Q1 2024 Nike Inc Earnings Call
Good afternoon, everyone welcome to Nike, Inc. 's fiscal 2024 first quarter conference call for those who want to reference today's press release, you'll find it at investors Nike Dot Com, leading today's call is Paul Trussell V. P of Investor Relations and strategic Finance now I would like to turn the call over.
Mr. Paul Trussell. Please go ahead.
Thank you operator, Hello, everyone and thank you for joining us today to discuss Nike, Inc. 's fiscal 2024 first quarter results joining.
Joining us on today's call will be Nike, Inc, President and CEO , John Donahoe, and our CFO , Matt friend.
Before we begin let me remind you that participants on this call. We will make forward looking statements based on current expectations and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in nike's reports filed with the SEC.
In addition, participants may discuss non-GAAP financial measures and nonpublic financial and statistical information. Please refer to Nike's earnings press release or in Nike's website investors Nike Dot com for comparable GAAP measures and quantitative reconciliations.
All growth comparisons on the call today are presented on a year over year basis, and our 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 depart participate as possible in our allotted time. So we would appreciate you limiting your initial question to one.
Thanks for your cooperation I'll now turn the call over to Nike, Inc, President and CEO John Donahoe.
Thank you, Paul and Hello to everyone on today's call.
Nike is foundational competitive advantages are the envy of the industry.
As the global Athletic market leader are.
Our scale and portfolio allow us to create an impact that only Nike can.
Consumers all over the World recognized Nike is the number one champion for athletes and sport as we feel inspiration and pushed the limits of human potential with the industry's most innovative products.
Over the past few years, we've navigated through an unprecedented external environment.
We have worked through many challenges societal geopolitical global health supply chain and more.
And during this time Nike has grown larger and stronger.
In fiscal 19, Nike's revenues were 39 billion.
We're over $50 billion.
And what's more our growth has outpaced the overall industry during this period.
Let me offer a few examples of how we've redefined the game over the past few years.
The consumer told us they wanted lifestyle product and we delivered growing Air Force one Hai wanted them to be the three largest footwear franchises in industry history.
We continue to set the bar and key global sports like basketball and global football.
Jordan is now one of the leading brands in North America with potential for so much more.
We've accelerated digital capabilities that fuel engagement with our brand and deepen direct consumer connections around the world.
The list could go on and on.
But we have a saying here at Nike There is no finish line, we never settle we always measure ourselves against our full potential.
Nike has always been synonymous with sport.
We're at our best when we deliver breakthrough ideas by lining up innovative product with distinctive storytelling delivered through differentiated marketplace experiences and when we do it well, we expand and grow the market.
Today as I've just mentioned, we're succeeding in many areas of our business.
But we expect more of ourselves and others.
For example over the past few years, we launched new product innovations and running.
But we need to drive more meaningful consumer connections among everyday runners and scale. These innovations more effectively across the marketplace.
Our storytelling has driven energy in many areas, but we have opportunity to cut through with more sharpness and clarity around the performance benefits and distinction of our products.
And we built a best in class marketplace with unrivaled scale and reach.
So we have opportunity to deliver more compelling assortments, particularly when it comes to serving our women consumers.
So across our company, we are focused and mobilized to address areas, where we need to raise our game, while continuing to drive competitive separation across the board.
We're aligned we're confident and we've kicked into a new gear.
One recent example.
A couple of weeks ago, we had over 300 leaders from across the globe gathered here in Beaverton to immerse ourselves in our fall 'twenty four lineup.
Now our teams have been back together in person over the past 15 months.
And our innovation pipeline is strong and it was on full display.
The excitement and alignment of our leadership team was clear as we continue to obsess, the product and storytelling will be bringing to life for consumers at the Paris Olympics and into the fall.
Simply put our teams around the offence as we compete to win in all segments.
And so today I'd like to offer three examples where Nike showed our best this quarter, where we brought together product storytelling and marketplace to connect with consumers and drive results.
Let's start with this summer's World Cup.
At Nike as I've said before it always starts with great product.
And then football Thats led by Samsung lunar and material, our most innovative football boots.
As well as our array of national team kits designed for elite female players and.
And last but not least our style driven collections that stood out so well this summer.
We brought our culture of innovation to life through our storytelling as we dominated the conversation with our leading share of social voice and.
In particular, we were incredibly effective in reaching Gen Z women through our lens of sports style and culture.
Tictoc, our priority channel for Gen Z are engaged audience, meaning those who actively interacted with our content was up 172% a huge statement of nikes ability to connect with authenticity to this important demographic.
And we also extended the tournament energy through our stores.
I was in Australia, This summer and got to experience our Dream Arena.
The immersive retail destination, we created for the World Cup by transforming our Sydney flagship store.
Just the latest example of how we can amplify global sport moments at retail.
The experiences inside Dream Arena included the best of Nike.
Jersey customization local co creator workshops, Nike trainer led workouts.
Exclusive product launches and more their response to dream arena surpassed our expectations with some great learnings we plan to use at scale moving forward.
And all of this led to results in both footwear and apparel, we beat our sell through plans with strong double digit growth across mens womens and kids and global football and EMEA, all our key boot franchises material Phantom CFO and Phantom Luna saw double digit growth in Q1.
<unk>, leading global football to grow double digits in this year.
And in ACL, a football also grew double digits with strong growth in Kid sized kits as we continue to inspire the next generation of fans to fall in love with the sport.
And whether it was from this summer's World Cup and the euros last summer or the WNBA and our investment in coaching we are committed to growing the game for women's sport.
Next let's touch on basketball another area, where you can see our end to end offense driving accelerated competitive advantage.
In basketball, we have an unprecedented portfolio of product.
Earlier this month, we announced our latest signature shoe Devin Bookers Nike book one.
It's a shoe built for comfort and performance with clean on and off court style. The.
The Nike book, one will hit retail in December with consumer energy already building.
And the Sabrina one continued its very strong sell through this quarter with both womens and mens interest high.
And just a few hours ago, we launched the <unk> 'twenty one.
The 21 built on the success of the 20 by keeping its low profile.
Design, and adding premium lightweight materials designed to connect with younger generations.
And Q1 also saw the official introduction of the Kobe brand.
We commemorated Kobe day on August 24th with re releases to very strong demand. In fact demand is so strong that we only fulfilled a fraction of it.
And along with Vanessa Brian We also selected six schools to be honored as mambo programs for the upcoming college basketball season.
With both their men's and women's teams, having the opportunity to wear Kobe brand player exclusive footwear.
We see huge potential with the Kobe brand, both on and off the court as we continue to honor his legacy.
And this quarter, we also brought the energy a basketball directly to the consumer.
We hosted tournaments in cities like La and Chicago, culminating with the Nike World Basketball Festival in New York.
These events created an electric atmosphere.
Especially during the NBA off season.
Only Nike can.
And in a quarter, where Jordan footwear grew double digits, the Jordan brand demonstrated as power by bringing Zion Luca and Jason Tatum to Paris for K 54.
Which is one of the world's biggest street wear and street ball tournaments that doubles as a showcase of the culture and growing community of basketball.
No moments like these don't just grow competitive separation for Nike and Jordan.
They also are how we grow the game.
And we grow the broader market.
Finally, I'll walk through the geography, where our overall vision comes to life best Greater China.
In Q1, greater China grew double digits for the second straight quarter, and we're taking share in the market.
It's in greater China that we offer the consumer an nike's most premium and elevated retail.
The team gets the most out of our innovative product through world class and locally relevant storytelling and strong marketplace execution.
A great example is our women's business, which outpaced overall growth in the quarter.
The work the team has done to serve our women's consumer and greater China as proof of what Nike can do when all the pieces are aligned.
A highlight in Q1 in greater China was our three day Sports Festival sports Shelagh, where we welcomed thousands of women to connect with our three brands through movement and mindfulness.
The team amplified the impact of the festival by partnering with Tmall to create the first Nike Super brand week, which drove more than 2 billion impressions.
And this partnership seamlessly integrated the events with a digital shopping journey that generated very strong consumer response and engagement.
Our greater China team also brings our brands to life through our best retail experiences fueled by strong and meaningful storytelling.
These breakthrough retail experiences highlight our innovations and marketing and a clear package for the consumer.
For example in Q1, our seasonal presentations and curated head to toe style guides had very favorable consumer response.
And once again this combination of innovation storytelling and marketplace execution led to results.
We took share in women's in greater China, this quarter with strong growth across a wide range of products.
From footwear with the Motiva and free met ton to her apparel with our statement bras and leggings.
All in all across our entire portfolio of the greater China team has orchestrated a fully connected marketplace.
They continue to transform digital commerce launching China specific versions of our apps, which are faster for consumers and more personalised, including a no our new Jordan destination to the Nike App in Q1.
And they are expanding connected partnership which after just a few quarters is now live in 350 doors across 102 cities and is driving substantially higher member demand versus last quarter.
Simply put greater China sets the execution standard for us.
And our goal is to scale their success across all of our geographies every sport and every dimension of our business.
And that's how we win over the long term.
And then as I've said, we're focused and moving with great confidence against the opportunities we see.
Our teams.
<unk> energized United by a shared passion and urgency for competing at the highest level.
We set high expectations for ourselves at Nike.
That's what winters do.
And now more than ever we're ready to bring our very best and demonstrate with Nike is capable of.
And with that I'll turn the call over to Matt.
Thanks, John and Hello to everyone on the call.
Nike's first quarter results demonstrated the impact of staying on the offense when we drove a quicker return to a healthy marketplace in fiscal 'twenty three.
And leading with operational discipline as we begin the new fiscal year.
We delivered Q1 results in line with our guidance.
Retail sales across Nike direct and wholesale continue to grow on top of extraordinary sales this past year.
Both Nike inventory and our total marketplace inventory are healthy.
Working capital efficiency is improving with a normalized supply chain.
Gross margins are expanding on an operational basis, excluding the effects of foreign exchange.
And transitory headwinds are abating.
In short we are building on a strong foundation for sustainable and more profitable long term growth.
Before reviewing our financial results, let me first speak to what we're seeing from our consumer in the marketplace and where we are driving focus and attention to unlock even greater potential ahead.
In Q1 retail sales across Nike direct and wholesale grew mid single digits versus the prior year.
Our top franchises are driving strong full price sales.
And our newest product offerings across Nike, Jordan and converse are generating positive consumer reception.
Looking at inventory, we continue to feel very good about our position.
Nike inventory dollars were down 10% versus the prior year.
Our total inventory units across the marketplace, including Nike and our wholesale partners.
Our down double digits versus the prior year.
Partner owned inventory units are in line with the previous year with levels planned to remain lean through our second quarter.
Meaningful accomplishment after higher levels of wholesale sell in during fiscal 'twenty three.
On the whole, we're very comfortable with the level of inventory in the marketplace in relation to the retail sales that we're seeing as.
As we begin increasing levels of wholesale sell in and our second half.
And overall, we're confident in the health and shape of our marketplace.
Nike direct continues to lead our growth up 6% versus the prior year.
As we deliver on our strategy to elevate the marketplace through premiums physical and digital retail experiences.
We continue to see that consumers want to connect directly and personally with our brands.
And in fact member engagement within our direct business is up double digits versus the prior year with increasing average order values.
Our stores delivered an especially strong quarter with traffic up double digits from last year and members driving an increasing share of our business as.
As consumers shifted from our digital to physical channels.
This is similar to what we are seeing across the industry and after seeing this trend build in early July or in early June our team was nimble and transitioning inventory to capture higher full price sales across our entire store fleet.
Nike digital grew 2% with non linear comparisons to the prior year include.
Including liquidation actions and a higher number of product launches on the sneakers app in fiscal 'twenty three.
Looking through all of that what stands out are the underlying consumer trends, we see in our digital business.
This includes sustained momentum on the Nike mobile app with growth in traffic and increasing member buying frequency.
We continue to see a growing structural advantage as more consumers start their shopping journeys with us on mobile.
Meanwhile, within wholesale we see largely positive results from our most important strategic partners.
Specifically, we were pleased to see high single digit to low double digit retail sales growth and strong inventory management with many of our key partners, including Dick's Sporting goods and city specialty partners in North America.
J D as the Lando in sports direct in EMEA.
And top sports in power Shang in greater China.
We continue the reset of our business with foot locker.
<unk> for near term sales declines as they invest in consumer right concepts for the future.
Ultimately, we have a segmented portfolio of strong partners across price points and channels with.
With no single partner, representing more than a mid single digit of Nike's total business.
And looking across the entire marketplace.
We are confident in our brand momentum as we accelerate direct to consumer connections elevate our brands and create capacity for long term growth.
Looking ahead, our priorities start with our product pipeline.
And over the coming seasons, we will build on the market share gains that we have accelerated in recent years.
By scaling newness and innovation across our portfolio.
While carefully managing the health of our most iconic product franchises.
This year for example, we will build on the consumer momentum around running and modern comfort.
With performance and lifestyle franchises, such as Infinity, Motiva Invincible Romero five <unk> K and the air Max one.
We will refresh our basketball portfolio across Nike and Jordan through innovation and style and grow the Kobe brand.
We will ignite the next chapters of Pegasus, the Jordan game shoe and Tech fleece.
While continuing to grow powerhouses like dunk and Matt Con.
And as we look towards the second half of this fiscal year and beyond from the 10th anniversary of Air Max Day to the Paris Olympic games.
We will introduce our next wave of Nike Air innovation.
This will bring our most comprehensive evolution of the air platform in the years.
One that we expect to capitalize both our brand and business.
We will deliver pinnacle performance innovation to athletes.
While also scaling into new lifestyle franchises over the next several years.
Ultimately, we are focused on scaling a deep diverse and distinct product portfolio, not just for one quarter or one season, but for years to come.
Last we are turning the corner and driving more profitable growth, while also recovering on transitory cost headwinds.
This includes structural improvements in profitability in areas such as supply chain.
With reduced digital split shipments and improved digital fulfillment costs enabled by investments in our regional service centers and our new transportation management system.
In addition, Nike brand Asps are up across footwear and apparel across all geographies as we focus on the price value of our products.
And in greater China consecutive quarters of double digit growth healthy inventory and sequential improvement in full price sales will enable us to begin rebuilding towards higher profitability in the geography.
Finally, we are focused on improving our marginal cost of growth with more modest increases in operating overhead. This fiscal year. Following two consecutive years of double digit growth.
We are doing this by unlocking speed and productivity as we transform our operating model to build a faster and more efficient Nike.
Now, let me turn to our Nike, Inc. First quarter results.
In Q1, Nike, Inc. Revenue grew 2% on a reported and currency neutral basis.
Nike direct grew 6% with Nike stores, growing 12% and Nike digital up 2%.
Wholesale grew 1%, reflecting our proactive decisions to restrained inventory supply and prioritize marketplace health, particularly in North America.
Gross margins declined 10 basis points to 44, 2% on a reported basis, primarily driven by higher product costs and approximately 90 basis points of unfavorable changes in net foreign currency exchange rates almost completely offset by strategic pricing actions.
SG&A grew 5% on a reported basis, primarily due to increased demand creation expenses around World Cup and.
And more modest moderate increases in operating overhead benefiting from shifts in timing of technology investments to the remainder of the year.
Our effective tax rate for the quarter was 12% compared to 19, 7% for the same period last year, primarily due to a onetime benefit provided by the recent delay of the effective date of U S foreign tax credit regulations.
Diluted earnings per share was <unk> 94.
Now, let me turn to our operating segments.
In North America, Q1 revenue declined 1% with wholesale down 8% in line with our expectations following our restrained sell in of marketplace supply.
Nike direct was up 7% as Nike stores grew 11% and Nike digital grew 4%.
EBIT grew 4% on a reported basis, primarily due to strong gross margin expansion.
In a competitive environment, our retail sales momentum grew throughout the quarter across Nike direct and wholesale.
Nike is back to school performance outpaced the broader industry with strong sales from our top franchises and clear consumer excitement around newness.
Infinity for drove strong full price sales as we partnered with key running specialty accounts to host community Activations.
Our newest generation of Tech fleece amplified by strong investment from key marketplace partners drove retail sales up double digits from last year across Nike direct and wholesale.
Zen V go and University fueled double digit growth in statement leggings with dunk and free Metcom driving strong sell through.
And the Jordan brand continued its momentum with double digit growth led by Jordan Women's and kids as well as performance basketball.
In EMEA Q1 revenue grew 6% with Nike direct also up 6%.
Nike stores grew 17% and Nike digital declined 2%.
EBIT declined 5% on a reported basis.
Global football and fitness grew double digits and women's outpaced our total growth in the geography this quarter.
<unk> innovation and styles are resonating with Phantom lunar driving strong sell through met con up double digits and Motiva are new walking shoe off to a great start and creating a new performance category for Nike.
Pegasus Invincible and <unk> also delivered strong results in the quarter.
In addition statements leggings and shorts grew double digits with integrated brand and retail experiences.
And as we deepen our focus on serving all segments of the running community trail running footwear grew double digits with new product innovation and brand Activations.
In greater China, Q1 revenue grew 12% Nike direct grew 10% with Nike stores up 12% and Nike digital up 6%.
EBIT declined 3% on a reported basis.
Throughout the quarter, we saw incredible energy around the return of sport.
With thousands of young runners joining in our back to school kids race players across cities, taking part in our Jordan flight basketball tournament.
And historical highs and social engagement with our neighborhood accounts as.
As consumers joined in hyper local community experiences to celebrate our newest Kobe release.
Retail sales across Nike direct and wholesale grew double digits.
With another quarter of strong sell through.
In a highly promotional marketplace, we outperformed industry trends with improvement in full price sales.
Our performance dimensions led growth with consumer excitement about around GT jump Sabrina won an invincible and.
And in lifestyle, the marrow and other retro running styles with gaining momentum as we prepare to scale over the coming seasons.
In <unk> Q1 revenue grew 3% Nike direct was up 3% with Nike stores up 10% and Nike digital declining 3% EBIT.
EBIT declined 17% on a reported basis.
Japan, Southeast Asia, India, and Mexico led our growth this quarter as we accelerate our momentum in international markets.
In particular store traffic in Japan is returning to pre COVID-19 levels.
Sales through our new Metro partnership in India are already exceeding plan.
And Mexico's digital business delivered double digit growth.
Kids led our growth in the geography up double digits with strong growth from material CT borough and fleece.
We also saw market share gains in women's lifestyle.
With positive consumer response to air Max Cocoa, <unk> and Gamba force.
In addition, Jordan continues its global growth with Luca and Tatum fueling strong momentum in performance basketball and our new Street wear footwear franchises resonating with consumers.
Now, let me turn to our financial outlook.
As we look forward, we are confident in nike's, new product innovation pipeline brand strength deep consumer connections and the health and shape of our marketplace.
Our Q1 results reaffirm our expectation for healthy profitable growth this fiscal year.
For the full year, we continue to expect reported revenue to grow mid single digits.
At the same time, we are closely monitoring the operating environment, including foreign currency exchange rates consumer demand over the holiday season, and our second half wholesale order book.
As a reminder, this growth outlook includes approximately four points of headwinds from accelerated liquidation and higher wholesale sell in during the prior year.
As we sold roughly five seasons of supply within four financial quarters.
Therefore quarterly comparisons across marketplace channels and in the aggregate will be non linear.
We continue to expect gross margins to expand 140 to 160 basis points on a reported basis.
Which includes 50 basis points of negative impact from foreign exchange headwinds.
We are cautiously planning for modest markdown improvements for the balance of the year given the promotional environment.
We continue to expect SG&A to slightly outpace revenue growth more specifically at the high end of mid single digits.
We continue to expect other income and expense, including net interest income to be $225 million to $275 million for the year.
And we continue to expect our effective tax rate to be in the high teens range.
Now let me provide some additional color on our second quarter.
We expect second quarter reported revenue growth to be up slightly versus the prior year as we faced our most challenging comparisons from fiscal 'twenty three.
We expect second quarter gross margins to expand approximately 100 basis points versus the prior year.
Reflecting benefits from strategic pricing improved markdowns and lower ocean freight rates, partially offset by higher product input costs.
We continue to expect a negative impact from 50 basis points of foreign exchange headwinds.
We expect second quarter SG&A to grow mid to high single digits.
We expect our second quarter effective tax rate to be in the high teens range.
For Nike being on the offense means competing to win now and over the long term.
We are confident in our strategy, our leadership position and our ability to create even greater opportunity ahead.
With that let's open up the call for questions.
Thank you and just a reminder, it is star one to ask a question we will take our first question from Bob <unk> Guggenheim Partners.
Hi, good afternoon, thanks for taking the question.
I guess the.
First question really is when you talk about the innovation pipeline for fall of 'twenty four.
Can you just expand a little bit more in terms of the focus or the categories are really sort of what you see driving the business that.
You laid out at the most recent meeting and I have a follow up.
Great Bob.
Well as I said in my remarks, the <unk>.
I cannot underestimate the understate really that the impact of having our teams back together in person over the past 15 months.
And we absolutely see that.
Kicking into gear with our product pipeline and so this past quarter you heard a couple of great. Examples of performance innovation around Phantom Lunar World Cup kits, the infinity for which had a one of our latest phone platforms react X foam highest energy return and lowest carbon footprint.
That will that will sustain for many quarters and years and.
And over the next six to nine months into the Paris Olympics and to fall. There are several areas. We're very excited about.
Matt and I, both talked about basketball I don't think we've ever had a stronger portfolio of basketball shoes, whether it's Sabrina won the Libra 21 book, One Jordan has Tatum Luca Zion and a great game shoe coming and then of course, we have Kobe. So so we see real growth.
Boeing our basketball business and growing the game and market a basketball on and off the court.
In running we feel good about the invincible three and 34 <unk> five <unk> 41, we feel very good about coming into Paris, as well as the Motiva, which we think have real legs, and then air errors in Aero and putting a huge amount of focus and we're very excited about the innovations coming and are both performance and lifestyle.
And so we have the 10th anniversary of Air Max Day in the spring as we move into the Paris Olympics Air will be an important opportunity both in performance and lifestyle. So we see several opportunities to build real scalable innovation and growth.
Got it thanks, and I just have a question in North America, I guess in the current quarter.
What's the bigger tailwind to the business right now is at the Travis Kelcey jerseys or the Colorado football merchandise.
Ah.
Oregon, Oregon duct tears.
We love the NFL and we continue to see a lot of momentum with coach Prime So.
Thank you thank.
Thank you.
Okay.
Next is Adrienne <unk> Barclays.
Great. Thank you very much.
I guess my question is kind of beyond kind of the shaping of wholesale Matt If you can help us out with.
The I guess.
We expect direct to be similar to the current quarter and then the balance of that.
And kind of up slightly for the current quarter guidance for the balance of that come out.
Erika wholesale.
Yeah.
And then my other question is on the kind of market John you talked about.
Right and regaining market share, but at the same time, you talk a little bit about continuing to be promotional and great to see that youre regaining full.
Paul how much demand creation are you doing there what is the promotional environment look like exiting the quarter and any comment on the trend.
Should we think about kind of the trend over the next couple of quarters relative to your long term algorithm. Thank you very much.
Sure.
Alright, well, John why don't I start on marketplace arm so Adrian.
When we look at our performance this quarter I'd be remiss to not just reiterate what I said on the call which is.
We saw very strong retail sales in the marketplace up mid single digits and in particular, we're very pleased with the performance across a range of our most important wholesale partners delivering growth high single digit to low double digit.
What I said last quarter in terms of the way that I was thinking about channel growth for this year I said that Nike direct will lead our growth and it did this quarter and we do expect Nike direct to continue to lead our growth throughout the remainder of this fiscal year.
The <unk>.
Period that we're heading into in Q2 and Q3.
Is really the higher levels of sell in that we did last year as we proactively focused on returning our marketplace to a more healthy level.
As an example, you might recall our Q2 wholesale revenue last year was up 30% versus the prior year and so as.
As we face those comparisons we do expect that Nike direct will be the best indication of the growth that we're driving in the marketplace, while we comp those non linear.
Comparisons in the prior year, but we feel very good about the health and the shape of our overall marketplace, including in North America, and and we're continuing to focus on driving growth across dimensions across channels up and down price points and are very focused on building our product pipeline to enable us to do that over the coming years.
And Adrian in China, It's interesting I have been to China twice now in the past four months and I think Matt you were there in August .
We feel good about the market there and our position frankly, a couple of things stand out one sport is back in China, you can just feel it and.
And that gives us great confidence about the future and the Chinese consumer in our segment, regardless of the macroeconomic outlook. There and you saw we had double digit strong double digit growth in Q1 and Q2.
And we are helping to really drive momentum in sport there.
Talked about <unk> I think Matt mentioned the back to school Kids race you honest. It is a tour there. This summer that got huge response outdoor basketball. So we're doing what we do best which is driving energy and excitement around sport, which then translates into our brand.
Connection and our consumer connection being as strong as it's been in a long time and as I said, it's perhaps the Best example, currently where we bring this great innovation with distinctive storytelling with distinctive marketplace reaction and so even in a promotional period, our full price sell through and our innovations.
Our connecting well and doing well and so so we got our inventory and shape much sooner than the market in China and so we're playing on the offense, we're playing on our front foot and we feel good about the.
The opportunities in China in the coming quarters and into the medium to long term, yes, and I would just say that I think that the retail sales growth that we referenced in our two biggest wholesale partners is a great indication of the health of our inventory and our ability, especially in this first quarter to flow a complete assortment in season.
Into our retail stores in the marketplace and that's.
Thats Nike asbestos, our most premium elevated retail experiences.
High levels of seasonal Assortments, where we can tell stories and really bring the breadth and the dimension too.
Consumers and we saw that momentum building throughout the quarter. So we feel really good about the decision we made to move fast.
And even though the marketplaces promotional.
We're on our front feet in terms of the way, we're able to present, our brand and our stories and our products to consumers in that market right now.
Next we'll take a question from Alex Chan Morgan Stanley .
Perfect. Thanks, so much I just wanted to focus on kind of the running innovation that you guys highlighted that a number of times on the call across the areas. I think you had said you bought some running in the last few years, but perhaps it didn't connect as much as you wanted or are you wanted to scale more effectively.
So could you just touch on maybe what changed in Nike's approach in the last few years and then what you plan to do differently to kind of reignite that thanks a lot.
Yes, Alex.
As I said we were.
We're at our best when we align innovative product with distinctive storytelling through differentiated marketplace.
And in running.
Three different categories and running in racing, we take our performance innovation, which sets the bar in the industry with the Alpha fly that vapor fly an X percent.
We have compelling breakthrough storytelling, whether it's breaking two or we reached at elite runner and we reach some sort of a differentiator marketplace and so we're doing well there and trail running which is the fastest growing segment. The peg trails going doing very well, we feel really good about our innovation pipeline and we are increasing.
We are leaning in to the trail running community and to marketplace connection with that trail runner.
And then the area that we've talked about road running or what we call road running our or everyday running we're very clear we're prioritizing the everyday runner, who wants newness and consistency and we're focusing therefore on some key models and ensuring that we get in the path of runners so in terms of innovation as I.
In my remarks, we've had some very good innovation in the last couple of years. So the invincible took some of the performance benefits from our our road racing shoes, particularly zoom X and brought them into an everyday running shoe along with some great cushion so good innovation.
Really the infinity for brought the react X foam platform, which has got some real characteristics of low carbon footprint and better risk high energy, but we're not yet combining those innovations with getting in the path of the everyday runner with a really strong ground game and so that's what we're focused on and that starts with.
Distribution, making sure we're breaking through.
Everywhere everyday runner shop, so whether that's our own direct channels wholesale channels running specialty doors play a really important role you may have noted we launched the react for in partnership with running specialty doors. So that is a step in the right direction and we're really working to.
Breakthrough in these channels and then.
We are working hard to better connect with renters in their community, where they are whether it's driving connections through Nike run club and our.
Mobile apps being present in marathons and races, and just being were runners are and so in this case, we know what we need to do.
We're focused on it and we are moving with urgency to deliver there is also a meaningful opportunity is as running influences lifestyle and sneakers and as we've had tremendous success from our classics perspective over the last couple of years.
We have a rich heritage of products in our pipeline related to running for decades, and so one of the things that we're also doing is accelerating our opportunity in running lifestyle with some of our best franchises and capturing on that trend and also.
The consumer shift to modern comfort.
And we feel like that one two punch as John mentioned innovation performance and lifestyle is really going to position us well to take greater.
Greater take a greater attack at the running marketplace Holistically.
Yeah.
The next step is Matthew boss Jpmorgan.
Great. Thanks.
So John maybe could you speak to underlying demand trends as the first quarter progressed or any early fall trends that youre seeing in both North America, and China, and then multi year I'm curious what you see as the next leg of the consumer direct acceleration strategy or just any initiatives that you see to drive further market share gains as we.
We look forward.
Actually Matt why don't you take the first part of that <unk> seen in close in demand and Opex sure will Matt as I referenced we saw mid single digit retail sales growth this quarter.
This quarter, we have a unique dynamic because we saw a difference in what we're reporting or what were communicating from a retail sales perspective versus where Nike as reported revenue is and thats because of the restriction of of sell in that.
That we put into place the last couple of quarters of last year.
We do expect that to continue as we go into the second quarter and so we are planning for retail sales growth to be in line with what we delivered this quarter from a mid single digit perspective.
When we look at the big consumer moments this quarter.
100, <unk> seems like so long ago at this point in time, but six to 18 in greater China. We were the number one sports brand on Tmall and saw.
Impressive double digit growth over that time horizon and within back to school.
We outperformed the industry and when you look at our performance over the quarter, we saw momentum building throughout the quarter heading into back to school and so we were encouraged by what we were seeing from a consumer perspective.
I mentioned that we saw high single digit to low double digit growth in our most important partners.
And strong growth in Nike direct this quarter, given what we're anniversarying in the prior year. So we continue to see consumer demand for our brands and for our products to be very very strong.
Sport is growing and the consumers proving to be resilient.
There are some dynamics in terms of shifting that's happening from channels.
We saw it in our partners a couple of years ago. In this quarter, we are seeing consumers spending more time in brick and mortar locations, but 90% of their shopping journeys are starting with digital and.
And so we continue to believe that our.
Digital and physical strategy of serving consumers at the right strategy to serve demand as we look forward.
And Matt if we just extend out as you asked a little bit longer term.
We said that we still see the same fundamentals, which are some structural tailwind in our industry.
Alright, the definition of sport is expanding.
And so with the movement towards health and wellness and fitness and new big areas of movement like dance.
My favorite we've had a lot of interaction with break dancing in the last three months here on campus seeing some of the elite break cancers, who will compete in the Paris Olympics come in but dance throughout Asia and other places is a huge market. So we just see an expanding definition of sport where movement has become sport and center of that the movement toward athleisure.
Right.
It doesn't need to be a tradeoff between what you were on the pitch and at work between comfort and performance and style athleisure combines all of those and we're very well positioned to continue to drive that trend and then the digital connection of consumers means that sport, whether they're watching it all.
Commerce is always one click away and are leading.
Folio of digital assets gives us a huge advantage there. So those are some structural tailwind.
And then we just do we're in a great industry with those tailwind we've got to do what we do so well innovation plus great storytelling plus great marketplace. We believe what's wrong will drive real strong growth and we see great growth in womens Jordan. We think has extraordinary growth running we think we have great growth continuing to expand.
The market.
And basketball global football and as Matt mentioned this driving performance and then into lifestyle is something that makes our industry, our business and our our future quite.
Attractive.
Okay.
J Paul from UBS has the next question.
Great. Thank you so much.
You talked about.
Youre seeing underlying structural gains in profitability and margins.
Just talk about how you are feeling about the.
The long term opportunity for margin in the context of the long term guidance you gave a couple of years ago for nikes ability to get to a high teens EBIT margin over time. Thank you.
Sure Jay well, we remain confident in our ability to drive our long term financial goals and we still believe those long term goals of profitability are achievable, but the timing is difficult to predict.
But the reason why I emphasize what I emphasize this quarter or is that.
Feel I really feel strongly that fiscal year 'twenty four is a turning point for us and a proof point for Nike to drive more profitable growth.
The structural things that I referenced.
The structural drivers I should say that I referenced it starts with creating value for the consumer and our products and we continue to see benefits in our gross margin through strategic pricing and managing the price value of our products with asps across the Nike brand across all Geos.
This quarter.
One of the opportunities we continue to see and we saw some benefit of it this quarter is lowering our supply chain costs.
We've we've increased the size of our supply chain. The last few years to be able to address the growth that we've seen in our business. Both overall and in digital and now our teams are very focused on driving greater efficiency in the way that we serve consumer demand across channels and I mentioned, a couple of examples like reducing digital.
Blitz shipments.
So that a consumer doesn't get two boxes for the same order.
We're lowering our outbound fulfillment costs through the investment in regional service centers that are closer to where consumer demand is.
And so those are just a couple of examples that we continue to see and then of course, we do expect that while the ultimate landing spot of digital and direct isn't as clear. We do believe we're going to be a more direct at a more digital company and a more profitable company and Theres, a channel mix and channel.
Profitability opportunity that comes with that as well. So we continue to believe these goals are achievable and based on our gross margin plans for this year our performance in the first quarter. We believe we are turning the corner on starting to climb to greater profitability as a company and as a brand.
The next question comes from the Danya Alright.
Hi evening. Thank you for taking my question.
Most have been answered maybe I could just ask a follow up or clarification.
I think you said that in Q1.
Your partner's registered high single digit to low double digit sales growth in the period I just wanted to understand whether that was that sellout number or whether that was your sell in number.
Any clarification, there would be very helpful.
Sure that was a sellout number that was a sales to consumer number.
Okay.
Well take our next question is from Jonathan Komp Baird.
Okay.
Yes, hi, good afternoon, Matt if I can ask a follow up just.
Think about the second quarter, given some of the unusual comparisons would you be willing to share any shaping guidance across some of our segments.
And then.
Bigger picture, if you could just comment.
Sort of a shape of the recovery of the sales and the profitability that you're seeing in China and any thoughts as we.
Look to the balance of the year. Thank you.
Sure well as it relates to the second quarter.
What I said was that we expect our growth to be up slightly versus the prior year.
I did answer a math question just connect the two together, but we are expecting retail sales so sell out to the consumer to be in line with the mid single digit that we that we delivered this quarter across the full marketplace.
And the second quarter is really the last season that we've managed the sell in to a more restricted level. So that we could ensure that.
The marketplace was.
Set right as we look towards the remainder of this year.
As far as the comparisons go.
Q2, and I think I referenced the wholesale number earlier, but we're comping about 27% currency neutral growth in Q2.
But what we're much more focused on is the quality and the health of the growth that we're delivering in the quarter and and so as you see our gross margins expanding.
In the second quarter on an operational basis, excluding the impact of FX, we're up 150 basis points.
And are really encouraged as we think about what we delivered in the first quarter. The improvements were guiding to and believe we can deliver in the second quarter and then the way that will accelerate through the balance of the year. So as we get into the second half of this year and we think about our gross margins, we're going to start to see even more impact from ocean freight because those are rolling in.
Midway through this quarter.
We're expecting to see lower product costs in the second half and our FX headwinds are going to abate a little bit as we get into the back half of this year and so some of those elements will drive.
Increasing margin expansion as we carry through the balance of the year.
The last part of your question was on China and profitability.
What I would just say is that.
We know from our long history of managing this business that when you have a healthy marketplace and you're driving full price sales and you are.
<unk>.
Driving productivity in your retail formats.
Your you've created the environment, that's right to drive profitability improvement and.
As we look at the momentum that we're seeing in greater China, another quarter of double digit growth.
We are increasingly confident that we're going to begin to rebuild towards higher profitability in that marketplace.
That's on the product.
And and marketplace side, and then also I referenced an example.
We're we're lowering our supply chain costs in greater China, and and so we feel we.
We feel quite good with that as well.
Our reported numbers in China are going to be challenging for the next couple of quarters because of foreign exchange headwinds and so we will continue to try to highlight the opportunities and what we're driving from a profitability perspective, but thats one of the reasons why our EBIT was down this quarter in greater China as foreign exchange headwinds as a result of the strength of the U S dollar.
Definitely has has created a bit of pressure in the short term, but thats were focused on what we can control and continuing to drive a healthy profitable business in that market and believe the fundamentals for long term growth and profitability our strong for Nike.
Yes.
We'll go next to Nathan Sherman Bernstein.
Yeah.
Thank you.
So as a result of your direct to consumer strategy, you've shifted I guess more than 20 points of sales mix from wholesale to Nike digital over the last seven or so years.
And Youre seeing shoppers returning to stores. This year, you did make some adjustments to adding physical distribution points do you feel like you are in and no physical retail doors today to appeal to a rebalancing of shopping habits.
And then a quick follow up on overheads, you talked about lowering some of the specific cost of direct shipments and fulfillment costs can you give me more color on the investment cycle.
Alright, and the investment cycle towards the direct business as well as <unk>.
<unk> investments like ERP and kind of where you are this fiscal year and next fiscal year. Thank you.
Matt why don't I'll take the first part maybe you take the second.
So in Asia again, our entire marketplace strategy is driven by giving consumers what they want when they want it how they want it that starts with our digital properties, our own direct retail, which Matt will talk about in the second part of that.
Answer, but wholesale plays a really important role.
For us to get the breadth and depth of access to consumers and consumers access to our products and.
And so as you know, we've really sharpened our wholesale focus over the last few years to focus on fewer multi brand partners, where we're investing and elevated retail experiences and connected digital membership at scale and so thats DSG Jd's Alonso our partners in China.
We've got a great launch with pro direct.
Hibbett will come online with connected membership in October and so we think theres a lot of growth opportunity with those strategic wholesale partners. We're also putting increased attention on our neighborhood partners, who are authenticators IHOP authenticate, both sports and lifestyle and drive energy and local connections.
And then and then as we've said where we see gaps whether it's in a price point or a gap in our product.
Segment, we will selectively add wholesale partners and different geographies and in different in different segments and this will be a dynamic thing I mean were led by the consumer we have the blessing of the strongest direct connections in the industry and with direct connected membership we can when we can.
Indifferent about which which channel.
And Matt Youre going to talk a little about I guess the margins of our direct buffet, though Nike rise our direct mono brand Jordan Nike rise and are well.
<unk> collective doors are doing quite well and we feel like we're getting our concept right now that we have seasonal right assortments coming into them, we feel very good about our ability to augment where there are gaps as well with our own mono brand doors also how to flight Jordan. So so we feel good about being on the front foot with our marketplace.
<unk>.
The most wide and connected marketplace offense in the industry.
Yeah, and I think I would just add maybe 111 point and then I'll hit the last part.
When I think about the.
The momentum that we've seen over the last several years from a digital perspective, you are right. We have we have shifted.
Our channel mix and Thats been a consumer led and a consumer driven shifts based on the consumer's desire to want to connect with Nike both through our digital apps and through our stores.
What we saw this quarter wasn't unexpected for us.
And then when we look underneath the momentum that we saw in our Nike mobile App, we saw strong growth high single digit growth in traffic.
We saw member activity continue to increase.
Both in terms of engagement and buying behavior and higher basket size or higher.
And so we continue to be focused on creating the best personalized experience for our members from a digital perspective.
And we believe that that's going to continue to fuel growth in our digital business over the long term.
I do think this year the comparisons are going to not be linear as we go quarter to quarter channel the channel given what transpired last year, but what we're seeing from a consumer perspective doesn't shift R. R. Dimensionality in terms of of.
And needing to do something different in order to serve consumer demand as John said, we've got the biggest deepest breadth of distribution of anyone.
And have the right partners to be able to serve the marketplace.
As it relates to overhead.
The numbers that I referenced.
Actually impact our gross margins are lower digital fulfillment cost that sits in our gross margins and it's something that we've been focused on for some time, we started investing a couple of years ago and regional service centers in North America, and in Europe , and in pickup points closer to the consumer in Europe , all with the intention of building.
Building a supply chain that enables us to serve demand closer to consumers, it's more sustainable because we don't have to put product on airplanes and.
And leveraging our store footprint through O to O capabilities, and so we've been investing for a few years in developing and scaling those capabilities to be able to serve consumer demand and as I look forward from here.
Our investments will be aligned with the way that we grow the business in other words, we've invested to and now we're learning to operationalize and take advantage of these capabilities.
We are implementing our ERP in North America, we went live with our retail business in the first quarter and and everything has gone well.
And we're focused on bringing the second part of our of our North America business. The wholesale side of our North America business online in our new ERP.
Later this year, so that is our largest investment in transformation of our supply chain and enabling us to operate like a retailer and I couldnt be more excited about the opportunity that it presents for us.
To really modernize the way, we work and to serve consumers at speed.
Across the marketplace.
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.
Yeah.
Yeah.
Yeah.
Yeah.