventory partnership program also continued to scale, including Zalando, JD, and ProDirect in Europe. And we're leveraging the world's top social media platforms with Instagram, where consumers can use direct messaging for commerce in our women's and training channels, And with WeChat, with a new feature that allows users to check product availability in nearby stores instantly. A critical component to accelerating all of our opportunities is our ability to become smarter through our supply chain. And to do that, we're bringing science to the art of retail like never before. With Zodiac, we've acquired proprietary technology and teams to better know our members, give them better experiences, and expand their lifetime value to the Nike brand. InvertX brought us computer vision and capabilities for Nike Fit, which we talked about. And in addition to more accurate fitting sizes, we're already using the insights we gain to inform better design product. And just last month, we acquired a new predictive analytics platform and team of data scientists through our acquisition of Select. This team will greatly accelerate our ability to turn raw data into actionable demand insights. And this allows us to make more accurate inventory decisions closer to market. We're partnering, investing in our own teams, and we're gaining new capabilities all in the name of serving the consumer more completely. It was a great start to the year for Nike. The global shift towards more active lifestyles continues to accelerate. and demand for athletic product is high. As a company, we have a sharper focus on these areas that will drive the greatest growth. We're bringing the joy of sports to even more people, and we continue to build our more valuable relationships with the consumer through the power of digital. Our fundamentals are strong, but what excites me the most is the significant opportunity ahead for our industry and for Nike. Thanks, and now here's Andy.