Nike, Inc.

Good afternoon, everyone. Welcome to Nike Inc.' 's fiscal 2021 first 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 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'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 2021 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, or at our website, investors.nike.com. Joining us on today's call will be Nike Inc. President and CEO, John Dono, and our 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 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. President and CEO, John Donahoe.

Thank you, Andy, and hello to everyone on today's call. Before I get into our Q1 performance, I want to take a moment to acknowledge the passing of John Thompson last month. Coach, as many of us called him, was a beloved member of the Nike family, having served on our board of directors for over 30 years. He was a true leader and an icon in the world of sport, and we will miss him. And here on the West Coast, we're continuing to deal with the wildfires that have hit Oregon, Washington, and California. Health and safety remain our first priority, so we've closed facilities and stores where appropriate. For those teammates who've been impacted by evacuation orders, we've made additional benefits and support available, and the Nike Foundation has donated $1 million to provide relief efforts for the Oregon wildfires, focusing on both intermediate and longer-term needs. Moving to our business results this quarter, we continue to demonstrate Nike's full competitive advantage. Over the past several months, we've established clear objectives for our business and we have been relentless in our focus on those objectives and the results are reflecting that. Our revenue trend is improving with Q1 flat to prior year on a constant currency basis. Greater China, EMEA, Japan, and South Korea have already returned to growth. But more than the financial results, it's the continued strength of our brand the response we're seeing from consumers and our unique position to be able to capitalize on our potential that excites me even more. We're getting stronger in the places that matter most. And even in the midst of disruption, we are on the offense. We have continued our unmatched pace of launching innovative product, generating a continuous flow of brand moments that connect with consumers and open groundbreaking retail concepts as we unlock significant long-term opportunity in a very dynamic environment. We can navigate. In fact, we can thrive in this environment thanks to our digital advantage and the full breadth of our global portfolio. Building on our foundational strengths, there are three structural tailwinds that play to Nike's advantage. The accelerated consumer shift toward digital is here to stay. The definition of sport to include all facets of health, wellness, and fitness. And it's the deeply connected, authentic brands with scale that will win. Nike's strengths amid these evolving conditions help keep us in the lead. These advantages allow us to stay aggressive, and it's why I believe that no company is better positioned to emerge from this period than Nike. Over the past quarter, we continue to prove this out across four key areas. As always, it starts with product innovation. As I mentioned, our innovation pipeline and cadence has not slowed even during this uncertain environment. Second, our brand continues to deeply connect. Through the power of sport, we are creating hope and inspiration at a time when the world needs it. Third, we continue to take greater advantage of our vast digital opportunity as the shift in consumer shopping preferences accelerates. And fourth, this digital focus is guiding how we create the future of retail as we continue to launch seamless premium brick and mortar experiences. Let me briefly touch on each of these four themes. Our belief in innovation is embedded in everything we do. New innovation, continues to resonate with our consumers, with key innovation platforms becoming an even bigger part of our mix in Q1. We had many product highlights this quarter. Let's just take a look at a few. We continue to bring fresh points of view to our most beloved footwear, Air Force One, Air Jordan One, and our deep lineup of Air Max. By continuously adding new styles, we expand these popular platforms. And we're also focused on fueling a constant cycle of new, scalable, distinct platforms. For instance, we re-energized the iconic Air Max 90 this year, and it was one of the quarter's top growth drivers. We also push what's possible in sport, as seen in the latest launch of our Nike Next% footwear platform. Iliad Kipchoge broke the two-hour barrier in a prototype of the Air Zoom AlphaFly Next%, and now that consumers have access to this innovation, we've heard from many that they're running their fastest times ever. This summer, we also released a training shoe, the Air Zoom Tempo Next%, bringing the measurable benefit of Next% to runners focused on pace and endurance. And we're continuing to execute on the incredible opportunity we see in women's apparel. In Q1, we launched Nike M, Nike's first dedicated maternity collection. We also introduced a new Nike yoga collection that serves all genders and body types with performance fabric innovation that's the result of more than two years of development. The response to this best-in-class yoga collection has been amazing. and is already driving incredible growth for our women's yoga business. And last but not least, our sustainable footwear platform known as SpaceHimby saw amazing sell-through in our highest heat innovation launch ever. Coupled with the popularity we saw for VaporMax 2020, we are seeing real consumer appetite for sustainability, especially with our youngest consumers. Sustainability will continue to be a key aspect of our innovation agenda going forward. This is how Nike leads. Innovation is deeply ingrained in this company. And over the past three months, as most companies focused on just surviving, we are continuously bringing forward new, compelling product to market. Our innovation pipeline demonstrates both our strength as well as our endurance. At Nike, Innovation is a systemic approach, and it's how we extend our lead. Second, the power of the Nike brand continues to be felt all over the world. In all 12 of our key cities, Nike remains consumers' number one favorite brand. In challenging times, we know how to drive meaningful connections with our consumers. You can see this in our market share gains across the Nike and Jordan brands. Most notably, during the pandemic, we've seen an acceleration of share gains in U.S. women's and apparel, two areas of strategic focus. And as always, we connect with consumers through the power of sport. We continue to see strong consumer engagement in the You Can't Stop Sport campaign, with over 2.6 billion impressions. as we've reached more than 800 million unique consumers around the world. Our latest film celebrates sport as a source of inspiration. From Serena and Venus Williams in You Can't Stop Sisters, to a spot celebrating Kobe Bryant, who continues to inspire athletes all over the world on and off the court. The consumer energy around this broader campaign is testimony to Nike's brand appeal at a time when so much is going on in the world. And at the same time, we create experiences and services that inspire and enable our members to keep pushing themselves further. In Q1, we saw an all-time high of the percentage of our members working out on the Nike Training Club app. with more than 50% of our members worldwide starting a workout in Q1. And in the Nike Running Club, we've seen four consecutive months of more than a million downloads each month of our audio guided runs. For those that have missed the camaraderie of group runs during the pandemic, runners are telling us they're enjoying the connection and extra push offered by this feature. And in Q1, for the first time ever, women completed more of these runs than men. We're also connecting to our purpose and values as our brand continues to be culturally embedded throughout the world of sport and beyond. Our athletes are doing the same. Just this month, you saw Naomi Osaka give voice to the Black Lives Matter movement by setting out the finals of the tournament just prior to the US Open before returning to the US Open and winning it. With leadership from global sports icons like Naomi and NBA players like LeBron and Giannis, as well as the thousands of others who have stood up and spoken out, our athletes are having a profound impact in our society. All in all, from the cultural resonance of our brand to our expansion of what sport can mean, Q1 was a quarter that showed a relentless focus on deepening connections with our consumers matters. Third, I continue to be excited about the opportunity I see for Nike and digital. We know that digital is the new normal. The consumer today is digitally grounded and simply will not revert back. Our Nike digital business is already meeting our mixed goal of 30%, nearly three years ahead of schedule, and we will continue to grow from here. This quarter, our owned digital channel grew 83% on a currency-neutral basis, driving almost $900 million of incremental revenue versus the prior year, and an acceleration versus the prior quarter, even as our doors at retail reopened. Our engagement and membership metrics show incredible momentum. For example, we're seeing almost 200% growth in demand for our Nike Commerce app. with triple-digit growth in monthly active users. This is significant for us as it speaks to the increasing consumer adoption of our apps. And while we've had tremendous success in digital and quickly pivoted to the accelerated consumer shift, I truly believe that Nike is just scratching the surface of what's possible. With our breadth and depth, No one has the advantage in this space that Nike has to directly connect with consumers. Nike's digital transformation strategy is not easily replicated. Simply put, scale matters. And Nike leads, and we will continue to lead in this space for all the reasons I've already mentioned. Our size, our incredible product, our brand strength and infinity, the direct consumer relationships we deepen each day, and our ability to create seamless and differentiated shopping experiences. That is how we drive continued separation. Now, we know this is a multi-year journey, and we have a bright future and lots of opportunity, but in many ways, we're just getting started. Today, we've done some impressive things to achieve scale, highlighted by our app ecosystem, our RFID investment, and our omni-channel distribution centers. And as part of the Consumer direct acceleration, we have some clear immediate priorities, including scaling O2O, improving personalization, and creating a consistent end-to-end technology platform. And, of course, we remain focused on increasing member engagement to unlock value for both Nike and our consumers. After all, we know a consumer who connects with us on two or more platforms has a lifetime value that's four times higher than those who don't. And in particular, I'm focused on how we will leverage consumer data and insights in our digital ecosystem to understand and serve consumers better and ultimately increase our competitive advantage. We'll use data to stay a step ahead and help us create a better product as consumer insights power our business end to end toward even greater growth. Fourth and finally, Digital is fueling how we create the future of retail. This is the first quarter since the start of the pandemic where our retail was essentially opened. And as more consumers returned to our stores, we saw impressive conversion in-store, even as our digital business accelerated even further. Our store traffic and sales are improving quarter over quarter. And we're also seeing consumers increasingly self-identify as a member during checkout, or as we call it, a linked transaction, which is leading to even more engagement on our apps and an elevated O2O journey. This is our vision for the marketplace, a digitally connected experience where membership is a true differentiator. And just as our continuous product pipeline we continue to innovate in the retail space. We're accelerating the shift we discussed last quarter to One Nike Marketplace as part of our digital CDA acceleration. As you recall, our One Nike Marketplace approach leads with Nike Digital and our own stores, as well as a smaller number of strategic partners who share our vision to provide a consistent and seamless consumer experience. In fact, during the quarter, we took focused actions to proactively shift the North America marketplace as part of our strategy to serve consumers more consistently and more personally. Simply put, we're on the offense and accelerating toward this future vision. And this is evident by our new and innovative retail concepts, amplified by an elevated O2O consumer journey. Just in Q1, we launched new stores in Guangzhou, China, Seoul, Los Angeles, and Paris, with two new doors in New York City coming in the next few weeks. These stores range across many different formats, from our House of Innovation concept in Paris to a new Nike factory store in the Watts neighborhood of LA, as we deepen our connection in key cities. And all these concepts are underpinned by digital. I'll go a little deeper in one, just as an example. Our new store in Guangzhou is a data-powered store concept that curates a one-to-one personalized shopping journey. We're already seeing member checkout in our Guangzhou store significantly outpace the rest of the fleet. This is just one reflection of how digitally enabled our future of retail is and how membership is a critical differentiator. Personally, one of the things I am most thrilled about is the return to organized sport. In fact, there was a day earlier this month when you could watch the NBA, NFL, Major League Baseball, WNBA, NHL, tennis, US Open, a golf tournament, and about six different global football leagues all taking place within the same 24 hours. Though health and safety remain paramount, you can just feel the optimism and excitement of sport coming back. And as we look to the Tokyo Olympics next summer, Nike remains in a unique position to serve our consumers and fuel their passion for sport. And so, as you can see, even during market uncertainty, we're not slowing down. Nike is staying on the offense and looking to extend our leadership position. We have that ability. And as I've said before, these are times when the strong can get stronger and I'm energized by our incredible potential. And in closing, I want to thank our teammates all over the world who continue to innovate, execute, and show tremendous resilience throughout a challenging year. I could not be more proud of them And we can't wait to show you what we're going to do next. With that, I'll now turn the call over to Matt.