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Good afternoon, everyone. Welcome to NIKE, Inc.'s Fiscal 2025 First 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 Corporate Finance and Treasurer. Now, I would like to 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 2025 first quarter results. Before we begin, 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 GAAP measures and quantitative reconciliations. All growth comparisons on the call today are presented on a year-over-year basis and are currency neutral unless otherwise noted. Joining us on today's call is one speaker, NIKE, Inc.'s Executive Vice President and Chief Financial Officer, Matt Friend. We will start with prepared remarks, and then open up for questions. Today's call will be abbreviated as compared to past earnings calls. In order to allow as many of you to ask questions as possible in our allotted time, we would appreciate you limiting yourself to one question. I'll now turn the call over to Matt.

Thanks, Paul, and hello to everyone on the call. Before we get into a review of the first quarter, let me acknowledge that we are reporting our results in a transitional moment, as John retires as President and CEO; and Elliott Hill joins us as our new President and CEO on October 14th. First, we deeply appreciate John's contributions to NIKE. He has served on our Board, led our company through a global pandemic and meaningful supply chain disruption, accelerated our digital transformation, and initiated new NIKE community investments around the world. We thank him for all he has done to move NIKE forward. As we look ahead, we're excited to welcome Elliott back to NIKE. Elliott is a beloved NIKE veteran, who brings a powerful connection to our employees and culture, a deep love for our brands and a passion for sport. Over his 32 years with the company, he built a proven track record of leading our global teams, brands and businesses with significant expertise in delivering growth by bringing product and storytelling with impact into an integrated marketplace. Our Board believes that Elliott is the right leader to drive NIKE's next stage of growth. Having had the opportunity to work closely with Elliott for many years, he leads with a passion that inspires the best from the team. Our employees' response to this announcement has been tremendous. You can feel the energy and the enthusiasm walking around campus. And we've heard nothing, but excitement from our teammates around the world, including our alumni network, as well as our partners. We all look forward to working with Elliott as he leads NIKE's next chapter. Given our CEO transition and with three quarters left in the fiscal year, we are withdrawing our full year guidance. We intend to provide quarterly guidance for the balance of the fiscal year. This provides Elliott with the flexibility to reconnect with our employees and teams, evaluate the current strategies and business trends, and develop our plans to best position the business for fiscal '26 and beyond. To that end, we have also decided to postpone our Investor Day. Now let me turn the discussion towards our current business. NIKE's first quarter results largely met our expectations set last quarter. We are moving aggressively to shift our product portfolio, create better balance in our business, and reenergize brand momentum through sport. That said, a comeback at this scale takes time. And while there are some early wins, we have yet to turn the corner. Today, I want to provide a deeper insight into the trends we saw in our first quarter. Then I will speak to the portfolio shifts that we are driving and the implications for our near term performance. I will also touch on some of those early wins, including indicators to track our progress. And last, I will review our financial performance and Q2 outlook. Let's start with a deeper look into the first quarter. While Q1 revenue was largely in line with our plan 90 days ago, we delivered lower unit sales than we expected, partially offset by a higher ASP. Traffic declines across NIKE Direct were more significant than we anticipated. We saw particular softness in traffic on NIKE Digital, as well as in our partner stores in Greater China. As a result, retail sales underperformed our plan, including our wholesale partners, with slightly elevating marketplace inventories requiring higher levels of promotional activity in Q1 to drive conversion. This included the back-to-school period as our results underperformed the market. We saw store traffic improve in August and growth in factory stores in Q1, but the overall period fell short of our expectations. However, Q1 showed that we took an important step forward as we shift our portfolio to create better balance in our business. We have been intentionally reducing the proportion of our business driven by our classic footwear franchises, Air Force 1, Air Jordan 1, and Dunk. And as expected, NIKE revenue in Q1 from these franchises decelerated, declining more than the total business, as we tighten marketplace supply. We expect this trend to continue tempering our reported revenue over the coming seasons. Our timelines differ across each franchise, each geography and each channel. Overall, we have taken the most aggressive actions in NIKE Direct and especially, Digital. In Q1, these franchises were down nearly 50% versus the prior year on NIKE Digital, while we saw much better sales trends in wholesale. So we are actively rebalancing product allocations to our highest traffic channel in order to maximize franchise health and full price realization. In the near-term, this will have implications for certain dimensions of our business. Our men's and women's lifestyle business was planned down double-digits in Q1, and we expect these declines to continue through the year. The Jordan brand was planned down double-digits this quarter, and we expect Jordan to be down at the same rate for fiscal '25. And we expect NIKE Digital to decline double-digits in fiscal '25 versus the prior year. All taken together, these trends drove a mid-single digit headwind on Q1 revenue. As we look ahead, we are working to position new products in the path of the consumer, create scale for new ideas, and drive more balanced marketplace growth. Partner feedback on our future product pipeline has been very positive. I had the chance to meet with many of them at our Partner Summit in Paris during the Summer Olympics and directly hear their response to the products and stories that we have coming in our second half. We also gave them a sneak peek to what is coming in fall '25, deepening confidence in our accelerated pace of innovation to build a more compelling future product pipeline. Progress with partners will be accelerated through new brand momentum and new energy with consumers. But the multi-brand environment is very competitive today and it will take time to expand market share. This was reflected in our spring '25 order books, which came in roughly flat versus the prior year, a little lighter than we had planned. Our teams are now hustling to close out the upcoming summer season, closely engaging our partners as we finalize bookings. Now let's turn to some of the early wins that we are seeing, especially, as our teams get back on the offense in sport with consumers. This quarter, we saw growth in multiple sport dimensions, an indicator that we are gaining traction. This was led by men's fitness, men's global football, and men's and women's running footwear. In addition, two of our largest performance franchises, Mercurial and Global Football and the G.T. series in basketball delivered double-digit growth across all channels. We are especially encouraged by the momentum building in our Running offense. This has been one of our toughest fights over the past few years and it is one of our biggest opportunities. Our team's focused here first in driving our comeback. And more recently, men's and women's running footwear delivered positive growth in Q1, a meaningful improvement versus the prior quarter. The order book looking forward is strong with spring '25 footwear units set to grow double-digits versus the prior year. In North America, we were up double-digits this quarter with running specialty partners, and our holiday and spring order books will build on that strength. We also just launched a new campaign, one of our biggest Running brand investments in years, which will carry into fall and holiday. So far, consumer engagement has been very strong. Meanwhile, our ground game activations are creating energy and running communities around the world. In addition, our Pegasus 41 launch showed the impact that we create when we launch new ideas at scale, delivering mid-teens growth above last year's Pegasus model. And this is just the start, as we scale the franchise through multiple dimensions, Peg Trail, Peg Plus, and coming in spring, Peg Premium, which introduces visible full length NIKE Air with more energy return than ever. Most importantly, we are most optimistic regarding the full product pipeline in Running across footwear and apparel that we will bring over the coming seasons. This includes a new maximum cushioning system in an iconic line, blending comfort and style for our softest, smoothest ride yet, a premium model that combines high-stack

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Bob Drbul. Please go ahead.

Hey, Matt. Good afternoon.

Hey, Bob.

I was just wondering, if on the inventory situation, I think you talked about specifically China being elevated. Can you sort of break down some more regional, your perspective on where we are with inventories regionally with some of the -- I don't know, if I'd use the word dislocation with some of the classics, North America specifically?

Sure, Bob. I'd start by saying that as we look at the performance of our business over the last couple of seasons, retail sales have underperformed plan and that's a statement about the overall portfolio. It doesn't specifically relate to just the classics. While we saw growth in retail sales in North America and China in Q1, we are seeing slightly elevated inventory as a result of the retail sales plans falling behind. And so, as we've looked at our outlook for the remainder of the year and the commentary around trends moderating, we've taken into consideration a more muted point of view on retail sales trends and also the gross margin implications of needing to not only be more promotional to work through some of this elevated inventory, but also acknowledging the fact that the outlook for the balance of the year is going to require us to be more promotional as we're scaling new ideas and concepts, while working through the rest of the product portfolio.

Your next question comes from the line of Alex Straton with Morgan Stanley. Please go ahead.

Perfect. Thanks a lot, Matt. I just wanted to drill down on this kind of unit disappointment in the quarter. Have you guys identified what exactly like the biggest challenges or I guess, problem areas are that you didn't expect a few months ago? And then just zooming out, as you look forward, have you guys identified the key metrics that you're monitoring just to gauge comeback progress throughout the year?

Yeah, Alex. I mean, overall, when we look at the business in its total, we are encouraged by the performance that we've seen on the new products that we brought to market. And we've delivered, I mentioned, we delivered double-digit growth in our new products. And it continues to give us encouraging signs as we see the team's focus on sport and performance, and the way that those products are landing in the marketplace and the growth that we're driving. As it relates to our performance in the quarter and the unit misses, I would start by saying that in Greater China, we did see performance in the quarter underperform our plan. And so that was one factor that impacted our unit decline. What I would say more broadly than that is just general macro across the different geographies. We just saw more softness for another season and so our teams are on it. They are focused on moving through these slightly elevated inventories. They're not in a place that cause us significant concern at this point in time, but they do require us to be proactive and to take action. And that's what we're focused on doing, while we bring newness and innovation at a greater scale with greater impact in the second half of this year. On Digital, we did see, we were down 20% in the quarter in Digital, and that was largely driven by the three classic franchises being down nearly 50% versus the prior year. And the sales trends for those franchises in our -- in the wholesale channel was substantially better. And so that also had an impact on our Q1 results. But as I said, we planned for the declines on those big three franchises, and we’re continuing to manage the inventory of those franchises carefully, beginning with NIKE Digital so that we can put the product where the traffic is, and we can drive high full price realization on that product in the right channels in the marketplace in order to continue to manage the long-term health of those franchises.

Your next question comes from the line of Michael Binetti with Evercore ISI. Please go ahead.

Hey, guys. Thanks for all the help here. Matt, I guess, just one thing in the near term. You said that the spring order books actualized a little lower than you were expecting. But you did mention some elements of the second half revenue outlook that are maybe a few bright spots versus what you thought 90 days ago. Could you just help me reconcile those two comments? I guess, and then thinking a little bit more long term, I think the plan previously was for direct-to-consumer to rise in mix and pull the margins of the company up as the margins in the DTC segment rise above wholesale after some pretty heavy investing you guys did to stage that the DTC business for scale. Are those investments in place and do they become leverageable over time or are there elements of the -- in the DTC business that need to keep growing as you do look ahead to getting back to growth of that business?

Sure, Michael. Well, starting with the spring order books, what I mentioned is that our order books came in, on with our partners at flat versus the prior year. And it was a little light relative to what we expected. What we're seeing in there that we're encouraged by, very excited by, is the fact that we're seeing newness and innovation scaling in the second half. And so, I mentioned that footwear units related to newness and innovation, we define that as products that have been introduced, they are either new or have been introduced within the last eight seasons, are growing mid to high-single digits in the second half and, in particular, in that spring season. Underneath that, where we look with the most optimism and where we've been focused first is running. I talked about the momentum that is building in running. And this is where our team started focusing first more than a year ago. This quarter, men’s and women's running footwear was up and it was the first time we've got positive growth in several quarters. When we look at the order book for spring footwear, men's and women's running footwear is growing double-digits. Our North America Running specialty partners were up double-digits in Q1, and the order books for holiday and for spring are giving us indications that we're going to sustain that momentum. And when you look at the way we're investing behind the brand, the ground game that we're operating, if you visited any running events around the world, I recently ran a half marathon and saw NIKE quite present, but I know they were -- we were very present over the Berlin Marathon and multiple activations around the world. We're focused on being present with runners in their communities in order to truly land the impact of our product portfolio. And then I talked about the pipeline of what's coming. And we're really excited about a number of things that are coming in our product pipeline, including new cushioning innovation, new premium models that are blending Foams and

Your next question comes from the line of Simeon Siegel with BMO. Please go ahead.

Thanks. Hey, good afternoon, guys. Matt, any – thank you for all this. Any color you'd be willing to provide or just order of magnitude on how large each of the core franchises that you are resetting are at this point and just maybe where you'd like to take them? And then just revenues were down double-digits, but the gross margin still grew nicely this quarter. So any context on the margins of those franchises that are being reset versus the rest of the product? Thank you.

Well, Simeon, what we've been talking about for a couple of quarters is trying to create better balance in our business. And over the last couple of years, one of the things that we've talked about, but especially this last year is that we've -- our portfolio has gotten too concentrated, particularly against these classic -- the classic dimensions. Our teams have tried to bring new dimension to these classics. And as a result of that, we've created an incredibly large amount of consumer demand. But at the same time, the portfolio was largely too concentrated against these styles. Classics footwear is an important dimension of our overall portfolio. Internally at NIKE, we refer to these products as icons. They're incredibly culturally relevant and they will continue to be an important part of our portfolio overall. But this quarter, in particular, we took a big step forward in the reduction of these products, causing them to decline more than it’s overall business so that we could start to shift the portfolio back in order. And we're going to continue to take those steps over the coming quarters. And what I can tell you is that the continued actions results in us expecting to see a headwind similar to what we experienced in the first quarter. In other words, a mid-single digit headwind on revenue for the balance of this year, as a result of more proactively managing these franchises back into a proper place within the overall portfolio. They are long-tenured products. They do drive attractive margins for the company, especially, when we sell them through Digital. And so part of the pressure on margins and the additional color that we provided on the balance of the year is that by driving the dimensionality more particularly in the NIKE Direct channels and particularly in the Digital channels, it does create a transitory headwind on margin as we right-size the portfolio largely focused on the Digital side or the Direct side of the business. But looking forward, like I said, these products will continue to remain an important part of the portfolio. We just are focused on trying to accelerate newness and innovation in order to create more momentum with consumers and more energy with consumers.

Your next question comes from the line of Lorraine Hutchinson with Bank of America. Please go ahead.

Thank you. Good afternoon. How would you characterize the receptivity of your wholesale partners to get behind some of the new launches, and how are your partners feeling about the level of inventory in the wholesale channel now and for the spring season?

Yeah. It's a great question, Lorraine. We've been working, our teams have been closely engaging with our partners since we acknowledged some of the missteps related to over centering on Direct. And I think the momentum that we're building with our partners is very encouraging. I referenced specifically the interactions that we had that I was personally a part of in Paris during the Summer Olympics. But our geography teams, Tom Petty, our partners are leaning in, in order to be able to reignite growth and momentum for NIKE on the wholesale side. And I wouldn't drive past the fact that what's most important in wholesale is, we've got to have a breadth of distribution segmented to create and demonstrate the full dimension of the NIKE portfolio across men's, women's, and kids, across sport dimensions and the Jordan brand. And one of the ways that we do that is, we invest with our partners to elevate and differentiate our brand at retail. That isn't a new playbook for NIKE but it's one that enables us to play to our strengths. And we've got a couple of proof points that we're already working on with partners on the sporting goods side. We're excited about the women's pad and concept, the women's fitness concept that we've been testing with DICK'S in their House of Sport. It's set to be ready to pilot, given the returns that it's driving for both us and for DICK'S. We're excited about bringing new energy to basketball with Foot Locker and you remember the House and Hoops concept, coming forward now with this new Home Court concept. And to be honest with you, maybe I'll take an opportunity to tie this a little bit back to Elliott because this is a similar approach that we took when we ignited growth in North America back in 2010. When we say things like we need to sharpen our focus on sport, it doesn't just mean that we need to sell more performance products. What it means is that we have to create deeper connections with consumers through sport and that's where our relationship starts. And when we create deep connections with consumers through sport, that enables us to extend into sportswear and lifestyle. And one of the things that we did in North America back in 2010 when our business was stagnating from a growth perspective, and Elliott was a new General Manager at that time, was we reprofiled the marketplace around sport to ignite growth in the marketplace. And the net result of that was double-digit growth over the next four years and really set the foundation for NIKE to grow throughout the decades of 2010. And so that is where our focus and our attention has been. Digital is still and Direct is still an important part of our overall marketplace strategy. Having direct connections with consumers is strategically important. But our consumers want to connect directly with NIKE, whether it's in our own channel or with a partner. And so, we’re going to continue to focus to elevate and to raise the marketplace and bring the best of NIKE to the market.

Your next question comes from the line of Paul Lejuez with Citi. Please go ahead.

Hey, thanks, guys. You mentioned Running up double-digits in North America, your Running specialty partners. Can you talk about how far that business has fallen from peak to trough? How much do you think you have to regain in that channel within North America? And also, the second quarter gross margin decline that you mentioned, can you just dimensionalize that by region, where your bigger pressure points are? Is it across the board? Where are the larger declines versus smaller declines? Thanks.

Well, on your first question, Paul, what I would say is that we've acknowledged that we've lost market share in the Running specialty channel. More than four years ago, we pulled back on our engagement with that channel. And as a result of that, we saw market share losses. But what I would also say is that the importance of investing and connecting in the Running specialty channel extends way beyond the business impact of driving revenue there. It's about the community of running. It's about connecting directly with runners. And while we've seen tremendous success at the top of the pyramid with innovation with marathons and on the track, we haven't made as much progress with everyday runners. And that's where our team's focus and attention has been over the last year. And what I can tell you is that some of the statistics that I highlighted are there as indicators for us and for you to see the momentum that's building for us in that dimension of the business. And it is incredibly important to NIKE. NIKE's a running company. NIKE is a running brand, and it's incredibly important for NIKE to win with runners. And so our commitment to reinvesting in those channels with those partners on the ground every day is how we're going to change the trajectory of this business. And the proof points and the indicators that I provided are our early signals of confidence that this momentum is building. And then the pipeline of product that we've got coming behind it, we're incredibly excited about. And you'll see it extend from Running specialty into sporting goods. You'll see some of these innovations cross the line into lifestyle based on the ways that we bring the product to market. And so we're deeply encouraged by that momentum that's coming and running. As it relates to the second quarter margin question, I guess what I would tell you is this. There are a number of puts and takes between Q1 and Q2 on margin. And the higher promotions that we referenced, some of the channel mix headwinds, the supply chain deleverage, as well as the actions to manage the marketplace, they're largely across the portfolio. There's not -- it's -- I wouldn't point out one particular geography more so than the other in terms of where a particular challenge lies. We are seeing a lessening benefit from product costs in Q2 and from strategic pricing actions in the prior year, which we still saw in Q1 of this year. And so that's also playing an impact on the year-over-year comparisons. And then I guess what I would also highlight is, we're watching the East Coast port strike really closely. We haven't baked anything in for a timeline on the East Coast port strike, but that's a possibility of a risk related to what we're talking about right now.

We have time for one more question, and that question comes from Brooke Roach with Goldman Sachs. Please go ahead.

Good afternoon, and thank you for taking our question. I was hoping we could dig in a little bit more on the China business, and what you're seeing between the read on the macro and what's specific to NIKE. How should we be thinking about your inventory levels by channel in China and what types of engagement are you seeing on some of your franchise product versus your new innovation with the Chinese consumer today? Thank you.

Well, as I mentioned in my prepared remarks, our traffic was soft across all channels in the quarter. And when we look at the performance in our business, we look at our industry and we look across industry, from what we can see, NIKE is not immune to the challenges with the consumer in Greater China today. The marketplace has been promotional, and we've actually been seeing improvements in full price realization over the past few seasons as we've managed our inventory very, very carefully. But this quarter, we did -- we were more aggressive in promotional activity, given the traffic trends and given what we were more broadly seeing across the industry. I think that you can probably most notably see where we're focused on inventory on the wholesale side, where our revenue was up 10% in Q1. This was partly impacted by shipping timing, but retail sales grew in the quarter but they didn't grow at that rate. And so we're focused on proactively managing forward-looking order books with our partners, but also margin assistance in order to move through excess inventory so that we can ensure that we stay healthy and that our partners are getting behind the newness and the innovation that’s coming in the second half of the year. In the first quarter, our top innovations for performance stories actually resonated quite well. Peg 41, Pegasus 41 performed really strongly. Alphafly 3 and Running is growing in China. Sabrina 2, KD resonated with consumers, and I mentioned Kobe. Kobe’s a beloved athlete in China, and it was one of the biggest opportunities we saw to bring Kobe back into the product family, and we’re incredibly excited about the energy that’s building in China for Kobe. And so we believe that when we create distinction in the marketplace, whether it’s against our global competitors or local competitors when we bring our best stories and our best products to the marketplace. And I think we continue to see that. As it relates to the largest, the classics franchises, there was definitely strong demand for the classic franchises in China. Jordan is a big business in Greater China, and we’re watching and managing that business carefully. But our focus and attention is really on performance and innovation. And you heard me say before that innovation has the highest mix of business in China relative to some of our other geographies. Now as we look long term, even though we’ve moderated our near-term expectations for China for the remainder of this year, sport is a growth industry in China. Sport participation is on the rise, and we believe that we’re optimistic about the long-term possibilities for NIKE in Greater China. We’re going to keep playing our strengths around innovation and newness. We think that the investments that we have in the marketplace from a retail point of view and the way that we present our products to consumers through our partner stores gives us an opportunity to present our brand in a way that we can’t do anywhere else in the world. And we’re focused on capabilities that we’ve been building, specifically China for China, around product, around our Digital platforms and supply chain in order to be able to continue to serve the local consumer at the speed that, that marketplace is moving. So we’re optimistic about the long-term opportunity for NIKE in China and the long-term opportunity for sport in China.