Nike, Inc.

Good afternoon, everyone. Welcome to Nike Inc.' 's fiscal 2020 second quarter conference call. For those who want to reference today's press release, you'll 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 Second 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. or 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 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 will now turn the call over to Nike Inc. Chairman, President, and CEO, Mark Parker.

Thanks, Matt, and hello, everybody. As most of you know, this is my final quarterly earnings call as Nike's CEO. And while I'm tempted to go right to the results to let another strong quarter speak for itself, there are a few things I want to say right up front. I'm excited to take on a new role as executive chairman, remaining a part of the management team and leading the board. This has been a very thoughtful transition that has been planned for many months. I strongly believe the best time to make change is from a position of strength. And our brand and our business are as strong as they've ever been. We're focused, we're competitive, we're creating a future of our own design. Most of all, the time is right because of the team we have at Nike. And of course, John Donahoe himself. I can't say enough about the incredible people I get to work with every single day. With their expertise, their commitment, and their enthusiasm for the business, the entire Nike team has been fueling our current momentum. And because of the depth and the quality of the leadership team we have at Nike, the transition with John will be seamless. As for John, his proven experience in leading global strategy, digital commerce, and enterprise technology will be invaluable as we continue our digital transformation. And his passion for sport, his commitment to developing teams and talent, and his growth mindset will make him a great Nike CEO. John will help elevate Nike to the next level and accelerate our strategic transformation. and I look forward to working with them even more closely. With that, let's take a look at our Q2 results, where we continue to show that the greater focus is the key to accelerating growth. Overall, revenue for the quarter grew 10%, up 13% on a currency-neutral basis. The big takeaways from the last 90 days are we're proving that innovation is Nike's greatest competitive advantage. The consumer is voting for our brands across the whole portfolio and up and down price points. The passion for sport and active lifestyles is thriving around the world. Our international business grew 18%, led by Greater China at 23%. And we continue to grow Nike's digital advantage in the marketplace. The Nike app and the sneakers app are outperforming all other channels driving digital growth of 38% for Q2. I'll get into the details by sharing some of our Q2 product wins and insights into how our obsession on product and innovation is creating separation for Nike. Starting with sportswear, we're opening new lanes of opportunity by reimagining our top products. One example is how we're bringing fresh points of view to some of our most loved iconic footwear with the Air Force One, the Air Jordan One, and our deep lineup of Air Max. Our deliberate strategy is to add new styles and colors to the Air Jordan One, which allows us to bring one of the world's most popular sneakers to more people, while offering consumers more choice. And with women and the Air Force One, we're running a nimble key city offense through the express lane, using local feedback to create and move product to meet shifting consumer tastes. We'll apply that process to a new classic strategy for women that will ramp up in the back half of the fiscal year. 2X innovation is creating a continuous cycle of scalable, distinct platforms. For example, in this quarter, the top three growth drivers in Air Max were all introduced in the last year, with the Air Max 270, 720, and the 200. In basketball footwear, we're leveraging signature athletes to create innovation that matches different styles of play and creates real differentiation across price points. It starts with new expressions of platforms like Zoom Air, from an articulated cushioning unit in the Kyrie 6 for quick cutting to a higher stack height for more responsive jumping with the new Alpha Dunk. With the LeBron 17, we created a new cushioning system to propel the game's most explosive player during his incredible run with the Lakers this season. We're seeing very strong sell-through in our signature athlete footwear, especially through digital and in China. Next quarter gives us a number of storytelling opportunities to create even more energy, with Chinese New Year, the first NBA regular season game in Paris, and the NBA All-Star Game in Chicago. Running continues to create tremendous energy with consumers across both performance and lifestyle. At Nike, we leverage innovation to help athletes perform better while catalyzing energy and growth in running-inspired sportswear styles. That starts with serving the widest range of runners. And over the past two years, we've introduced several performance innovation platforms into the running category, including React, Vaporfly 4%, Next% and Joyride. Vaporfly 4% and Next% continue to transform the sport, taking over the fields and marathons around the world, including this quarter's sub-two-hour marathon from Ilij Kipchoge in Vienna. and Bridget Kosegi's Women's Marathon World Record in Chicago. While Jory rides and Reacts continue to fuel the everyday runner, early next year will keep the cadence of new platforms going. In January, we'll start with the Nike React Infinity Run, which blends responsiveness and comfort for both efficiency and impact reduction. And for Tokyo 2020, we'll introduce a new Zoom Air running platform that will scale across both performance and lifestyle. A more complete running offense also means delivering greater value at core price points. And a number of initiatives are developing, such as our exciting Renew platform, offering a plush, resilient ride similar to the properties of React Cushmink. We're selectively leveraging one of the Nike's most iconic innovations, Air Max, into core price points. And we're designing women's core products from the ground up, bringing both unique style and tuned cushioning to her preferences. In apparel, we delivered strong 10% growth in the quarter, and we see a major opportunity ahead. We're getting better every season at capturing the value of one of the world's strongest brands. Obsessing the fundamentals of fleece, T-shirts, and outerwear is giving more consumers access to the Nike brand across a range of price points. And that's being led by seasonal capsules and collections, which encourage consumers to keep coming back to the latest chapters of storytelling, color, and prints. And this formula has been an especially strong driver for women's sportswear apparel, which grew revenue double digits for the quarter. We've also piloted a new model of launching high-heat apparel on the Sneakers app this quarter. We're taking the energy and storytelling we drive in footwear and amplifying one of our biggest growth opportunities. We're seeing strong sell-through of our apparel collections that we've co-designed with collaborations on sneakers. The Jordan brand, on a wholesale equivalent basis, just earned its first billion-dollar quarter, an incredible milestone. And just as important is that it was very high-quality growth. The brand is very strong internationally and in North America. The marketplace is healthy, and in many cases, demand is exceeding supply. Performance innovation, like the Jordan 34, is complementing one of the world's hottest franchises in the Air Jordan 1. And women's and apparel continue to reach new audiences. What's most exciting is we're still in the early stages of diversifying the Jordan portfolio. And we've continued the momentum into Q3 with a significant holiday launch of the Jordan 11 Bread, meeting demand for one of sneaker culture's all-time favorites at an incredible scale. So as we look ahead, we're about to enter a hyper-intense cycle of new product introductions with the Tokyo 2020 Games and the Football Euro Champs on the horizon. Both will be a springboard for new innovation that will help define the performance and aesthetic of Nike product for years to come. Eurochamps will be another great catalyst for EMEA apparel in the back half of the year. For the Olympics and Paralympics, we'll be revealing the specifics about our explosive lineup next quarter. But you can expect to see the next air revolution with new approaches to Zoom Air and a renewed VaporMax platform A celebration of women's basketball like never before, highlighting the opportunity we see to grow the women's game and our business. And our teams using the world stage of Tokyo 2020 to elevate sustainable design at an incredible scale. Across the board, our product teams are proving that innovation is Nike's greatest competitive edge. We're turning athlete insights into breakthrough innovation. We're offering more choice on the industry's top icons. We're delivering more complete and more productive assortments. And we're being opportunistic with the consumer in real time. Another way we continue to create separation is through Nike's digital advantage. Our digital commerce revenue grew an impressive 38% in Q2, powered by an outstanding performance during our most important holiday moments in November. For Black Friday, digital sales grew over 70% in North America and broke records for the weekend across many of our metrics, including our highest week of member engagement ever. Buying members also grew 45% versus last year. We also saw phenomenal success in EMEA with an increase of nearly 50% in demand as Black Friday week grows in importance to the European consumer. Singles Day showed the current strength of our brand and product portfolio with the Chinese consumer. Through Singles Day, we created demand, generating nearly half a billion dollars in revenue. We strengthened our relationships through Nike+, adding 3 million members. We served our consumer faster, delivering 20% of the 11-11 orders the same day. And we finished as the number one athletic brand on Tmall. China is, in many ways, the world's most compelling digital marketplace. And while the digital share of the business in Greater China is larger than any other geography for Nike, we still see so much potential ahead. At the end of Q2, we added the Nike app to a powerful portfolio in China that includes Nike.com, sneakers, NRC, NTC, and our branded experiences with Tmall and WeChat. The Chinese consumer is already telling us they're excited about the Nike app, downloading it one million times during launch. Incredibly, it's already the number one shopping app in China. Of course, we continue to stay engaged with all of our stakeholders in Greater China, monitoring trade conversations and the state of the consumer across the region. Overall, we feel very good about the sell-through of our product and the health of our marketplace. about our support of the growing community of everyday athletes, as well as China's top leagues and federations, and the immense opportunity to create tailored experiences for the Chinese consumer. We've talked a lot about the scale of the investments we've been making to fuel our digital transformation, and there are many components. Industry-leading consumer retail experiences that merge online and offline, new operational capabilities, and powerful partnerships. And all enabled by the digital talent we've added through five recent acquisitions and investments in our teams. The common thread to these work streams is that they put the consumer at the center. They're all designed to reduce friction and create a more direct connection with our customers, and ultimately invite them to become members. Membership is the sharp point of our growth. For the quarter, Sneaker's app grew strong double digits, the Nike app more than doubled, and both apps now make up over one-third of our digital revenue. And active users for our apps are growing almost triple digits. The Nike app at retail continues to be one of our greatest opportunities to create scale as we pair the app with physical retail across our owned and partnered doors. Through the Nike app at retail, personalization and convenience move to another level. Inside the store, members can unlock tailored offers based on their past engagement with Nike and shop at their pace on the retail floor, scanning products for information and checking out on their own. Nike's also changing the experience of finding product and how it's delivered. Members can reserve product online and have it waiting for them at their nearest store so they can try it on first. Or if they can't find the product they want, new investments in RFID will enable the consumer to instantly track another one down somewhere else in the store, online, or potentially in another retail partner's channel. We have a culture of testing and iterating new retail concepts very quickly. and we're in the early stages of scaling some of our best ideas around the world, in our own doors and with our partners. For example, our first test of Nike Live internationally opened in Shibuya, our smallest Nike Live door in the world, but serving millions through the power of digital. Nike is not only deeply committed to using our digital advantage to make the consumer experience better, We're also using data science to inform how much product we supply and where. Through our acquisition of Select, we're applying and developing new unique algorithms to make us better attuned to what the consumer is telling us. We're leveraging data that includes past and present consumer interests and products and purchasing signals to better predict demand so we can decide how to stage inventory in our distribution centers and our stores in different ways. For Singles Day, we shipped products from over 200 stores instead of DCs to meet the needs of consumers faster and more profitably. Bringing science to the art of retail remains one of Nike's greatest opportunities. Before handing it off to Andy, I do want to take a moment to recognize you, our shareholders, Many of you have been invested in Nike for years, some even decades, and I've greatly appreciated your engagement and your long-term focus. As you know, I tend to think more about what's coming than reflecting, but my time as CEO really has been a humbling experience. I'm leaving this role with so much optimism for the future of this company. Sport continues to inspire and move the world forward in incredible ways, Our brand is connecting deeply with consumers everywhere. Our innovation is helping athletes prove that there are no limits. We're challenging the conventions of retail at every turn. We're growing our biggest businesses and focused on our greatest opportunities. And we're bringing tremendous talent into Nike to add to our already deep bench of leaders. It's clear that sport is thriving, that Nike has the right people. and the right plan. What's great is I won't be a spectator to all this success. I'll be part of the team that's creating it. So with that, for the last time, I'll say thank you, and here's Andy.