Q4 2023 Nike Inc Earnings Call
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.
We will start with prepared remarks and then open up for 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 Donohoe.
Thank you, Paul. And hello to everyone on today's call.
Fiscal 23 was a milestone year for Nike as we set new records while delivering on our operational and financial goals.
It's clear that our strategy is working and that Nike's unique advantage is continue to drive competitive separation.
Looking at our results, we exceeded $50 billion in revenue with growth of 16% on the year.
This growth is broad-based across our consumer construct of men's, women's, and kids, across performance and lifestyle, and across all geographies.
North America, and APLA all saw full year double digit growth and greater China return to double digit growth in Q4.
We're also driving strength through our interesting leading brand portfolio with Nike, Jordan, and Converse, all of which achieve strong growth in fiscal 23.
In particular, I want to highlight Jordan's brand record year.
Jordan grew mid-30s with impressive growth across men's, women's, and kids.
footwear and apparel and in both North America and international.
In fact, Jordan is well on its way to becoming the second largest footwear brand in North America.
And last but not least, we return to healthy inventory ahead of our competition.
Our inventory is flat year over year in value and down in units versus 12 months ago.
The actions we've taken position us for more profitable growth moving forward.
Across our business, we continue to build a marketplace that addresses how consumers want to be served, giving them what they want, when they want it, and how they want it.
Nike creates distinction across the marketplace by segmenting consumer experiences to drive deep direct connections with consumers and grow the marketplace.
Every year we serve traffic in the billions, which delivers strong digital growth as both conversion rate and average order value continue to improve.
This success helped increase the digital share of our business to 26% in fiscal 23 as compared to 10% in fiscal 19.
For the year, we had strong digital growth of 24%.
and we expect digital to continue to lead our growth. Now this is all powered by our membership offense.
We know our consumers better and are better able to serve them, with data-driven insights fueling our end-to-end value chain, including product creation, marketing, and merchandising.
This is translating into sustainable and profitable growth for Nike.
And we believe this growth will only accelerate as we add new capabilities built to serve consumers at scale.
In fiscal 23, we expanded our membership base.
But more importantly, we elevated and deepened these consumer relationships.
Our members now engage with us more frequently, buy more, and are more loyal to our brands.
Once members join our ecosystem, they are increasingly their lifelong sport journeys with us.
Now, of course, Nike members also shop across Marketplace channels.
And so, as we grow, we're always actively managing our marketplace to serve consumers with expanded choice, access, and convenience.
We think about our multi-brand partners and three complementary groups that each serve distinct needs.
First, as you know, over the past five years, we've created greater focus and differentiation, working with fewer large multi-brand partners.
These partners have the scale to invest in retail experiences and connected digital membership that drives long-term growth.
Second, we've also sharpened our commitment to neighborhood authenticators in both sport and lifestyle to drive energy and validate our brand.
This investment in community ensures brand access as well as deep local consumer connection.
And third, we partner with accounts that help us provide access to consumers across different segments and price points.
And at the same time, we continue to invest in Nike store concepts that create new distribution and serve growth opportunities not currently being addressed by our wholesale partners.
The recent unveiling of our Nike Well Collective.
which responds to deep insight from our female consumers.
Re-bands Nike Live and creates an elevated approach to retail.
Nike Well Collective brings new energy and sharpens our focus on serving the opportunity we see with women.
So this is how our consumer direct acceleration strategy drives the future of the marketplace.
A seamless, member-led experience that addresses the opportunities as we see them across the consumer landscape.
Last month I was in Shanghai in Beijing.
And I was blown away by how the entire Marketplace experience comes to live there.
Our Greater China Team
building a connected and seamless journey across digital and physical, commerce and social, owned and partner doors.
And I will tell you the merchandising is best in class. You can just feel the energy of our brand and our product.
And with our record-breaking performance during this year's 618 shopping holiday, in which we were the number one sports brand on Tmall, I'm even more confident in our playbook and strategy in China.
Today, we're excited and confident with the opportunity we see in front of us.
Looking to fiscal 24 and beyond, we will continue to expand our competitive separation.
To that end, this quarter we made some shifts within our senior leadership team that will further deepen our growth and accelerate our marketplace advantage.
Elevating Heidi O'Neill and Craig Williams to become Nike brand two presidents.
Heidi and Craig are both incredible leaders with long track records of driving growth and results.
And their new roles are designed to drive an even greater focus on innovation and integration for our business.
These changes will streamline our efforts across product, brand storytelling, and marketplace.
I will tell you I'm thrilled and I can also tell you that their teams are thrilled as well for the kind of growth we'll be able to achieve under this new, simplified structure.
For the remainder of my remarks today, I want to walk you through something that defines everything we do.
remarks today, I want to walk you through something that defines everything we do, and that's sport.
Sport is who we are. It will always be our differentiator.
No brand can grow the world of sport like Nike.
No brand connects people to sport by putting all of the pieces together like we can. We stay in the lead because we combine innovation, brand, and the culture of sport and do it all at global scale.
This is the power of our strategy. We're able to both unleash athlete potential and create the lifestyle of sport around the globe.
Where other brands strive to grow their slice of the pie, we're able to grow the pie itself.
Let me walk through three areas where we have expanded the world of sport.
and where we see even greater opportunity ahead.
First, let's discuss global football. In fiscal 23, global football grew 25%, nearly doubling overall Nike growth.
with women's and kids' businesses growing even faster. Key boot franchises like Mercurial and Phantom saw high full-price realization as we continue to win share on pitch.
We invest in the grassroots of the game while also partnering with the sport's greatest.
Erling Holland joined our roster this quarter as his record pace of goal scoring cements his staff on the future of the game.
And we can't wait for this summer's World Cup. Nike is proud to partner with more federations in the tournament than any other brand. And we've matched that energy with our most comprehensive women's football collection ever. For example, we'll watch the most innovative women's football collection ever.
women's-led football boot in our history.
After more than two years of testing and designing, the new Phantom Luna Boot features a proprietary cleat pattern that provides peak traction and stability for female players.
In addition, our World Cup kits will debut significant fit and material innovations mapped to a woman's specific movements. And last but not least, we've created our largest ever football-inspired sportswear collection.
for both fans and athletes when they're off pitch.
We're just weeks out from the tournament and we're focused and aligned to drive energy like no one else as we connect the next generation of fans to the world's most popular sport. Next, let's discuss basketball, where we continue to see significant market leadership.
Today, Nike defines basketball. And as we look to the landscape, we see only expanding competitive separation ahead.
Our influence in basketball is elevated by the strength of our portfolio brand, Nike Jordan and Converse.
In fact, our roster, which is already the game's greatest.
Set a new standard this season.
For the first time ever, all three of our brands were represented in the All-NBA First Team.
With Luca and Jason from Jordan, Janus from Nike, and rising star Shay Gilgus-Alexander from Converse.
This is an unprecedented accomplishment.
And speaking of the game's greatest fiscal 23 marked 20 years of the bronze signature shoe.
We're excited by the continued potential of the Lebron business as his brand reaches a new dimension.
by bringing back earlier styles onto the court, igniting new energy for these retro models with consumers. And in addition, the Sabrina One is resonating strongly since launch, helping double the number of new models.
our WNBA business versus what it was two short years ago. It's going to be an exciting summer.
as we set the stage to relaunch the Kobe brand in advance of Kobe Day on 8-24.
And as you know, it's already been a great few months for basketball. We had a thrilling NBA season which concluded with Nikolaj Jokic taking the Denver Nuggets to their first ever title.
The WNBA season kicked off with Brittany Griner making her return to the court.
And earlier this week, Asia Wilson was named an All-Star team captain. And in China, 10 times Chinese Basketball Association All-Star point guard Guo Yiyun won his third CBA championship.
And earlier this week, in fact last week in the NBA draft, Victor Romayama was selected number one overall by the San Antonio Spurs. We're thrilled to have Victor and the Nike family and we're excited.
for what the future holds in basketball. Now I want to take a minute to go a little bit deeper into the Jordan brand.
Jordan's greatest advantage is its authenticity and connection to sport, which drives a special bond with generation upon generation. This brand has built a cultural identity that transcends the game, connecting people with deep emotion and a sense of self-belief.
It's this authenticity that fuels Jordan's leadership in streetwear.
Jordan continues to dictate the conversation by being a premium brand that drives sportswear culture.
You've seen this come to life through Jordan's partners.
across top culture, from product launches like the Women's Taiana Taylor AJ1 High,
to the brand's meaningful collaboration with the movie, Spider-Man Across the Spider-Verse. Today, Jordan is extending its core strength in men.
In Q4, Jordan launched the Tatum 1, which completes Jordan's signature offense, along with Luka, Zion, and the game shoe.
With this foundation in place, Jordan has plans to now scale these four franchises even further.
And at the same time, Jordan is building real energy.
around our biggest growth opportunities. In fiscal 23, Jordan had over-indexing growth in both women's and kids.
alongside increasing strength and apparel. And today, Jordan's growth in performance footwear is now outpacing retro footwear.
But no discussion of Jordan's opportunity would be complete with also looking at its international business.
In most of our geos, Jordan's penetration is about 10 points lower than it is in North America and this is the growth opportunity we plan to capture moving ahead.
Simply put, we continue to see a tremendous amount of potential for the Jordan brand and its differentiated ability to drive culture, connection, and growth like nothing else.
Simply put, we continue to see a tremendous amount of potential for the Jordan brand and its differentiated ability to drive culture, connection, and growth like nothing else.
Let me comment on our running business. Running has been a competitive battlefield lately, with more and more brands joining the market.
And today we're more aligned and resourced to compete and win.
We saw roughly 10% growth for our running footwear business in fiscal 23, and we're just getting started.
Now as you know, Nike's advantage in innovation...
is shown as we continue to set the pace in racing and trail running categories.
Led by the new Vaporfly III and Pegtrail IV, respectively.
And following our recent reset, we're prioritizing the needs of everyday runners through newness and consistency in the key styles they love most.
For example, last quarter we launched the Invincible 3, which continues to perform well. Since its 2-3 launch, Invincible has already doubled its retail sales versus last year.
And next quarter, we're debuting the Infinity Run 4, another major update to a popular franchise. In fact, I'm wearing a pair right now and I have to say, they feel great. The Infinity Force React X
is our newest phone, a breakthrough innovation that's more sustainable and offers runners a smooth and responsive ride following years of women-led testing.
And this is just the start as we reinvigorate our running footwear line, with more to be unveiled as we build them and I'm heading into the Olympics in Paris next summer.
And in addition to innovating forerunners, we're also driving the lifestyle of running as only Nike can.
The Vamero 5, which in fiscal 23 ticked off our strategic relaunch into the intersection of running and streetwear, has already become a staple of modern sneaker culture.
The Vemero 5 is coming into the summer with a lot of momentum as we substantially increase its volume all year. And just last month we launched the Motiva.
a walking shoe with a distinctive design at an attractive price point, and one that's representative of the aggressive approach we're taking to opportunities we see in the market. In just two months post launch, Motiva has had strong sell-through, particularly for women.
already becoming a top 5 performance footwear style globally on Nike Digital.
Ultimately, when we look at the full running business.
While we know there's a lot of work ahead, we remain confident in our go-forward strategy and firm in our belief that we're all set to compete with strength.
we know there's a lot of work ahead. We remain confident in our go-forward strategy and firm in our belief that we're all set to compete with strength. In the end, our CDA strategy is working.
Our brands have strong energy, our innovation pipeline is as relentless as ever, and we're executing against what matters most to consumers.
And as we look to fiscal 24, Nike will occupy the same leadership position that we earn year after year as we usher our industry into the future.
And with that, I'll turn the call over to Matt.
Thanks, Sean, and hello to everyone on the call. Nike is a growth company, and Fiscal 23 demonstrated our ability to deliver strong growth in the midst of rapidly changing market conditions. Throughout the year, we drove competitive separation by doing what Nike does best.
Serve athletes with product innovation and rich storytelling.
Amplify our brand voice through key sport and consumer moments.
Deepen consumer connections across our portfolio.
and actively manage the marketplace to drive sustainable, profitable growth.
actively manage the marketplace to drive sustainable, profitable growth. For the full year, we delivered mid-teens revenue growth.
with accelerating momentum in our performance business and sustained strength in lifestyle.
We added seven billion dollars of revenue in total on a currency neutral basis.
which included adding $3 billion to North America.
largest most mature market. In addition our top franchises drove strong full price sales.
with mid-single digit price increases.
and we grew UNIS and ASP across both product engines.
in Q4.
We saw another quarter of strong consumer demand with traffic growing online and in our stores.
and total retail sales across the marketplace up double digits.
across the marketplace up double digits versus the prior year.
Beyond driving strong top line growth.
We finished the year with a significantly improved Marketplace position.
with total marketplace inventory units.
including Nike and our wholesale partners.
including Nike and our wholesale partners, down year over year.
We feel very good about the results driven by our decisive actions over this past year, as well as the sales momentum that we continue to see from Nike Direct and our top strategic partners, including Dick's Sporting Goods, JD Sports Direct, and Nike Sports Direct.
and our city specialty partners.
our city specialty partners. To go a little deeper on inventory...
Nike Inc. inventory dollars are flat versus the prior year, with units down double digits across both footwear and apparel.
Apparel units are down more than 20% versus the prior year.
Our mix of in-transit inventory has normalized, and days in inventory show improvement versus the prior quarter and the prior year.
Closeout mix is in line with pre-pandemic levels, with improvements in the average age of our closeout inventory versus the prior year.
And from a geography perspective,
Both North America and Greater China have inventory dollars down high single digits versus the prior year.
with units being down double digits.
All told, we are entering Fiscal 24 on our front foot, ready to navigate any uncertainty that may be ahead of us.
and ready to compete from a position of strength.
Now as we move forward, we are building on a strong foundation for future growth.
Our confidence is grounded in the power of Nike's portfolio.
deeply connected to the consumer, centered in sport and youth culture, fueling authenticity and distinction,
unrivaled in breadth and depth.
Our strength begins with our scale. From our investment in innovation...
Our strength begins with our scale, from our investment in innovation to our sports marketing portfolio.
our digital platforms and membership, and our global reach.
We create value for consumers around the world, leveraging Nike's scale and competitive advantages.
to drive sustainable growth and strong returns to shareholders over the long term.
And today Nike's opportunity to grow is as large as it's ever been.
Consumer interest around the world in sport, health, and wellness has never been greater.
And what excites us most is the potential still ahead. Let me share just a few examples.
First, one of Nike's greatest competitive advantages is our relentless pace of innovation.
We innovate to make athletes better, to serve more athletes, and to make the world better for athletes everywhere.
And right now in our LeBron James Innovation Center, we are creating new concepts, new platforms, and new capabilities.
to fuel Nike's next 50 years of innovation and growth. We will continue to increase investment in innovation to create value for athletes.
And this gives me confidence we can drive long-term growth for Nike.
We have some great opportunities over this next fiscal year to showcase our latest innovations on the global sports stage.
Second, we're accelerating direct consumer relationships across our digital platforms.
By better knowing and serving the consumers who love our brands, we are also unlocking strategic and financial benefits for Nike.
For example, we have partnered with Adobe to enable one-to-one member personalization.
driving gains in member retention, click-through rates, and conversion.
resulting in higher demand per member and returns on digital ad spend.
We're only beginning to operationalize these new capabilities and consumer experiences on our digital platforms.
we see even greater opportunity to come. Third, we see meaningful growth potential in our international markets.
This includes Korea, one of our most digitally connected markets, Central and South America, a region with a deep love of sport, Southeast Asia and India, with one of the world's largest youth populations.
one of our most digitally connected markets, Central and South America, a region with a deep love of sport, Southeast Asia and India, with one of the world's largest youth populations, and of course, China.
where young consumers are seeking our top product innovation and Gen Z is coming of age as the country's most active generation ever.
Last, we can now see around the corner on the transitory cost headwinds that pressured profitability in fiscal 22 and 23.
When combined with our structural opportunities to improve profitability as we grow.
We are confident that we will deliver above average margin improvement in fiscal 24 with many of the drivers continuing into fiscal 25.
Now let me turn to our Nike Inc. fourth quarter results.
In Q4, Nike Inc. revenue grew 5% on a reported basis and 8% on a currency neutral basis.
Nike Direct grew 18%, with 14% growth in Nike Digital and 24% growth in Nike Stores.
Nike Direct grew 18%, with 14% growth in Nike Digital and 24% growth in Nike Stores. Wholesale grew 2%.
Moderating is planned as we tighten supply to normalize marketplace inventory levels. Those margins declined 140 basis points to 43.6% on a reported basis.
primarily due to higher product input costs and elevated freight and logistics expenses, higher markdowns, and 100 basis points of unfavorable changes in net foreign currency exchange rates.
partially offset by strategic pricing actions, and lapping higher inventory obsolescence reserves in Greater China in the prior period.
SG&A grew 8% on a reported basis, primarily due to wage-related expenses, variable Nike direct costs, and increased demand creation expenses. Our effective tax rate for the quarter was 17.3%.
Diluted earnings per share with 66 cents. Now let me turn to our operating segments.
In North America Q4 revenue grew 5%. Nike Direct was up 15%.
and Nike Digital grew 17%. Wholesale declined 3% following reduced spring and summer sell-in to proactively manage marketplace inventory.
EBIT declined 6% on a reported basis.
For another consecutive quarter, strong consumer demand drove total retail sales up double digits across the marketplace.
enabling us to drive a quicker return to healthy marketplace inventory levels.
Member engagement grew on all digital platforms, and buying frequency was at an all-time high.
Nike's store traffic and revenue grew double digits, surpassing industry trends.
We saw strong brand momentum across our portfolio. Performance dimensions delivered strong growth with Lebron and Yannes at double digits. Every Metcon accepted its lead as our top women's performance franchise.
And the Jordan brand delivered another dominant quarter with women's leading growth. Luca and Tatum highlighting momentum and performance.
and iconic franchises inspiring the next generation. In fact, this quarter's AJ1 SpiderVerse launch drove our largest ever kids shock drop on the Sneakers app.
With a robust product pipeline, a healthy mix of inventory, and a normalizing supply chain,
We are confident in Nike's ability to set the pace in North America as we look ahead.
In EMEA, Q4 revenue grew 7%.
In EMEA, Q4 revenue grew 7%. Nike Direct was up 28%.
Nike Digital grew 24%. EBIT declined 13% on a reported basis.
The Mayors' fourth quarter results demonstrated the strength of our complete offense.
As Nike increased market share in performance and lifestyle, digital continues to power growth with traffic up double digits and conversion rates expanding.
Brick and mortar traffic in key countries also remains strong. Nike's authenticity in sport and culture continues to create separation. Vaporfly and AlphaFly top shoe counts at the Paris and London Marathon.
while Pegasus and Invincible drove strong sail through. We channeled the energy of Air Max Day into positive momentum for Air Max Pulse and Air Max 1.
And we close out our biggest football year ever, up double digits with strong full price sales, led by Mercurial and Phantom.
balanced growth across men's, women's, and kids. In Greater China, Q4 revenue grew 25%.
Nike Direct grew 19%.
with Nike Digital declining 12% as consumer buying continues to over index in brick and mortar versus the prior year.
EBIT grew 70% on a reported basis. This quarter left no doubt.
on a reported basis. This quarter left no doubt, sport is back.
consumer confidence is rebounding, and Nike's brand momentum is growing. We celebrated the return of sport with full marketing activations around the Chinese High School Basketball League, Air Max Day, and Super Brand Day.
And we extended that energy into our strongest product sell-through in eight seasons, with full price momentum accelerated by our healthy inventory position.
Running grew double digits, fueled by newness and hyper-local storytelling, including strong express lane executions.
for Invincible 3 and community activations around Pegasus 40. Basketball grew double digits led by the GT cut and we saw exceptional sell-through for our GT jump players edition inspired by longtime Nike athlete Eejian Leon. Earlier this month our 618 results
surpassed last year's record-breaking performance.
record-breaking performance with sales up double digits.
And next week, we will build on that momentum as we kick off Nike's first athlete tour in China since the pandemic by welcoming Yanis to Beijing. As we look forward, we are confident in the strength of our consumer connections and confident in Nike's ability to build on that momentum.
to drive sustainable long-term growth in China. In APLA, Q4 revenue grew 6%.
including approximately six percentage points of a headwind due to the impact of our shift to a distributor model in Central and South America.
Nike Direct was up 9%, with Nike Digital growing 9%.
Nike Direct was up 9%, with Nike Digital growing 9%. EBIT declined 16% on a reported basis.
This quarter highlighted our balanced growth in the region.
Jordan brand continued its international expansion with strong double digit growth as our new world of flight doors in Tokyo and Seoul create local brand energy.
We also saw strong growth in women's lifestyle and men's performance.
with positive momentum from Cortez and Vamero 5, and sustained strength from Pegasus and Invincible 3.
In global football, we drove double-digit growth across men's, women's, and kids, with excitement building ahead of this summer's Women's World Cup.
We finished the year in APLA with new milestones and new opportunities in the region.
In Southeast Asia and India, we grew our business by over 40% this year.
reinforcing the potential that we see in the market. In Korea, our Nike app launch drove 2.5 million downloads.
and $100 million in incremental demand within its first quarter, showing how elevated local digital experience is.
in incremental demand within its first quarter, showing how elevated local digital experiences can accelerate consumer demand.
And across the region, we continue investing to grow, from launching Argentina.com and Peru.com to introducing Nike's first direct digital footprint.
we continue investing to grow, from launching Argentina.com and Peru.com, to introducing Nike's first direct digital footprint in India.
Now let me turn to our Fiscal 24 Financial Outlook. We enter the new year with clear advantages.
strong consumer momentum, a robust product innovation pipeline, healthy inventory, and a normalized flow of supply.
That said, we are closely monitoring the macro environment, consumer behavior, and retail trends.
Our priority for Fiscal 24 is to drive healthy, full-price growth.
while unlocking speed, agility, and efficiency in our operating model.
We are focused on what we can control as we position Nike to compete at its best.
We are focused on what we can control as we position Nike to compete at its best. We are taking a balanced approach to planning our business.
building on our proactive decisions more than six months ago to tighten buys.
We expect this to translate into an improved marginal cost of growth, expanding profitability, and higher returns on invested capital.
For the full year, we expect Fiscal 24 reported revenue to grow mid-single digits.
led by Nike Direct. This includes approximately four points of headwinds from the prior year from wholesale shipment timing and accelerated liquidation activities.
by Nike Direct. This includes approximately four points of headwinds from the prior year from wholesale shipment timing and accelerated liquidation activities. In addition, based on current spot rate.
We do not expect any material translation impact on revenue in fiscal 24. We expect gross margins to expand 140 to 160 basis points on a reported basis.
which translates to approximately 200 basis points of operational gross margin expansion.
excluding 50 basis points of negative impact from foreign exchange headwinds. This reflects the beginning of recovery from transitory headwinds, including more favorable ocean freight rates starting halfway through the second quarter, and a modest improvement in markdowns versus the prior year.
We also expect continued structural gains from our focus on price value, including low single-digit price increases in fiscal 24, plus ongoing benefits from our shift to a more direct business. We expect this to be partially offset by higher product costs.
with inflation causing higher labor and fulfillment expenses in parts of our supply chain.
We expect SG&A to grow slightly above revenue as we increase investment in demand creation to support key global sports moments.
product launches and invest in capabilities to transform Nike's operating model for greater speed and effectiveness.
We will continue to manage SGNA to remain below pre-pandemic levels as a percentage of revenue.
Our other income and expense, including net interest income, is expected to be $225 to $275 million of income for the year.
and we expect our effective tax rate to be similar to fiscal 23.
reflecting our decision to tighten first half buys and restrain marketplace inventory.
We expect another quarter of sequential improvement in gross margin.
down 50 to 75 basis points on a reported basis, which translates to 25 to 50 basis points of operational gross margin expansion, excluding the negative impact of 100 basis points of foreign exchange headwinds.
We expect SG&A to grow low double digits on a reported basis driven by increased demand creation investments.
We expect SG&A to grow low double digits on a reported basis, driven by increased demand creation investments around the Women's World Cup.
and transformational investments to drive efficiency, including the activation of the next stages of our ERP implementation in North America.
Looking ahead, we will remain agile and on the offense, leveraging our experience and the capabilities that we have developed to lead through times of uncertainty, while investing to capture the growth opportunities in front of us.
For Nike, creating the future always starts with serving athletes in sport.
As we look to fiscal 24, we have an incredible year of sport ahead of us.
fiscal 24, we have an incredible year of sport ahead of us. From this summer's World Cup.
to the road to the Paris Olympic Games. It will be a year to remember and just like the athletes we serve, Nike will be ready to bring our best.
With that, let's open up the call for questions. Thank you, sir. Everyone, if you have a question, please press star one on your telephone keypad. We'll take our first question from Tom Nickett with Wedbush Securities.
Hey everybody, thank you very much for taking my question. I want to ask about North America and specifically the whole channel.
I think there's been some news recently about maybe some wholesale partners that you had either exited or de-emphasized and now you're going back into some of those retailers. What drove that decision and I guess kind of what changed in your mindset? Yeah, I'll bet.
You know, maybe, you know, a year or two ago you saw, you know, DSW was not somebody you wanted to partner with, but now you do and Macy's, you know, etc. So just any insider color there would be would be really helpful. Thanks. Yeah, Tom, I'll take that. Let me just say right a friend our marketplace strategy.
remains the same as it's been over the last several years. And this is simply a continued evolution of the very same marketplace strategy. I'll remind you that our marketplace strategy is driven by the consumer. I mean at the end of the day, we start with the consumer,
and consumers in this day and age want to get what they want, when they want it, how they want it. Consumers want digital and physical access. They shop across both channels. They want monobrand and multibrand. We use different shopping occasions to use different channels.
Consumers expect us to know who they are, and consumers have said to us they want a consistent and seamless experience. And so that is what has driven our marketplace strategy. And as you know, it starts with digital, our direct connection with the consumer, our digital apps, our...
mobile apps are unmatched in the industry, and that's our fastest growing channel that will continue to be our fastest growing channel because we directly connect with the consumer digitally. We augment that with owned retail.
where we are building out stores, Nike stores, in segments that are currently underserved by our hotel partners. We would say women's is one of those cases and Jordan being another. So we're selectively opening new doors. And then multi-brand, multi-brand.
Wholesale partners play a really important role and as I said in my remarks there's different segments. So we spent a lot of focus and attention and we've talked a lot over the last couple years about the larger multi-brand partners like Dix and JD and Foot Locker and Sports Direct.
We've talked some around neighborhood doors where we authenticate. That's such an important role. And then we have accounts.
that help us serve distinct segments of consumers or price points. And so what we've done over the past quarter is simply an extension of that.
Our direct business will continue to grow the fastest, but will continue to expand our marketplace strategy to enable access to as many consumers as possible and drive growth.
Next up is Matthew Bause, J.P. Morgan.
Great, thanks. So John , with the expanded definition of sport and greater awareness of health and wellness that you cited, could you elaborate on how you believe the Nike brand is positioned to capture market share globally? And then Matt, on the revenue guide for this year, could you just help bridge 1Q relative to the market share?
structural tailwinds you just described. We are blessed with structural tailwinds around an expanding definition of sport, particularly around health and wellness.
and a related structural tailwind around this movement toward athleisure. And our marketplace strategy is simply geared to expand, leverage our competitive advantages to not only gain share but also grow the market.
by being where consumers are and again as I said a minute ago to give them what they want when they want how they want it. Two examples come to mind. One is just digital. R, I cannot tell you how important it is, are mobile apps. In fact, two four are for mobile apps.
sneakers, the Nike mobile app, NTC and NRC.
had over 500 million visitors within the quarter, and that's just in the US or North America, APLA and EMEA, doesn't even count in China. So there's no one else in the industry that has anything close to that. And what that means is we are in, we're in the privileged position of being in consumers' pockets.
and on their home screens of their phones. That's cherished real estate. So our mobile apps give us a huge advantage because it creates shopping occasions when they're browsing on sneakers, it creates shopping occasions when they're working out, it connects us to consumers.
globally and will help us both grow the market and gain share.
A second example will be around health and wellness in women's, and we talked in my remarks about the Nike Well Collective. What this really is, is Amy Montano, who's leading our women's team and just doing a fabulous job. Amy and her team have sharp consumer insight.
around through the eyes of the women consumer, the female consumer, this intersection of sport
wellness, community, and it's all infused with style. The distinction of style and performance for women is a much more nuanced and integrated thing. And so Nike Well Collective is both a branding and a way that are voiced to her.
and our storytelling to her will come to life, but also our retail doors. And we have been opening Nike Live doors, as you know, we'll rebrand those Nike Well Collective. I will tell you the Nike Live doors, which are largely focused at women consumers, are performing very strongly around women's performance product, around women's fitness, leggings and bras, around...
lifestyle as well. And so in that way, we're expanding our access to women consumers. And so we'll continue in our marketplace strategy, it really reiterates what I said a minute ago of being aggressive to be where the consumer is, so that we're there when they want us, where they want us and how they want us. And with that, I'll just jump in on the question around revenue guidance.
Let me start by just saying you know we're incredibly pleased by the growth that we delivered in fiscal year 23 with 16% growth on a currency neutral basis And if you look at our results in North America and AMEAF on a currency neutral basis our growth was even higher
When you then compare our reported revenue growth to retail sales growth to the consumer across the marketplace, we drove strong double-digit growth in retail sales to the consumer throughout the year, including that trend continuing into the fourth quarter. And Nike Direct in the fourth quarter grew 18% versus the prior year.
So in this fourth quarter remember that we moderated the sell-in to wholesale, but continued in terms of trying to prioritize a healthy marketplace, and we still drove strong growth in retail sales across the marketplace. As we look ahead to fiscal 24 and the mid-single digit guide, you know it starts with the approach that we've been taking.
around assessing Marketplace health and our consumer trends and then the pressure that we see the potential pressure that we see on the consumer.
And so we made a decision to tighten our first half buys and continue the trend that we had done in the second half. But we are expecting retail sales to continue a trend, so retail sales to the consumer to continue a trend of growth versus the prior year. And actually when we look at the first half and the second half of next year.
We're actually planning for a fairly consistent level of retail sales growth to the consumer. The distinction with the first half is that we're continuing to manage marketplace inventory and continue to manage marketplace health. Nike Direct is going to continue to lead our growth.
And, you know, when we look at next year and the second half in particular, you know, we're excited about the new products that we've brought to market.
this year and scaling them next year. We're excited about new product introductions and then ultimately capturing the energy around the Paris Olympics, which is a wonderful moment for Nike.
But mid single digit revenue growth on the full year, and that includes 4 points of non-comp headwinds from wholesale shipment timing in fiscal year 23, plus some of the accelerated liquidation activities that we have. So, all told in this environment, we feel like mid single digits a great number.
And Jim Duffy from CFOA is up next. Thank you for taking my question. Some great progress on the inventories and you spoke to an improved inventory posture in the marketplace. Just thinking about competitive dynamics, can you elaborate on your expectations for the promotional backdrop in fiscal 24?
And then related to that, you were very promotional clearing inventory across fiscal 23. How does that factor into your outlook for the mid single digit growth and specifically the growth for the DTC business? Thank you. Sure. Well, Jim, I would say in general, the marketplace remains highly promotional. And when we step back and look at the actions that we took.
We feel incredibly good about about where we are and the plans that we have going into the first half of next year.
The large majority of our strategic partners have also done a beautiful job moving through the inventory and balancing the trade-offs of investing in consumer connections, elevating the retail environment, and moving through inventory. And so we feel great about where we are, but we recognize that next year, we're going to be able to move forward.
the environment is going to continue to be promotional. And that even puts pressure on our wholesale partners in terms of how they think about managing through the first half of the year. And so we believe that the right focus and attention for Nike is to focus on recovering a higher level of full-price growth in fiscal year 24, profitable growth, full-price growth. The MIPS single-digit guide does reflect the impact of the pandemic on our economy. And so we believe that the right focus and attention for the next half of the year is to focus on recovering a higher level of full-price growth in fiscal year 24, profitable growth, full-price growth,
four points as I mentioned of non-comp impacts, which are partially wholesale shipment timing, because you recall last year there was a lot of late supply from 22 that came into 23, but also a little bit of extra liquidation as we were more aggressive moving inventory both through our own channels and our partner channels.
But when I look at our growth plan for next year, adjusting for the comp headwind, and look at the profitability recovery that we see on the gross margin and EBIT line, I feel like it's a great plan and sets us up well for long term growth and profitability.
Your next question is Kate McShane, Goldman Sachs. Good afternoon. This is Brooke Roach filling in for Kate. Thank you so much for taking our question.
You commented in the prepared remarks about seeing around the corner on transitory costs headwinds that have pressured your profitability and that FY24 will start to see some release there. Can you speak to the proportion of transitory costs that you anticipate to recapture in FY24 and what's still on the horizon for FY25 and beyond? Thank you. Sure.
So when we look at where we ended the year and the progress that we've made on inventory, we feel
really good about our ability to drive healthy growth in 24 and so and you see that in our gross margin guide.
We're guiding to expand margins by 140 to 160 basis points, and that includes a 50 basis point negative FX headwind. If we back out the FX, it's approximately 200 basis points of operational gross margin expansion.
The large majority of the 200 basis points is the beginning recapture of transitory headwinds. We will continue to see structural benefits in fiscal year 24, but those are being partially offset by higher product costs.
and inflation in parts of our supply chain. When I look at the large majority of our transitory headwinds, we've been talking about two for the past several years. One is freight logistics and the second one is liquidation.
We've now negotiated our ocean freight rates with partners for fiscal year 24, and we've negotiated rates that are near pre-pandemic levels.
Those benefits don't kick in until halfway through the second quarter, and so we'll start to see that tailwind come in in Q2 and then accelerate in Q3 and Q4 and then carry into fiscal year 25. As it relates to the liquidation impact, we are planning for an improvement in full price mix and markdowns.
And we've baked that into our plans for fiscal year 24. But we recognize, as I answered the question for Jen a little bit earlier, that we continue to operate in a promotional marketplace.
And so we're going to continue to read and react and as a result of that we've planned for a modest recovery of those of those costs and you'll also recall that in fiscal year 23 we were comparing to extraordinary levels of
full price realization, well above the 65% threshold that we had provided as our target. And so at this point in time, we're not planning that we're going to recover back to that level of full price realization, but that instead we will be operating at or around the 65% level.
But we've also now seen a new way of living and so it gives us some some optimism that that there can be more opportunity than even the the metric that we've provided. But those two things taking into consideration as we look to our margins beyond 24 there's going to be some structural tailwind that comes from freight and that's going to be a lot of
or sorry, some benefit that's going to come from freight. And then our focus is going to be on the structural drivers that give us confidence in achieving the long-term margins that we've been talking about.
Christina Fernandez, Telsey Advisory Group has the next question. Yeah, good afternoon and thank you for taking my question. I wanted to see if you could talk about the recovery you're seeing in China, how did that progress through the quarter, and just overall, when you look at the marketplace, how did
How is it different today versus pre-pandemic in your ability to use your athletes and influencers to drive sales? Yeah, Christina, probably the highlight of the last 90 days for me was getting back to China for the first time.
post pandemic. And I will tell you it just it was such a palpable reminder of A, what a strong team we have there and I just want to again call out our China team who has just done a spectacular job over challenge after challenge after challenge over the last three or four years, but what's also clear is the consumers back in China.
Nike and Jordan brand are strong. So you heard our Q4 growth was 25%, we had a strong 618 and that's across different categories, performance and lifestyle, men's, women's, kids. Really strong performance in running and basketball wholesale fitness.
But what was really clear is that the Nike formula of the best innovation
combined with great local storytelling, combined with the marketplace, is connecting with Chinese consumers, particularly Gen Z. And so the Gen Z consumer in China cares about innovation and they're doing a great job of taking our global innovations and hyper-localizing them.
As well, a great job of local storytelling. When I was there, we saw, Craig Williams and I were there together, we saw the live streaming studio where we do a lot of live streaming in a way that really connects with Gen Z. Social shopping is taking off in China in a bigger way than other places and we're at the front edge of that. And then as you know, we have 6,000.
and you walk in, it is some of the best merchandising of a great innovation like Motiva connected to her, pulling her off the street and into the doors. And so we'll continue to invest in China. Our China for China strategy, I think is going very, very well. And looking ahead, we're optimistic about Nike's brand, Jordan's brand, the momentum we have. As well, we think it's a...
Structural talents in the region make us optimistic over the long term. Gen Z is the most active generation. There's a growing middle class, increased focus on health and wellness. So a very energizing visit and makes us very confident about our brands and our business in China. I think that the other thing I would just add is the activity and the effort that we've taken over the last three quarters to
improve our inventory position in the marketplace. We had another great quarter we reported and where you really see that come to life in a model brand marketplace where you can see the full breadth in our stores is that you get the full breadth of a seasonal assortment which is when Nike is operating at its best. Leading with innovation.
China actually is our largest penetration of innovation of any geography that we operate in and that connects well with what John referenced in terms of what the consumer is looking for. But this quarter in particular, as we've improved our inventory position, we saw the highest level of full price selling that we've seen in eight quarters. And that just shows the strength of Nike when we have a healthy marketplace and we can bring the breadth of the assortment and the depth of the market.
of our stories to bear for the consumer and to drive consumer demand. And our final question today will come from John Kernan, TD Cowen. Excellent. Thanks for taking my question. Matt, just wanted to go back to the margin puts and takes and maybe talk a little bit about the long-term margin targets that were issued way back in fiscal 22. I know a lot changed since then, but
Are we still thinking in terms of a high teams operating margin long term? And how do we think about the margin profile of DTC and the mix shift to DTC? Sure, John . Well, let me start – I'll start with the back and I'll come to the front in terms of the way you asked the question. We're making substantial progress towards the long term goals that we had highlighted in the last couple of weeks.
stores and in our digital channels or at least to engage in our digital channels before they go try to find the product that they want in the wholesale marketplace. And so we're very pleased with where we are today. We finished fiscal year 23 at a 44% mix in Total Direct and a 26% mix in digital.
And, you know, the consumer will decide the ultimate endpoint. And what I mean by that is whether we land exactly at 60% or not doesn't really matter. But what we are confident long term is that we're going to be a more direct and a more profitable company. You're going to be, okay, you should be.
And so when I look at our guidance for fiscal year 24 and the gross margin expansion that we're planning for on an operational basis,
we're making significant progress to come back to where we were prior to the transitory impacts, and then we still see the benefits of structural opportunities to drive our margin long term. We've talked about those before, those include the price value that we create in our products and the opportunity that creates for us to raise prices.
to the impact of having an increasing channel mix, to some of the product cost opportunities we see through simplification of our SKU line and end-to-end efficiency. But the timeline to predict when we're gonna get there as we've been talking about for a couple quarters is difficult to predict and a point on that in case is we've got 150 basis points of foreign exchange headwinds between last year and this year.
But we are confident that we're on the path towards achieving these long-term goals. Even though it's a little bit more difficult to predict the exact time that we're going to get there. But we think that we're on a path to the high 40s long-term gross margin goal. And at this point we're continuing to do within our control in order to move us in that direction.
And you know, John , I'll just build on one of the things that Matt says. The key to the whole thing is having the best innovation in the industry. That's what brings people to our direct channels. That brings people to our digital channels. And the momentum, Heidi has had her team together outside earlier this week and seeing the design, product creation, men's, women's, kids, storytelling, that are arching our TV platform is an amazing thing.
and brand teams really accelerating the pace of innovation, accelerating our ability to connect with the consumer is ultimately what's gonna fuel not only our top line, but also our bottom line. And so the feeling of momentum and confidence is really growing.
as we move into this more streamlined structure.
And everyone, that does conclude our question and answer session. It also concludes our conference for today. We would like to thank you all for your participation. You may now disconnect. Thank you all for being with us today.
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