Nike, Inc.

Good afternoon, everyone. Welcome to Nike Inc's fiscal 2022 third quarter fiscal 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 Paul Tressel, VP of Investor Relations and Strategic Finance. Before I turn the call over to Mr. Tressel, 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 and 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 fluctuation. Participants may also reference to other non-GAAP, 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 gap measures and quantitative reconciliations will be made available at Nike's website, http://investors.nike.com. Now I'll turn the call over to Paul Trussell.

Thank you, Operator. Hello, everyone, and thank you for joining us today to discuss Nike Inc.' 's fiscal 2022 third 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 45 minutes ago, or at our website, investors.nike.com. Joining us on today's call will be Nike Inc. President and CEO, John Donahoe. 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 question to one. Thanks for your cooperation on this. I'll now turn the call over to Nike, Inc. President and CEO, John Donahoe.

Thanks, Paul. And hello to everyone on today's call. I first want to acknowledge the deeply troubling crisis still unfolding in Ukraine. It's a time of great concern for all of us, and it is simply devastating to see the impact it's having on the lives of so many people. As always, our primary focus is the safety and well-being of our teammates and their communities, and we remain hopeful for a peaceful resolution soon. Now turning to our Q3 performance, more than two years since the start of the pandemic, our teams continue to prove their ability to operate through volatility while also staying focused on the long term. And we once again demonstrated that agility in Q3. It's clear that our strategy is working with business results that reflect our deep connection to consumers around the world. Thanks to our brand momentum, culture of innovation, and proven operational playbook, we stay in the lead and continue to drive further competitive separation. I'm proud of our results this quarter. We met and even exceeded what we said we would deliver 90 days ago. For Q3, our revenue growth was 5%, led by double-digit growth in Nike Direct. This success Amidst a dynamic macroeconomic environment is what continues to give us confidence in our long-term outlook, and it's why I would not trade our position with anyone. The power of Nike is our consistency and the strength of our global portfolio. Our investments are making us stronger, and we're excited by what we see as we execute against our growth opportunities. As a team, we're driven by our shared purpose to move the world forward through the power of sport. And earlier this month, we released our fiscal 21 impact report. This report, which marks our 20th year reporting on our environmental and social impact, is our first since we set new quantifiable ESG targets last year. We're focused on a wide range of priorities from building a diverse, inclusive team and culture, to meeting the challenges of climate change, to helping kids access the joy of play and movement. I encourage all of you to learn more about the measurable progress we've made at purpose.nike.com as we continue to create long-term value by shaping a better future through sport. And of course, 2022 isn't just an anniversary for our impact report. it's also a big year for Nike itself. This May, Nike will be celebrating our 50th anniversary as a company. 50 years ago, our journey began with a dream to serve athletes, and today we're humbled by what we've achieved and we're thrilled and excited by what's to come. Looking at Q3, Nike's growth was and it will continue to be the result of three areas, I'll touch on today. First, connecting with consumers through our strong portfolio of brands. Second, driving a relentless flow of new product innovation. And third, expanding our digital advantage to create the marketplace of the future. So let's start with Nike's strong brand and our connection to sport, which differentiates us all over the world. Nike's connections with consumers are driven by sport and cultural authenticity. And our roster of athletes is second to none. Rafael Nadal made history by becoming the first male tennis player to win 21 majors with his victory at the Australian Open. And he now stands alone at the top of the men's game. Aaron Donald, Cooper Cupp, and Odell Beckham Jr. led the LA Rams to a thrilling Super Bowl victory. And in the NBA All-Star Game, A face-off between Team LeBron and Team KD ended with LeBron hitting the game winner. I was able to attend the game and I loved getting to see the league showcase of its 75th anniversary team. It was just an awesome reminder of the power of sport and what sport has meant to so many of us over the years. The quarter also saw the Winter Olympics and Paralympics produce some extraordinary athletic performances. Nathan Chen won gold for the U.S. in the men's singles figure skating. And Chloe Kim won gold in the U.S. in the halfpipe, making her the first woman to win two gold medals in the event. And throughout the Olympics, our Never Done brand campaign was awesome. In Greater China, it featured snowboarder Kai-Zi Tong, and it saw an incredible response in that geo with over 6.1 billion impressions. And we're also in the middle of an amazing March madness, with Nike Inc. having more teams still alive across the men's and women's brackets than all other brands combined. But there's one familiar face to the Sweet 16 I want to acknowledge. As you know, Mike Krzyzewski is coaching in his final season at Duke. having already announced his retirement as the winningest coach in NCAA men's basketball history. Coach K has been a member of the Nike family for nearly 30 years, and his leadership and clear set of values have meant so much to this company and to me personally. My leadership role models have always been head coaches. leaders that serve their players, serve their programs, and serve a broader cause. And Coach K has been right up there at the top of that list. So from the entire Nike family, happy retirement, Coach. This was also a quarter where the world was reminded of how the Nike brand drives the culture around sport. In January, Sotheby's auctioned off 200 pairs of the Louis Vuitton Air Force One by Virgil Abloh and reported that it set the record for the most valuable sneaker and fashion auction ever at more than $25 million with all proceeds going to Virgil Abloh's Postmodern Scholarship Fund. The auction drew the most bidders of any auction in Sotheby's history and was their most valuable charity auction over the past decade. It's simply another reminder of how the Nike brand, our most iconic product franchises, and our partnerships can come together for the kind of power and cultural energy and excitement that only Nike can create. In fact, that power was also felt in one of the biggest stages of the quarter. During the halftime show of the Super Bowl, in front of the largest US TV audience of the last five years, we saw Nike, Jordan, and Converse footwear all on stage during the performance, which was simply an incredible moment for our portfolio of brands. Our portfolio is one of our best competitive advantages, fueling energy to consumers worldwide. And we also connect that energy to consumers through the investments we make. Driven by our commitment to women's sports, This quarter, we furthered our 25-year commitment to the WNBA by becoming an equity investor in the league. We'll work together to deepen WNBA storytelling and bring more girls into basketball at the local level. The consumer response to our longstanding commitment has been clear. This season, we sold more WNBA jerseys on Nike.com on launch day alone than than we did over the entire previous year. And this is just simply the latest example of how driving the sport of basketball to a new generation of fans connects us to a vast market with plenty of growth ahead. As you know, at Nike, everything starts with innovation. And our relentless pipeline of innovative product continues to create separation between us and our competition. And we don't just create new franchises, we grow them to global scale. Take a look at FlyEase. We've talked before about our hands-free accessibility line, and we're excited by our work to scale this innovation across our entire portfolio. Here's just three examples from Q3. As part of the medal stand look for the Team USA's Olympians and Paralympians, we designed the ACG Gaia Dome FlyEase boot. FlyEase first crossover into our celebrated outdoor ACG line. And FlyEase also moved into Converse for the first time with the Chuck Taylor All-Star CX FlyEase. As Converse now joins Nike and Jordan in adding the hands-free innovation to footwear icons. And in kids, where helping make spontaneous play easy is one of our goals, The new Dynamo Go uses FlyEase to help kids quickly get their shoes on and off. Dynamo Go debuted in Japan, Korea, and Greater China to become one of the season's top five sellers, and we have a North America launch scheduled for April. By driving impact across platforms, our work to scale FlyEase catalyzes growth. We expect FlyEase to be roughly a quarter of a billion dollar business by fiscal next year, with vast opportunity for even greater growth and value to come. Looking at performance innovation, in Q3 we launched the ZoomX StreetFly, our lightest road racing shoe yet. The StreetFly offers an engineered knit upper and responsive ZoomX midsole, all designed for speed in the middle distances. Also in running, the Pegasus 38 saw a very strong sell-through in the quarter, continuing the Peg's lineage as one of our powerhouse franchises. And we're also always innovating in apparel. I mentioned the Olympics earlier. The hockey jerseys worn by our federations, including the U.S. and Canada, were designed using brand-new 4D body mapping technology from our Nike Sports Research Labs. This 4D body mapping, which gives our teams a fast, accurate, and high-detail way to design, offers a hint of the future as we stay focused on bringing new technology into our growth opportunity in apparel. And last but not least, we continue to set the standard for sustainable product creation. A few weeks ago, we announced the Nike ISPA link, a new proprietary platform where shoes are built with interlocking modules and they're connected without any glue. From a manufacturing standpoint, ISBA Link is revolutionary in its simplicity. One pair takes about eight minutes to assemble, a fraction of the time needed for a traditional sneaker. And it doesn't require energy-intensive processes like heating, cooling, and conveyor belt systems. So with no sacrifice to comfort or stability, the IASBA link will be available at retail in June, and we can't wait for consumers to give it a try. Now let's move to the marketplace, as we align our business to build deeper and more meaningful relationships with consumers. Our marketplace strategy is a growth strategy, and it's driven by the consumer fueled by their expectations of a consistent, seamless, and premium shopping experience. Our approach begins with the understanding that consumers expect us to know who they are regardless of channel, online or offline, across the full array of model brand stores, Nike Digital, and our wholesale partners. Our wholesale partners continue to play a very important role in our marketplace strategy. So let me start there. Last quarter, we announced a new partnership model that makes real our vision to give consumers personalized experiences regardless of channel. It gives shoppers the benefits of Nike membership to unlock exclusive offers, products, and experiences in partner stores. And it also recognizes the importance of onboarding members in stores, which in turn accelerates in-store conversion and improve customer lifetime value. This quarter, we extended this model globally, including two new connected partners in Greater China, Top Sports and Paosheng. This is an exciting step on our journey within our marketplace strategy because it continues to prove how powerful it is when brands and retailers work together for the benefit of consumers. We value the strong strategic relationships we have with our partners, particularly through our shared vision of connected data and inventory. And this approach lets us serve consumers with the greatest access to the best of Nike, and to do so with speed and convenience in a more personalized, engaging, and sustainable way. And what's more, in Greater China, this partnership model takes us into a new era of marketplace transformation. Moving forward, all of our existing contracts with our NSP partners in the geo will follow this connected membership model. And over time, we plan to convert all partner model brand stores into digitally connected Nike retail concepts as we unlock the benefits of data and inventory across the greater China marketplace. We're excited by the promise of this new model, and we strongly believe it will elevate the entire marketplace, and drive growth for both Nike and our partners over the long term. Next, let's dig a little deeper into our growing digital advantage. As we create the future of retail, we build on our own digital capabilities that connect and serve consumers at scale. In Q3, digital revenue was up 22% on currency neutral basis. as we continue to drive greater competitive separation, particularly through our app ecosystem. The Nike mobile app was up more than 50% in the quarter and overtook Nike.com on mobile for our highest share of digital demand. And sneakers continues to gain momentum, particularly as its strong consumer engagement leads to improved conversions. the live streaming on sneakers remains incredibly popular, with new features continuously coming online. For instance, we started to drop product launches within live streams, which helps lead our audience to quadruple since our live streaming began last fiscal year. And in December, the AJ11 Cool Gray launch on sneakers was the largest for a single style in the history of Nike Direct. We drove this unprecedented demand by engaging with consumers in new ways, including leveraging Snapchat's try-on lens, a hashtag in my J's Instagram activation, and a Fortnite partnership with Custom Skins and a digital scavenger hunt. Looking forward, we're excited about the opportunity for sneakers to continue to explore new dimensions in experiences, like live streaming, and to do so particularly for women's product and for apparel. More to come here soon as we continue to use digital to engage all consumers in ways that integrate culture, commerce, sport, and innovation. And at the same time, our growing participation in new digital platforms lets us create innovative ways to connect with consumers. letting them unlock virtual experiences, products, and rewards as we expand access points to Nike across the digital ecosystem. For instance, to celebrate the Super Bowl, we collaborated with EA Sports, giving Nike members who ran five miles in our Nike Run Club rewards and unlocks within the Madden game. Members had to link accounts between Nike and EA to join the challenge, representing the first instance of account linking with our gaming partners. The number of new members we acquired surpassed our expectations, and the framework we developed with EA Sports will allow future membership connects to come to life even more efficiently with new partners. And we expect that this, in turn, will lead to increased engagement, membership, and revenue growth down the line. And during NBA All-Star Week, LeBron visited Nike Land on Roblox to inspire its community toward physical movement and play. On the Nike Land court, LeBron coached and engaged with players, and participants were rewarded for physical gameplay with the ability to unlock virtual products. Since its launch, a total of 6.7 million players from 224 countries have visited Nike Land on Roblox. and we plan to continue driving energy there with virtual products like LeBron 19 Styles, special to Roblox. In addition, we announced Nike Virtual Studios this quarter, following our acquisition of Artifact. With Nike Virtual Studios, our vision is to take our best-in-class experiences in digital and build Web3 products and experiences to scale this community so that Nike, and our members can create, share, and benefit together. And Q3 Artifact released the first official Nike-branded NFT, our first step into the world of digital product creation. We're pleased by the positive momentum and energy we're already seeing in this space, and we're excited by the future as we continue to extend our digital leadership in the industry. In the end, Nike's doing what we always do. We are staying on the offense. Our confidence as we look long-term hasn't changed one bit. We've been resolute in fueling innovation, and our brand is as strong as ever. Nike's unique strengths continue to set the pace and keep us in the lead. And with that, I'll now turn the call over to Matt.