Nike, Inc.

Good afternoon, everyone. Welcome to Nike Inc.' 's fiscal 2020 fourth 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 Andy Muir, VP, Investor Relations. Before I turn the call over to Ms. Muir, 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 the 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 fiscal information and non-GAAP financial measures. To the extent non-public financial and fiscal 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'd like to turn the call over to Andy Muir, VP Investor Relations.

Thank you, Operator. Hello, everyone, and thank you for joining us today to discuss Nike, Inc.' 's fiscal 2020 fourth quarter and full year 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. President and CEO, John Donahoe, and Chief Financial Officer, Matt Friend. 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 one. In the event you have additional questions that are not covered by others, please feel free to re-queue, and we'll do our best to come back to you. Thanks for your cooperation on this. I'll now turn the call over to Nike Inc. President and CEO, John Donahoe.

Thank you, Andy, and let me congratulate you on your new role leading investor relations. I also want to congratulate Matt on becoming our CFO and express how deeply confident I am in Nike's financial management under Matt's leadership. Before I get into our Q4 performance, I want to take a moment to acknowledge the environment in the U.S. right now. Over the past month, we've seen racial tragedies expose systemic prejudice and injustice in America. And Nike has a long history of standing up against inequality driven by our values and rooted in the power of sport. Today, we are uniting behind our black athletes, teammates, and community as Nike continues to lead with purpose. And we're taking action to help create lasting change to address systemic racism in our society, including a combined $140 million commitment from Nike, Converse, the Jordan brand, and Michael Jordan. And while we continue to lead externally, we also strive to be even better internally to meet the high bar we set for ourselves to be a truly diverse and inclusive company. We're also continuing to deal with the COVID-19 pandemic, which has had a profound impact on the lives of so many across the globe. And throughout all of this, we have led with our values. We have executed with empathy and decisiveness. We prioritized the health and safety of our teammates by closing stores, offices, and other facilities. We committed to provide pay continuity for all of our teammates, even while our facilities remained closed or had altered schedules. And we have maintained this important investment over the past 12 weeks. Our renovation teams designed and delivered personal protective equipment to health systems across the country. We donated footwear and apparel to help frontline workers around the globe, and we've committed more than $25 million for COVID-19 response in our communities. I must say that I've been so impressed and inspired by how our Nike teammates around the world have come together and responded to this crisis. They have moved with speed and empathy and have demonstrated creativity, courage, and true resilience. I could not be more proud of everyone on the Nike team. As we look back on this quarter, it demonstrated once again that Nike's competitive advantage is driven by our team and by our brand's ability to connect with consumers. And this is fueled by our strategy, the consumer direct offense. And it's why I continue to believe no one is better positioned than Nike to navigate the current environment. Now, Matt will go deeper on Q4 in a minute. So I'll just hit on five quick observations from the quarter. First, the power of Nike's brand continues. Leading with our values is drawing us closer to consumers. We used our ecosystem of Nike activity and commerce apps to directly engage with consumers in their homes as they focus on health and wellness. During this difficult time, Nike has inspired and offered hope. And as a result, worldwide affinity for our brand deepened during COVID-19 with our You Can't Stop Us campaign receiving more than 2 billion impressions to date. Across all 12 of our key cities, Nike remains consumers' number one favorite brand. Second, Greater China has returned to currency-neutral growth. Over the quarter, we've strengthened our consumer connections and translated them into meaningful relationships. For example, in March and April, China's monthly active users on the Nike Trending app increased over 350% since the beginning of the calendar year. This direct engagement with consumers allowed our business in China to return to growth in Q4. Third, we're seeing a true step function change in our digital transformation. As you know, this has been an area of investment over the past few years as we've built our digital advantage, but COVID-19 has accelerated the pace. In Q4, Nike Digital grew 79%. and we surpassed a billion dollars in annual digital revenue in both Greater China and EMEA for the first time. We've seen this strong digital momentum continue throughout the quarter and into early June, even as stores have begun to reopen. Looking at our app ecosystem in Q4, a couple of stats jump out as we see an extraordinary leap in digital demand and engagement. Workouts on the Nike Training Club app more than tripled, peaking in April at nearly 5 million workouts per week during the month. Since February, the Nike Commerce app has been downloaded more than 8 million times, an increase that's tripled last year's level, proving the power of our investment in digital. And in fiscal year 20, sneakers reached an impressive milestone, reaching a billion dollars in global demand for the first time. Fourth observation on the quarter, the Jordan brand resonated deeply in Q4 with the airing of ESPN's The Last Dance documentary. The response we saw from the cultural conversation around each episode to the rapid sell-through of the AJ5 Fire Red demonstrated the love for the Jordan brand all over the world. In fact, the Jordan brand in Greater China grew more than 50% in fiscal year 20, approaching a billion dollars in annual revenue. And women's has played a key role in Jordan's growth, and we see significant opportunity for Jordan to achieve even greater scale as we create more products for women, expand lifestyle offerings, and grow the business internationally. And even during a pandemic, Jordan drove some of the quarter's biggest launches, including the AJ1 and AJ13, A reminder of the continued strength of our consumer demand. Fifth, and finally, innovation continues to be Nike's greatest competitive advantage. We continuously bring fresh new product to market, supported by compelling storytelling that helps drive consumer demand. In Q4, we saw strong demand for the Pegasus 37, particularly with women, and for the Air Max 2090, a new sportswear silhouette that reimagines the future of air. We also launched Space Hippie in our international geographies during June with early success, offering even more proof of global consumer appetite for sustainable product. And our unmatched investment in product innovation, even during a pandemic, will be proven with our most sustainable product ever, The VaporMax 2020 launching in July. As I said earlier, Nike is in a position to emerge from the COVID-19 pandemic even stronger due to our consumer direct offense. The global pandemic has made it clear that consumer behavior is changing rapidly, providing the opportunity for us to accelerate the pace of our transformation. Over the past few years, we have shifted from a legacy wholesale distribution model to investment in a model that gives our consumers a more premium shopping experience. And this is a change that has catalyzed our digital growth as part of our true consumer direct offense. And COVID-19 has shown that our strategy is sound. And so as we look to the future, here is what is not going to change. Our purpose will continue to guide us. The power of sport will always be at our center. And product innovation will continue to drive distinction for our brand. With these strengths in mind, we plan to accelerate our focus and investment on the key areas that put an even sharper point on our highest growth opportunities. So today, we're announcing a new digitally empowered phase of our consumer direct strategy. the consumer direct acceleration. We aren't settling for our current leadership position with consumers or in digital. We're pursuing even further separation. We're transforming Nike faster to define the marketplace of the future. Now is the time to act. Let me walk you through three areas of strategic acceleration. The marketplace of the future, our new consumer construct, and our end-to-end technology foundation. First, we will create a marketplace of the future, one more closely aligned with what consumers want and need. Digital has redefined the industry over the past several years, and Nike has led that change. You recall that in fiscal year 18, we set a goal to reach 30% digital penetration, both owned and partnered, by fiscal year 23. we will reach that goal more than two years ahead of plan this coming year. And looking ahead, we now expect our overall business to reach 50% digital penetration. As we look at opportunities to build deeper and more meaningful relationships with consumers, our vision is to create a clear and connected digital marketplace to match. Consumers want modern, seamless experiences, online to offline, so we're accelerating our approach. Our One Nike Marketplace strategy leads with Nike Digital in our own stores and embraces a small number of strategic partners who share our vision to provide a consistent premium shopping experience. Connected data, inventory, and membership will give consumers greater access to the best of Nike with more speed and convenience than ever. We've talked about membership as a growth driver and differentiator before, but now we'll align our business to make it central to everything we do. And as part of this strategy, we will also scale our investment in smaller format, digitally enabled model brand stores with integrated online to offline capabilities. We believe this will be additive to what's in the market. These monobrand stores will accelerate the growth trajectory of Nike's largest market share opportunity, like women's and apparel, driving long-term profitability. Our second area of acceleration under consumer direct acceleration, Nike will operate under a new, simpler consumer construct. We know that our consumers don't see themselves as only runners or yoga practitioners. They don't think in terms of performance versus sportswear. Instead, we know how they shop across men's, women's, and kids. And so we'll realign the company to reflect the simplified men's, women's, and kids approach. Our category focus will be more specialized across this consumer construct. Importantly, this consumer construct will allow us to significantly simplify our organization and focus more of our resources on the capabilities and opportunities that will forge our future. In particular, we'll be reinvesting in our women's and kids' businesses. These intentional organizational focuses will touch every area of our business, including innovation, product creation, marketing, merchandising, and distribution. Through this new consumer construct, we can serve performance sport with more specificity while also broadening the definition of sport. This approach allows us to better focus on the individual consumer and unlock new opportunities to more nimbly serve their exact needs. And third and finally, we will invest in digital capabilities in our end-to-end technology foundation to accelerate our transformation. Simply put, we will more aggressively leverage technology to make Nike better. This single integrated technology strategy across our business will accelerate how we serve consumers. Specifically, we'll speed up and unify our investments across demand sensing, insight gathering, inventory management, and more. This simplified approach will unlock more efficiency for the business while driving speed and responsiveness as we serve consumers globally. Consumer direct acceleration is more than just the next phase of our strategy. It's the spark that will ignite and empower our entire company to serve consumers, our business, and our teams better. As we shift our operating model to fuel this strategy, Nike's leadership position will become even stronger in the future as sport continues to resonate with consumers amid a global shift toward health and wellness. In the end, over the past few months, we have navigated unprecedented conditions. But our purposeful actions will allow us to emerge from it stronger and better than ever before. The strength of our brand, our deep connections to consumers, and our unmatched product innovation give us an advantage to create and define our future. Fueled by the consumer direct acceleration Nike will shape the marketplace and extend our brand leadership for years to come. And with that, I'll now turn the call over to Matt.