Q3 2020 Earnings Call
Good afternoon, everyone welcome to Nike's fiscal 2023rd quarter Conference call.
For those who want to reference todays press release, you'll find it at http going forward Slash sports Bosh investors Dot Nike dotcom.
Leading todays call is my friend CFO, Nike operating segments, and Vice President Investor Relations.
Before I turn the call over to Mr. friends, 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 USSTC, including their annual report filed on form 10 dashed cave.
Some forward looking statements, making certain 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, that's a performance that business eliminating foreign exchange fluctuations.
Participants may also make references to other non public financial and statistical information into Nongaap financial measures.
To the extent non public financial and statistical information is disgusting.
And stations of comparable GAAP measures and quantitative reconciliations will be made available and nike's websites http. Coal imports exports ash investors start Nike Daqo.
I would like to turn the call over to my friend CFO operating segments in Vice President Investor Relations.
Thank you operator, Hello, everyone and thank you for joining us today to discuss Nike Inc.'s fiscal 2023rd quarter results.
As the operator educated 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 one hour ago.
We're at our website investors Dot Nike Dot com.
Joining us on today's call will be Nike, Inc., President and CEO, John Donahoe, and our Chief Financial Officer, Andy Campion.
We are sitting together and a conference room six feet apart practicing social distancing.
Following a Andean John's 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 too.
In the event you have additional questions that are not covered by others. Please feel free to review and we will do our best to come back to you.
Thanks for your cooperation on this I will now turn the call over to Nike Inc., President and CEO John Dano.
Thanks, Matt and Hello to everyone on the call.
Over the last quarter, Nike delivered 7% current currency neutral revenue growth. Despite the material impact from coded 19 in China.
This performance reflects the strong business momentum, we had in Q3 across all of our geographies and categories.
But let's take a step back.
We're living in an unprecedented moment.
Like never before each day requires a close inspection of the very dynamic external environment.
In a clear determination of how we will respond.
So let me tell you what we've seen over the past two months.
When Covidien 18 began to aggressively spread across China in late January our top priority was to protect the health and safety of our teammates in our consumers.
We immediately began closing stores.
And as a 45 days ago, we had close more than 5000 stores in greater China.
While the remaining open doors were operating with severely reduced hours.
Not surprisingly retail volume in China plummeted.
But we acted quickly and decisively leveraging our diverse servicing basin digital capabilities to manage the business with flexibility and shifting our inventory just your consumer digital demand.
At a time when people were confined to their homes, we move swiftly to leverage our digital app ecosystem, and Nike expert trader network to inspire and support consumers across China.
Hey, active and connected wall at home.
As a result, our Nike training club workouts in China saw an extraordinary rise and sign up and engagement.
In fact, our weekly active users for all of our Nike activity apps were up 80%.
By the end of Q3 versus the beginning of the quarter.
And here's what happened.
The strong engagement of Chinese consumers with our activity up.
Translated into strong engagement with our Nike ecommerce that.
As a result, our digital business in China grew more than 30% and maintain strong momentum throughout this challenging period.
A powerful statement of Nike's agile problem solving and times a disruption.
[noise] that approximately 30 days ago, we began to gradually reopen stores in China.
People got back to work and retail traffic began improving significantly.
Today, nearly 80% of our stores in China have reopened with more coming back on line every day.
In fact, just last week, we reopened our first store in the Williston area.
And the results are encouraging.
Our digital business in China has accelerated even further over the past month, and we're now seeing double digit increases in retail traffic week over week with some stores, having already returned to prior year levels.
[noise] credit for this response goes to agile Dong, who leads our greater China geography, and her talented team of more than 1600.
I spoke with Angelo two nights ago, and she's been telling me about the positive sentiment consumers in China are feeling for Nike.
And I can't overstate, how impressed I am.
It's become quite clear to me that when Nike says, we are re brand of China for China.
It's really true.
And it's no surprise to see the business already rebounding given the depth of our connection in the incredible strength of our local leadership team.
So today I can say that we're seeing the other side of the crisis in China.
And due to the resilience and creativity of our team in China. We now have a playbook that we can use elsewhere.
In addition to greater China, we've applied that playbook in Japan, and South Korea over the past two months and we're seeing early momentum in those markets as well.
And with coded 19, now spreading across Europe and the U.S.
We are applying the same playbook.
We have prioritized the health and safety of our teammates and we have closed our stores over the weekend, we drove a strong digital marketing campaign to engage consumers across Europe and across the U.S. to stay healthy and connected while they're at home.
And our digital Commerce remains open and in growth mode supported by our team our teammates in our distribution centers.
We also know that this is a moment in society, where the private sector has a major role to play.
Companies like Nike needed to our part.
So our teams in innovation and manufacturing are exploring designs for personal protective equipment or pp to support doctors nurses and others on the front line of this outbreak.
Based on east identified by the teams in health professionals at Oregon Health and Science University. Our teammates are working right now about how to best help.
Including prototyping phase Shields, Oh Hs you.
Others.
It's been so energizing to see the quick strike efforts of the cross functional team to try to help with this critical need.
That said, we expect the next several weeks to be a challenging period for those living in the U.S. and Europe.
And I can't precisely predict how long the containment phase of the outbreak will last.
But our experience in China, Japan, and South Korea gives us confidence that we will see the other side of this crisis in the near future.
And I can assure you this.
As the situation continues to evolve we will be ready and we will respond.
Well the guided by our values and we will execute with empathy and with decisiveness.
For instance, we will continue to maintain pay continuity, even while our facilities are closed or have altered schedules.
We know that our people are vital to fueling our deep connections with consumers.
Whether they work in our stores or distribution centers.
And what's more it's simply the right thing to do.
So while this is an uncertain in challenging time.
Nike has the foundation in place to emerge from it stronger than ever.
Thanks to our competitive advantages.
The power of our brand in connection with consumers.
Our digital capabilities are compelling product innovation.
And most importantly, our extraordinary team.
We will manage our business back to full recovery.
We know in times like these that strong brands get even stronger and I truly believe that no. One is better equipped and Nike to navigate the current climate.
So.
With that said, let's go a bit deeper.
I spent the last 90 days digging into this extraordinary company.
I thought I knew Nike after five years on the board, but believe me when you get to dive even deeper this places even more impressive that I imagined.
Let me walk you through what I've learned.
Through the lens of the four strengths I just mentioned our strong brand our digital advantage our product innovation and are extraordinary team.
These are the strengths that we'll continue to set us apart and these are the strength that will allow us to shape the future marketplace going forward.
Since I started to CEO in January.
Visited with our teams in several of our key cities.
Experiencing first hand, our deep connections with local consumers around the world.
As well as our innovative retail concepts.
I've also had the opportunity to meet with many of our most important strategic partners.
During my first week as CEO in early January I spent time in China, and Japan before the virus to cold.
I got to seat first hand, just how deeply the Nike Jordan Encumbers brands are connecting with consumers.
Within reach compelling retail executions.
And in many ways that Nike partners with regional local governments to grow physical activity in sport.
Our brand is driving these powerful connections to consumers worldwide.
In fact, we were the number one favorite brand did all 12 of our key cities in Q3.
And we continue to gain market share in key cities, such as Berlin, Mexico City in Tokyo.
During a time of physical store closures around the world. We know that our digital foundation will help us emerge out of the situation in an even stronger position.
For instance, in Q3 digital delivered 36% currency neutral growth and it will continue to be a powerful driver of our deep consumer connections.
As I mentioned early.
We are executing our learnings from China about fueling sport in fitness all over the world.
We are using our digital advantage to connect with and support our consumers as behaviors around staying healthy at home continue to evolve.
Over the weekend, we made the NTC premium free for everyone in the U.S. for 90 days.
NTC premium offers the best on demand workouts and expert tips from our master trainers and others.
As well as inspiration and support for had healthy living.
Digital remains our fastest growing channel with owned and partner digital already representing more than 20% of our overall business.
And our apps continued to be the sharp point of our growth with the Nike App glowing revenue close to triple digits once again in Q3.
Willing member acquisition and strong monthly engagement.
And while we've driven impressive results in acquiring new members engaging them and fueling increased digital demand, we know that the opportunity here is still far greater than what we've realized to date.
And will become an even greater advantage for Nike as we move forward.
And even while our stores remain closed in Europe in the U.S., we continue to work on defining the future of seamless physical and digital retail.
To expand the advantage we have in digital we continue to invest in our Nike direct businesses.
Enhancing rich experiences like those in the Nike up at retail.
And we're increasingly concentrating on or online to offline journey and accelerating our will work to fully connect the marketplace, while creating frictionless experiences for consumers throughout the world.
Another clear competitive advantage is our product innovation.
Our product and innovation have Oh, we set Nike apart from others.
And I firmly believe this will become even more important differentiators, we look ahead.
Over the past couple of months I've spent a lot of time with our innovation design product and merchandising teams.
I've done several deep dives in these areas and I am truly blown away.
As a board member you get to see a lot.
But you can never fully understand how impressive nike's product innovation capability is until you spend time with our teams.
For instance, today, we have more than 1000 designers working at Nike with broad and deep talent across footwear and apparel.
And you can just feel how their creativity and vision for product inspires everyone here.
And inspires consumers around the world.
I got to see some of this innovative product on display at the Nike 2020 Forum last month in New York, which served as a great illustration of the power of our two times innovation offense.
There, we announced a powerful of Ray a breakthrough product.
Such as our next percent footwear line, which offers measurable benefits to consumers.
We also launched a new aesthetic for sustainability, where we're delivering new scalable platforms like no one else.
And by bringing together athletes and creative partners as only Nike can.
The Forum was an optimistic statement about the future of sport culture.
And our advantage goes beyond our incredible product pipeline.
It has become even more clear to me why Nike leads the industry.
Our innovation product in design teams have an unrelenting commitment to discovering what's next.
This culture of innovation is pervasive across our organization and deeply embedded within Nike teams around the world.
From those who engage consumers at retail to those creating the next wave of digital experiences that connect with consumers daily.
Fueled by data and analytics capabilities, we are equipped with deep consumer insight that we combined with our design expertise and athlete research.
This process directly translates into breakthrough product.
Season after season, allowing us to drive more separation in the marketplace.
There is one last thing I'd like to mention.
As you know the organized sports World remains on hold.
And yet.
The global culture of health and wellness continues unabated.
In fact in many ways people are looking to health and wellness now more than ever.
Whether it's to stay in shape at home or with a focus on mental health and stressful times.
People all over the globe are finding ways to make sport a daily habit.
Wherever whenever and however, they can.
And as you may have seen this past weekend, we encourage consumers worldwide to workout at home with a simple message.
Play inside.
Play for the World.
We're seeing new behaviors normalizing countries all over the globe and we're shifting our entire consumer ecosystem to deliver access to sport that speaks to consumers changing lives.
Across key markets were working to create shared experiences and opportunity for virtual participation.
Connecting people to something bigger and showing how sport can inspire.
And though there is no predicting when organized sports will restart.
In our athletes teams and leaks can return to competition.
I do have one guarantee.
When the gates reopened when the first whistle sounds.
The energy is going to be off the charts.
The worlds passion for sports remains on diminished.
And when it all returns Nike will be right there with sports fans everywhere.
In summary, I'm incredibly proud of our team and the results they delivered in Q3.
And I missed unprecedented conditions across the globe, we're staying focused on not simply managing through this situation, but taking the actions that will allow us to emerge from it even stronger than before.
We know it won't be easy.
But Nike is better prepared than anyone else to regain that momentum extend our brand leadership and reshape to future marketplace.
Now he is a long history of rising to the occasion and extraordinary times to deliver strong results and effect extraordinary change in the world a sport and beyond.
And that's what we're going to do once again.
With that I'll now turn the call over to Andy Thanks, John and I'll, let everyone on the call.
Before I speak to our business our priority right now is first and foremost our people and sharing the health safety and well being of our teammates around the world is the foundation for all of the business decisions, we're making.
We have an accident Nike we win is a team and I can tell you that the resilience strength empathy and creativity of our teammates has never been on greater display our team has always been nike's greatest advantage.
I'll now know I want to congratulate one of my teammates that Fred on his new role going forward that and I have worked closely together since he joined Nike 11 years ago. He has done a great thought partnering to me over that time, and we're working seamlessly together through this transition.
As I move into my new role at Nike I could not be more confident in nike's financial management with Matt as our CFO.
So as we close Q3 and look ahead, we see three key themes.
First as we enter these challenging circumstances, Nike brand leadership and business momentum.
Have been stronger than ever an unrivaled around the world.
In Q3, we delivered 7% currency neutral revenue growth overall led by 13% growth in both Emad Npls.
Thank you greater China was also on pace to deliver another quarter of strong double digit revenue growth prior to the impact of code at 19.
And in North America, our strong mid single digit reported rate of revenue growth would have been roughly three points higher if not for non comparable items, including the sale Hurley and our shift to a license business model with fanatics relative to the NFL.
While those transactions had a negative impact on our year over year revenue growth comparisons. They also result in higher profitability for Nike.
Across all of our geographies and converse digital remained our fastest growing channel growing 36% on a currency neutral basis in fact, each of our geographies and converse exceeding 30% digital revenue growth on the quarter. Our growth was also broad based across categories as well as across women's and men's.
All fueled by innovation platforms and power franchises, such as the Airmax to 70, the Air Force, one and their Jordan one.
Our launch at the airport 11 bread was the largest in our history with the product selling out in 28 minutes powered by the sneakers that in fact, the Jordan brand grew double digits globally in the quarter.
Gillibrand 17, the honest freak and the City addition, MBJ disease fueled basketball strong breadth and in running we unveiled our most advanced performance running shoe ever the alpha fly and X percent.
We also launched the new Infinity react designed to help runners run longer and we've seen very strong sell through particularly with 11.
Apparel also fueled growth in the quarter growing faster than footwear with double digit apparel growth in our sportswear training basketball womens and kids categories.
Setting aside the noncash or nonrecurring charges related to our business model changes in South America, Nike Inc.'s earnings exceeded the earnings that were implied in the financial guidance. We provided 90 days ago, we were able to deliver that strong bottom line performance, even including the impact of code 90.
In greater China.
The second key theme as we look ahead relates to how we're addressing the evolving implications of coded 19.
As John said, we are executing on an operational playbook focused on positioning Nike brand expedited return to profitable capital efficient growth.
We see each of our markets progressing through a time series that begins with the country addressing the curve at 19 outbreak.
Followed by three phases from a business perspective, one a recovery period, including for example, the ramp up of store Reopenings.
To a period of normalization across consumer demand and supply.
And three appearing in which we returned to strong growth.
Why do we feel confident in our approach well as John said our team in greater China has given us a playbook for the rest of the world.
Based upon the most recent trends we see today, neither Nike greater China has already progressed through their recovery phase and is now transitioning into the normalization phase.
Specifically, we are seeing accelerating strong double digit approaching triple digit growth in our Nike digital business.
At the same time, roughly 80% of our 7000 brick and mortar Nike owned and partner stores are now open.
Based on the latest trends in our business.
Nike Greater China, Q4 revenue will likely be roughly flat versus Q4 fiscal year 19.
We're also executing on this playbook in Japan and Korea, both markets are entering the normalization phase fueled by strong digital growth and significant week over week increases in retail traffic and demand for Nike.
Based on what we're experiencing in China, Korea, and Japan, we are optimistic.
At the same time this has become a global pandemic.
Each country is addressing coven 90 differently.
Accordingly, our markets will progress through the three phases from a business perspective on different timelines.
That adds some complexity from a global point of view.
So we're also actively executing against a top down enterprise wide operational plan.
Our top down plan includes one tight cost management and to daily global demand and supply optimization.
Accordingly, our Q4, SGN, a will be lower than prior year Q4 spending.
We're also taking decisive action with respect to supply on a global basis, while shifting our distribution focus to digital in the face of temporary retail store closures.
As a result Q4 fiscal year 20.
In fiscal year 21 year over year revenue margin and inventory growth rates will neither be intuitive nor linear.
Our measures of success in the near term opium rooted in the amount of inventory on hand relative to the pace of digital demand stormy openings and traffic patterns.
Now going into this we were fortunately experiencing a very strong pull market for Nike globally with some of the highest rate to full price sell through we've ever experience.
So we're now aggressively managing all of our operating levers to ensure that we expedite nike's return to that strong coal market realigning supply and demand is our focus operationally.
We're also executing this plan leveraging tool Nike and longstanding and greatest competitive advantages first nike's financial strength.
Liquidity will not be an issue for Nike.
In order to ensure resilience during challenging times, we have long maintained a strong balance sheet, a strong investment grade credit rating and ample access to capital.
Paul coupled with strong operating cash flow generation.
Nike's liquidity and access to capital affords us the ability to be principle for example, with respect to pay continuity and decisive relative to real time supply and demand management.
Second we had forged the strongest partnerships across the value chain in this industry that include among others, our marketplace partners like top sports, how Shang and T mall in China, as well as foot locker Dick's JD in zalando across the us and Europe.
Of course, we also have long standing partnerships that span decades with manufacturers such as Fung Tai Shan Zhou Chen Shannon many others, we're working closely with all of these strategic partners on a daily basis.
Our partners recognize that the stronger Nike is going forward the stronger they are.
Of course, Nike is not operating in isolation external factors will continue to be dynamic and we will continue to adjust our execution accordingly.
The third key theme as we look forward.
While the setbacks from a business perspective will be significant for all Nike will come back even stronger as a brand and as a company consumer behavior is changing real time, we're all witnessing new normals emerge in terms of both how consumers shop and stay active.
Sport is being redefined as much broader than competition as the world finds new and creative ways to stay healthy and fit.
And Nike is digital ecosystem is keeping us connected real time.
From a marketplace perspective, Nike digital growth is accelerating amidst these dynamics from a digital capability perspective. The investments. We've made to date are now proving to be the foundation for our resilience and this challenge and they will be strength as we emerge for example, we're leveraging selects team and tools to dining.
Typically model demand pricing planning and allocation, we're leveraging our Nike membership platform and Nike mobile app ecosystem to inspire and enable people to be active at home. While also providing targeted product offers and services to consumers.
And the foundation, we've built in enterprise data and analytics is fueling our more agile end to end execution.
As we've said we're still in the early innings of Nike's digital transformation, but the capabilities. We've already been building for the future are proving to be the strongest pillars within our business today.
As John said simply put the is there are times in which strong brands gets stronger and we're confident that Nike will come back stronger than ever.
Now, let's turn to the details of our third quarter financial results in operating segment performance.
Nike Inc. Q3 revenue grew 5% of 7% on a currency neutral basis, reflecting strong balanced growth across a math la North America, and greater China prior to the impact of code 19, all fueled by Nike digital growing 36% versus prior year.
Gross margin declined by 80 basis points in Q3, as higher average selling prices and better off price margin were offset by the impact of coded 19, primarily in greater China as we managed inventory sell through in that market.
Gross margin was also negatively impacted by FX headwinds and incremental test in North America.
As DNA grew 6% in Q3, we continue to invest in our digital transformation, while also beginning to more tightly manage operating overhead and shift demand creation.
Our effective tax rate for the quarter was 3.9% compared to 14.7% for the same period last year due to a shift in the proportion of earnings taxed in the U.S. and increased benefits from discrete items.
Third quarter diluted EPS was 53 cents, including the 25 cents noncash or nonrecurring FX related charge associated with the transition in Brazil, Argentina, Chile, Uruguay, two strategic distributor models.
As of February 29 inventories were up 7% compared to the prior period, reflecting healthy full price versus the off price mix prior to the impacts of coven 19.
With that let's turn to our reported operating segments in North America Q3 revenue grew 4% on a reported and currency neutral basis, which again would have been approximately three points higher adjusting for the sale of Hurley and our partnership with fanatics regarding the NFL business.
In Q3, Nike digital grew over 30% and the Nike App grew over 60% in North America.
New York City, and La each grew double digits fueled by differentiated Nike consumer experiences as an example in L. and we launched our newest next slide concept store in Glendale, which blew past our expectations and significantly over index in terms of the women's business.
As of today, we've closed our own stores in North America.
Going forward, we will reopen stores on a location by location basis as we closely monitor developments at the same time.
Nike digital demand has been extraordinary with Nike digital commerce sales of just the past few days approaching holiday peak level levels.
Growing triple digits over just the past week.
We maintained operations in our distribution centers, implementing social distancing and reduced staffing while focusing on the shipment of digital orders.
Now, let's turn to on that when we continue to build on our extraordinary brand momentum.
In Q3 revenue and NAND grew 13% on a currency neutral basis with double digit growth in most key categories.
Women's growth strongly outpaced mens apparel accelerated faster than footwear and digital was up over 40%. The Nike brand has never been stronger demand in every key city in a manner consumers rated Nike there number one favorite and co brand.
We also gained significant market share in Q3 across both footwear and apparel driving further brand separation.
Greater speed and agility also fueled our growth and share gains in a man Q3 with over 30% of an air revenue and nearly 80% of a man incremental growth flowing through our express lane.
In order to help limit the spread of Coven 19, we also closed our own stores in Western Europe, and select eastern European markets and similar to the U.S., we will reopen on location by location basis based on developments.
Nike digital continues to grow versus prior year, and we're maintaining operations in our distribution centers again shifting their focus towards digital distribution.
In our Npls geography revenue grew 13% on a currency neutral basis growth was fueled by our key cities and was balanced across key categories, nearly all of which were up double digits. The Jordan brand in particular was incredibly strong npls growing nearly 50% in the quarter with new energy.
A question like the Jordan, Max 200, along with fresh new approaches to Jordan icon, all resonating with consumers.
In performance running are accelerating momentum continued, especially in Japan, where we dominated haqqani academic competitive race seeing a record 84% participants wearing nike.
Energy around running in Japan, as being fueled by the vapor flatten X percent as well as a halo effect that is impacting other performance models like the zoom fly rival fly and Peg Turbo, which all grew triple digits in Q3.
Nike digital grew 51% and wholesale grew double digits overall on a currency neutral basis as business with our differentiated strategic partners grew five times as fast as undifferentiated distribution.
As we've said Npls are more smith diverse geography.
So we're seeing the impact of cobot, 19, very significantly across Asian, and Latin American countries.
With that let's turn to greater China.
While our full quarter results in greater China were significantly impacted by Coven 19, it is worth providing some dimension.
Momentum in China continued to be extraordinary through mid January our revenue growth growth was on track to exceed the expectations that we said 90 days ago fueled by Nike Digital we launched the Nike App in China in Q3, and today, we already have $5 million Nike App downloads and as John said, we're also.
Assessing a spike in weekly average users on our activity apps as we inspire and enable consumers to engage in sport at home.
We're now as I said through the recovery phase and then to the normalization period in China.
Today, our digital commerce growth continues to accelerate with triple digit growth in demand just this last week.
Most of our stores in our partner stores are open.
Retail traffic is significantly accelerating week over week.
And we're beginning to see a decline from the peak inventory levels, we experienced.
We are confident that Nike greater China is on track to return to growth in fiscal year 21.
As we look ahead.
We will not be providing financial guidance for Q4 due to the uncertainty, resulting from this better spread of coated 90.
For fiscal year 21, we had been planning performance inline with our long term financial model.
Year over year growth rate base comparisons comparisons will no longer be meaningful.
So we will share the approach that we're taking with respect to fiscal year 21.
Our next earnings call.
All of that said, we are confident that executing our operational plan will position Nike for a return to profitable capital efficient growth.
That will happen over time as each country addresses coded 19 at a different pace.
But our confidence in the return to growth is founded on the relatively rapid recovery and early signs of normalization, we're already seeing in China Korea and Japan.
In these challenging times nike's competitive advantages are showing up as extraordinary resilience.
As we emerged from these challenges those same competitive advantages will show up as strength and brand distinction.
Those unique strengths include Nike is deep authentic connection to consumers our pipeline of innovative products, our financial strength and capacity our industry, leading digital capabilities.
Our strong partnerships and most importantly, our talented and committed teams around the world.
I would not trade nike's team or position with anybody.
With that we'll now open up the call for questions.
As a reminder to Q4 question.
Star one on your telephone.
First question is from Basel with Guggenheim Securities. Your line is open.
Hi, good afternoon guys.
Hey, Bob.
I just.
On the questioning where the I guess is on the inventory in the innovation pipeline. When you think about the is the halting of organizational the sports and the Olympics and.
Basketball can you just talk us through how you're thinking about the pipeline.
Given the postponement of the little bit you should assume some really great product last month I, just love to hear how you're approaching that piece of it and then the second piece of it is just can you elaborate a little more on the on how flexible you're spending is your demand creation that you sort of had planned for the next let's call. It six.
Yes.
Thanks.
Sure Bob It's John.
Why don't I think first part of the question, maybe Andy take the second piece.
So obviously.
The world of of organized sports professional sports leagues and now the Olympics have put things on hold and they're doing I think what's appropriate by prioritizing the health and safety of their athletes and fans and were very supportive of that.
We look forward to win organized sport, we'll be back and running and when they are will be there.
But I think it's important to separate those sporting events and our innovation pipeline, because we will continue to move forward and our innovation pipeline.
And as I said earlier, we're very excited about the products in that pipeline in the product for introducing impact.
More excited than perhaps anytime before.
And while we announced some of these products around the Olympics, if the Olympics fit deferred for a year, we can still launched them on our timing. So two specific examples as you know the next percent.
Performance running line will allow runners of all abilities to have the same technology and measurable benefits of the up applying next percent that the world's leading marathoners.
And we could launch that when the time is right unrelated to the Olympics.
Similarly to some of the sustainability product, we announced at the forum, the Vapormax 2020, which utilizes 75% recycled manufacturing ways store the space Hippy line, which is a that innovative way to have low carbon footprint footwear.
We can watch when the time is right when we get to the recovering normalization periods and so consumer demand for those things is strong and we'll continue to be strong and so we simply are going to move ahead with our product pipeline at the right moments in the right ways.
I'll just make one small final example of our turn it over to Andy.
In China, we got greater than we took a couple of launches that were scheduled in February.
And made them digital only launches so the or Jordan retro high Oh Gee in the air Jordan five retro we may digital only launches in a world where stores were closed and and but digital demand was strong so.
We're going to proceed full speed ahead with that product pipeline and do you want to talk about second part of the question I had just say.
Yes, just to summarize some of both John and I said in his remarks, and Joe and John just reiterated we came into the circumstances and an incredibly strong position some of the highest full price sell through we've seen inventories really healthy as we go forward, we recognize that there'll be some promotion in the marketplace, but as John said we've.
Also got an amazing pipeline of innovative and compelling fresh products and what will be done is working on.
The timing of the launch of those products and the flow of those products over time, so that while we're working through energy. We're also working through inventory. We're also bringing distinctive energy to the market and to consumers you asked about our licensed business just for context, our license business is a very low single digit.
Percentage of our overall business will have some impact on that business.
I'd say just keep in mind that a lot of these.
These elite support activities or events are being postponed versus necessarily canceled on the some of them then cancelled but.
One of the things we recognize around here is our product some of our product as a little bit longer lifecycle and come fall. We think we could be taking off one of the greatest years in sports history.
Now you also asked about SGN AG.
So from an M&A perspective, the short answer is we've got quite a bit of flexibility within our question and Thats. One of the reasons you saw us deliver profitability even in Q3, when we were all.
Event did taken off guard by the significant impact of Cobot 19, we were still able to deliver profitability that exceeded the guidance. We said 90 days ago as I also mentioned.
Based on some quick and agile work across our cross functional teams, we see SGN, a Q4 declining versus prior year.
There's quite a bit of flexibility in demand creation and actually a ties back to your question about sport.
As John mentioned in his remarks, we've done some really creative things from a digital connectivity perspective with huge impact so quick low cost extraordinary impact and and we think within demand creation, we can save quite a bit of our powder for the return to support that we see within fiscal year 21.
Within ask DNA.
Our liquidity in our access to capital allows us within ash in May to stay very principle. So continued pay continuity as John talked about.
And at the same time continuing to invest in those things that even now more than ever we see as Differentiators long term, albeit we'll do it in and we're focused way so.
Beyond that there are there are quite a bit of opportunities with an operating overhead capex and when I said our team has has just been amazing in terms of their resilience and creativity. It actually includes in terms of tightly managing our costs.
Okay. Thanks, and nice of one quick follow up Andy you mentioned, the Infinity react helps runners run longer.
I can run a pretty solid 11 minute model for two miles in my epic react finance vice switched over to the Infinity reacts you guys can get 310 minute miles all those.
I think I think we should sign up for the New York Marathon cannot their mind with in November How's that.
Sounds like a plant good luck guys. Thanks, very much hey, Thanks, Bob Alright, operator next question.
Your next question is from Omar San with Evercore ISI. Your line is open.
Thanks for taking my question welcome John Congrats to all three of the under new your new roles, sorry, Thunder more normal circumstances.
John.
John given.
Given Nike leadership position in the global consumer landscape I'd really appreciate so little bit more detail on this kind of successful China.
I don't have Iris playbook that you mentioned, you're now rolling out throughout the world into that some of the successful digital strategies to connect to consumers when they're stuck at home feel free data anymore color. There maybe you could you also distinguish between the recovery you're seeing and the behavior, you're seeing in stores versus that strong digital offset you mentioned.
Do you expect this share that you seem to be capturing digital.
Digitally to be sticky long term and then maybe could you get most importantly could you also talk about whether you'd expect a similar sort of demand curve and other markets for lot of buyers rolls through thanks.
Sure Omar.
So what are the real advantages as you said not keeping up up a scale global companies, we can extract learning and insight from each of our markets and so.
Here's here's what we've seen just quickly recap what any and I talked about we were looking at things through the lens of four four phases to this.
Containment of the outbreak.
First second recovery period, when stores reopened third normalization when things get back to growth from the prior year than fourth returned to growth.
And the data from actually China, Japan, and Korea was fairly consistent.
Containment took five to six weeks.
Stores were closed but the E commerce growth in all three markets remained strong during that time augmented by nike's connecting with consumers.
Around being active wallet hall.
Now all three markets are through what we're calling recovery that is retails opening backup consumers are back on the streets and we're seeing as we move into normalization retail traffic is coming back consumers are in the stores, they're engaged are often worrying face masks, but.
They are back on back on the Street Interestingly digital has accelerated even more since the stores have been open.
Again, I think pointing to this blended digital versus physical experiences a thing of the past consumers consumers don't think in those terms. So I bring that sort of a sort of consumer technology lands, where we learned that consumers want to get what they want when they want how they want it.
And they don't think about element to make a digital purchase or physical purchase.
Consumer may often start shopping on their mobile device.
May go into a store and have it shifted home they may order online and pick it up in a store and what we're seeing in Japan, China and Korea is that seamless digital physical experience is responding to what consumers want and I might notice our business comes back in those three markets were outperforming our competition.
Consistent with our mantra of ensuring that we come through this period, and even stronger position and extend our leadership position.
So in the US obviously, we're in much were earlier in the earlier in the cycle.
We closed the stores were taken Gerber employees, we digitally connected with consumers over the weekend around health and their act activity. So our brand is present day in and day out with them.
As Andy mentioned, we're seeing very strong digital growth even in the lease.
Our case.
And we're managing our inventory so that we can be ready when recovery.
We can't none of us can predict perfectly how long the containment phase is going to take in the U.S. in Europe.
But what we can know is when.
Stores taught reopening for wall stores are closed we're going to be there digitally we're going to be there digitally with activity ops and commerce and when the stores start reopening we're going to be leveraging our strengths our unique strengths with strong compelling product.
Digital connection with consumers that is unmatched these seamless digital and physical experiences at both Nike direct and our partners, we're working very closely with our partners.
And in fact in last three days I've talked with Ceos, its Alonzo JD foot locker in the last couple of months met with Dick's CEO Ceos of our two Chinese partners were working together to be ready when things recover and then our brand. So I think it's going to accelerate what was on.
We are you going to happen digital transformation consumers will continue digital's or more prominent role in their lives you will see more digital growth.
And I think the shape of the future marketplace, where differentiated retail thrives on differentiated retail struggles that will simply be accelerated so we intend to drive both.
Thanks for the color in your thoughts good luck.
Thank you. Thanks Omar Okay. Operator next question.
Our next question is from Jamie Merry Maids with Bernstein. Your line is open.
Thanks, very much and so on through the topics investments and specifically, how you're thinking about working with partners.
Comment on how you think about inventory in the wholesale channel as George Askew eventually reopened.
And maybe that by geography.
And then also on the topic integration of online and offline on can you update us on how those specifically does traditional physical partners or thinking about their own investments and working with you on some of the initiatives that you put in place like our I'd. Thank you.
Let Jamie I'll sort of blended a little bit and then maybe you can talk through human working actively with our partners over the last week on inventory.
What I can tell you is what I said earlier is that our strategic partners, who are strongest partners on one committed to creating seamless digital and physical experiences of the future.
Our focus was them with Amazon, the future and coming back strong together and coming back and is healthier marketplace as possible.
And so.
And we engaged with them both around their physical stores and around online.
In fact, I was I was on the phone this morning with the CEO of Zalando.
Who is obviously a very.
A lot as a very innovative ecommerce.
Company in Europe, and we are sharing data.
In.
Very innovative ways around consumers. So that we can offer the best experiences to consumers in a differentiated way in the markets across Europe.
And so the conversations around the future I think all them see the same.
Blended or seamless digital and physical experience together, we're committed to creating and I think we all believe that.
This is going to become an era differentiated retail versus undifferentiated. They see opportunity we have to work through this challenging period, together, which we will but I think all those to the opportunity to emerge stronger and to accelerate the transformation of the marketplace.
And you want to comment on the inventory specific commerce.
Yes, a genuine phase.
Well, obviously, there's some elements of these current circumstances and an unprecedented.
We came into this circumstance outlet strategy and you know our strategy was to extract.
That was a strategy that was not a Nike only strategy. It was really focused on driving more direct connections with our consumers leveraging digital both in our own stores.
Online and with our partners and through their online presence.
That's accelerating revenue one right now so if you think about the North America, North America marketplace in Europe with most stores closed both our own stores and most of our retail partners, what it's really accelerating that perspective and on the opportunities to to connect with consumers digitally from a brand perspective, but also.
Expand our ability to connect with consumers from a product and service perspective.
When we say partnership it's not just transactional it's not to it's not a back and forth transactional type of dialog with our partners.
We're talking to our partners about both how we come through this period and then what we build for the long term and there are a couple of things that we're building.
We're all expanding our digital pipe so to speak.
We in North America have already doubled that the ability the capacity to distribute product one to one to consumers through our distribution centers and just several days. So it's really accelerating what we saw as the future in terms of digital penetration.
From an inventory perspective.
Right now digital is the is where the water is slowing so to speak or where the product is flowing and so we're working closely in partnership with.
With folks likes and Londo and Europe as John mentioned, we already had an inventory partnership program with Salon nowhere we.
Transact the in their site and ours or via their digital ecosystem in our digitally digital ecosystem, while leveraging each other's inventory and we're working with our partners in the us in a similar regard.
Managing the inventory they have on hand, the inventory we have on than on hand relative to them and how best to flow that through their digital types as well as ours. So I think in summary, what I'd say is.
As John said, it's it's it's accelerating quite a bit a change in consumer behavior. It's also accelerated quite a bit of change in our partners behavior.
Very helpful. Thank you.
Okay. Operator next question.
Our next question is from Alexander Waldis with Goldman Sachs. Your line is open.
Good morning, Thanks, so much for taking the question could evening, rather and thanks for taking my question is a tremendous amount of of color that we really appreciate all of the insights.
So my question is on.
Some comments related to gross margins, you mentioned rebates to wholesale partners.
At higher costs related to actually cancellations annual gross margin comments I wonder elaborate a little bit more on those would you expect it affects intensifies.
As has the issues related to dimont reach more of the revenue base.
Sure I'll take that question on Sandra.
I think what we're finding is that there are several levers from.
The perspective of.
Resetting.
Inventory or supply as one might say relative to the pace of expansion in digital demand.
The reopening of stores and then the amount of traffic going to those stores in the amount of conversion and so.
There isn't as sort of one size fits all or certain or not just one lever. So.
So what we're dealing with with our own inventory and with our partners as we're looking at a lot of different levers. We're looking at realigning our product offer dates so not only do we have some inventory going into the circumstances, but we've got a great pipeline of product.
And we can move some of those product offer dates out to some extent as we work through that the the inventory that will build over these weeks in which we're dealing with these circumstances in each market.
We are primarily talking to our partners about managing inventory movement.
The generation and the generation of cash flow with a view towards getting back to 14 to 16 weeks or so on hand in the market and 14 weeks or so on hand of inventory for Nike and strong full price sell through some of the levers will employ in that regard will impact gross margin negatively that's somewhat obvious.
It could be promotion it could be cancel it cancellation of orders at the same time, none of those data points will represent a trend so what you're likely to see.
In the near term is a focus on supply and demand management that will impact revenue man that negative will have the negative impact on margin, but that is part and parcel.
Goes with resetting.
That foundation for strong profitable growth, it's not a new trend, it's not a reflection of the strength of our product.
In fact, John mentioned some of the launches we've had in China, We've actually had some product launches here in the us over the last couple of weeks that have sold through at full price. So it'll it'll be a blend of working through inventory, which does have some impact on margin and a blend of bringing innovation and fresh compelling new product to consumer so probably will be looking for energy and it's.
Duration and optimism.
Sometimes take very Chad, thanks, very much on all of us.
Thank you Okay. Operator, we've got time for one last question.
Our last questions from Matthew boss with Jpmorgan. Your line is open.
Great. Thanks, So maybe on North America, your 7% adjusted underlying constant currency growth I think translates to a mid teens two year stack, maybe can you speak to what's driving the domestic inflection man, Andy maybe pre Cove head a little bit of insight. How you were thinking about the North America.
I can marketplace over the next 12 months and just larger picture on the curve, where we stand today on that on the move to differentiated retail.
Matthew maybe I'll I'll, just make a comment or two and then and you can flesh out but up.
I've spent time now in several of our markets across the U.S.
And I've seen firsthand, how nike's key cities strategy.
Is paying off.
And you mentioned the growth in New York growth in La a double digit and that is because both with Nike direct and with our partners, we're getting closer to the consumer and I'll take a couple examples.
I had a chance to visit the foot locker.
Very innovative store in Washington Heights neighborhood in New York, where the entire display of the inventory and the merchandise and up the whole focus is being of the neighborhood.
And you can just see consumers responding.
And Thats store is experiencing significantly greater growth than other comparable stores that foot locker house in the area. So it's a great example of differentiated retail and the future of retail we're doing the same with some otieno communities and allied.
Providing retail concepts, both through Nike direct and with our partners that are getting close to what consumers want in those markets and give a more personalized feel and when you wrap that around with a digital connection with membership and the other digital tools you can feel you can feel the energy and moment.
And so.
I think I think at its core this key struck this key cities strategy that.
He's put in place.
In the U.S. and beyond is absolutely paying dividends.
Yes, I'll just add Matthew that.
There are few there you really important drivers to highlight I appreciate recognizing that.
That that growth is it has been consistently strong in North America.
And that and obviously one of the things I should say is we are entered entering these challenging times in a position of strength and as John said strong brands get stronger during these times. So we think will emerge even stronger for a little bit of context on the strength we had entering.
Entering this fourth quarter Nike digital continues to fueled strong growth in North America.
Relatively extraordinary 33% in the in the quarter.
We've talked to you about this significant opportunity that we think in terms of the women's business our women's business.
Grew at a rate that was nearly double that of men's both in footwear and apparel. So we're seeing strong growth there now across footwear and apparel our growth was relatively balanced both in the mid single digit and that's even taking into account the divestiture of Hurley, which was largely apparel business and the shift in our business model with respect to the NFL, which is.
Also largely in apparel business. So what you can infer from that as we've told you. We think we we have an epic growth opportunity in digital in women's and in apparel and when you take into account as non comparable in the quarter all three including apparel are over indexing in terms of in terms of growth. So again, we feel great about.
Action of strength, we had and half from a brand perspective as we work through these challenge challenges and we'll be doing everything we can in terms of managing demand and supply and fueling our brand so that we emerge even stronger.
Great call Congrats on the progress and best of luck.
Thank you and thank you Matt for your last call. Thanks, everyone for joining us today, and we look forward to speaking with you all next quarter take care stay healthy and stay safe can be say everyone.
Ladies and gentlemen, this does conclude todays call. Thank you for your participation and you may now disconnect.
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