Nike, Inc.

please stand by we're about to begin good afternoon everyone welcome to nike incorporated fiscal 2023 second quarter conference call for those who want to reference today's press release you'll find it at investors.nike.com leading today's call is paul trussell vice president of investor relations and strategic finance before i turn the call over to mr trussell 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 Nike's reports filed with the SEC. In addition, participants may discuss non-GAAP financial measures and non-public financial and statistical information. Please refer to Nike's earnings press release or Nike's website, investors.nike.com, for comparable gap measures and quantitative reconciliations. Now, I'd like to turn the call over to Mr. Paul Trussell. Please go ahead.

Thank you, Operator. Hello, everyone, and thank you for joining us today to discuss Nike Inc.' 's Fiscal 2023 Second Quarter Results. 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. Thank you, Paul.

And hello to everyone on today's call. We delivered a strong quarter in Q2. with revenue growth of 17% on a reported basis and 27% on a currency neutral basis. And looking at the quarter's results, we delivered our Q2 expectations on revenue, profitability, and inventory. In this current environment, our consumer demand stands out. Today, we're creating more separation between us and our competition, thanks to the meaningful relationships we have with consumers and the continued success of our strategy. Our Q2 growth was broad-based across our brands, channels, and geographies. We had strong double-digit growth across both our partners and our direct business, which was once again led by our industry-leading digital performance. The quarter saw more than 30% currency neutral growth in our North America, EMEA, and APLA geographies. And after nearly two years of unprecedented disruptions, Greater China grew 6% on a currency constant basis, translated to minus 3% on a reported basis due to foreign exchange. Clearly, our brand continues to not only be top of mind, but prioritized by consumers around the globe. In addition to our results, we're executing in the areas we spoke to 90 days ago as we take decisive action to clear excess inventory. We believe the inventory peak is behind us as actions we're taking in the marketplace are working. Later in the call, Matt will share more about our progress on inventory in North America and our return to healthy inventory levels in China. So overall, our Q2 results give us confidence that we will deliver the year, and we remain on a path toward our long-term goals as well. Our current headwinds, such as foreign exchange and inventory challenges, are transitory, but our tailwinds are structural. Like the expanding definition of sport, the consumers move toward digital and the cultural shifts toward comfort and health and wellness. More importantly, Our results speak to how we've leveraged our competitive advantages, which include a relentless innovation pipeline, unmatched brands, and deep consumer connections to build relative strength and stay ahead of competition. As you heard me say before, at Nike, it all starts with product innovation. And this quarter, I'd like to highlight an important part of our culture of innovation, our constant pursuit to improve on our most popular platforms. We win with product because we know it's not only about individual innovations, but also about our ability to continuously bring newness to our greatest franchises. For instance, earlier this quarter, we launched the LeBron 20 to strong consumer response. What's unique about the LeBron 20 is that it's LeBron's first signature shoe to debut as a low top. Driven by consumer insight and performance demands from LeBron himself, this style combines innovation with sportswear design to create greater commercial appeal with its ability to be worn on the court and off. And we're not just bringing innovation and excitement to existing franchises. We continue to expand the portfolio. Coming soon, we've got some exciting signature debuts in Nike basketball and Jordan brand that we can't wait for consumers to see. With our strong product portfolio and unparalleled roster of athletes that we have today, we couldn't be more excited about the future of our basketball business. Last quarter, I highlighted another franchise in another sport getting an upgrade, the Mercurial. which added an Zoom airbag to create Nike's fastest football boot ever. And during the exciting World Cup, over the last several weeks, the new Mercurial scored more goals than any other boot, led by Kylian Mbappe, who won the golden boot as the tournament's top scorer. In fact, Nike's boots dominated the World Cup. scoring more goals than all other brands combined. And consumers have responded to this energy, giving the new Mercurial the highest full price realization of any performance product this quarter globally. And of course, for us, it doesn't just end in innovation with product. Nike's innovation can also be felt with our rich and powerful storytelling and our deep brand engagement. particularly in global sport moments like the World Cup. Nike's unique ability to bring together products, storytelling, and the world's best athletes has once again created something that only Nike can. As I mentioned earlier, our Q2 results speak to the continued success of our strategy. Consumer direct acceleration is fueling our marketplace approach in which we directly connect with the consumer no matter where they shop. Today, our marketplace strategy is driving distinction in this current promotional environment. Our work to directly connect with consumers is founded on a simple consumer insight. Consumers want to get what they want, when they want it, and how they want it. And consumers have told us they want a consistent, seamless, and premium experience, both digitally and physically, around model brand and multi-brand. And so we're serving consumers digitally with our suite of apps. We're extending our reach and convenience through our strategic wholesale partnerships and leveraging model brand doors to fill the gap for underserved opportunities like women's fitness and Jordan. The key is building meaningful, direct, lifelong relationships with consumers. We deeply believe this will be an important source of differentiation going forward. Why? Well, for one, having a direct connection with consumers avoids the risk of disintermediation. In other words, with a consumer base that comes directly to our apps, to our website, and to our owned and partner stores, we, alongside our partners, are in a position to control our own destiny. And ultimately, this direct connection enables us understand consumers better so that we can serve them better with the right assortment, with the right partners and at the right touch points. And what showcases the success of this strategy is our membership base. Membership was a key reason our digital business grew an industry leading 34% this quarter. Q2 was our biggest member demand quarter ever. We saw double digit growth in member engagement. Today we have roughly 160 million active members who engage with us on a regular basis. And more importantly, our repeat buying members, who are more engaged, spend more, and spend more frequently, are growing at an even faster pace of high double digits as they continue to be an important growth engine for our business. And our members also shop seamlessly across the marketplace. In addition to digital, A key member on-ramp for us is through our Nike stores. In fact, more than 50% of store demand comes from members. And cross-channel members are even more valuable with higher demand per member than single-channel members. And an important enabler of giving consumers a personalized shopping experience regardless of channel is our connected membership program with our strategic partners. You've heard us discuss it before. scaling connected membership with DSG, JD Sports, Zalando, and Top Sports. And today we're seeing results that are beneficial for everyone. Nike is already learning more about our members, which helps us elevate in areas such as product creation, line planning, and the experiences we deliver. And our partners are telling us that these engaged members are driving improved traffic conversion and mutual profitability for them as well. And so while it's still early days on this journey, we're excited by the foundation we're creating. The ability to give consumers a personalized experience across channels fueled by data and insight opens up a whole host of opportunity for us. It positions us to empower consumers with their own choice while keeping the scalability and strengths in digital marketing, product creation, distribution, and more which results from knowing them so well. So ultimately, it'll make Nike a better retailer and also a better wholesale partner. Last but not least, I want to take a moment to acknowledge our Greater China team and the 6% growth they just delivered. As I said earlier, it's been nearly two years of unprecedented disruption in China. But this team's resilience, experience, and strategy have set us apart to gain momentum on all fronts. Last month, we had a record-breaking 11-11 consumer moment, which concluded with double-digit demand growth and Nike having outperformed the industry. And we keep setting new records as part of this important shopping holiday. Number one brand, number one in traffic, number one in live streaming, number one flagship store, number one in membership acquisition, and number one in member demand penetration. And we're not just number one. This quarter, we saw movement in relative positioning as we create even more competitive separation coming out of this important consumer moment. And as you know, we have remained committed to investing in Greater China for the long term. Even in this dynamic environment, we continue to invest in technology, local marketing, and more, as we believe the best way to capture demand in China is to serve consumers in a locally relevant way. And today, we're getting a true competitive boost from our investments in these new capabilities. Let me just highlight a few. We launched China-specific versions of our app to build Nike experiences that are faster, more engaging, and more personalized. We created a first-of-its-kind China-specific member journey with Tmall, which saw a significant uplift in new member recruitment and demand per member. We piloted connected membership with member-linked transactions to 42 NSP stores in 18 cities across China, driving conversion, member acquisition, and retaining high-value members. And our team continues to drive China for China capabilities, like delivering hyper-local product design and localizing marketing content creation. Thanks to this focus, we're now serving our consumers in China with an agile, dynamic, and personal way like never before.