Q2 2024 Nike Inc Earnings Call
Operator: Good afternoon, everyone. Welcome to Nike Incorporated fiscal 2024 second quarter conference call. For those who want to reference today's press release, you'll find it at investors.nike.com. Leading today's call is Paul Trussell, Vice President of Corporate Finance and Treasurer. Now, I would like to turn the call over to Paul Trussell.
For those who want to reference today's press release, you'll find it at investors Nike Dotcom, leading today's call is Paul Trussell, Vice President of corporate Finance and Treasurer now I would like to turn the call over to Paul Choi.
Paul Choi: Thank you, operator. Hello, everyone and thank you for joining us today to discuss Nike Inc.'s fiscal 2024 second quarter results. Joining us on today's call will be Nike Inc. President and CEO, John Donahoe and our CFO, Matt Friend. before.
Paul Trussell - VP of Corporate Finance & Treasurer, Nike Inc.: Thank you, operator. Hello everyone and thank you for joining us today to discuss Nike Inc.'s fiscal 2024 second quarter results. Joining us on today's call will be Nike Inc. President and CEO, John Donahoe and our CFO, Matt Friend.
Paul Choi: Joining us on today's call will be Nike, Inc, President and CEO, John Donahoe, and our CFO, Matt friend before.
Before we begin let me remind you that participants on this call will make forward-looking statements based on current expectations and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in Nike's reports filed with the SEC. In addition, participants may discuss non-GAAP financial measures and non-public financial and statistical information. Please refer to Nike's earnings press release on 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.
Before we begin let me remind you that participants on this call will make forward-looking statements based on current expectations and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in Nike's reports filed with the SEC. In addition, participants may discuss non-GAAP financial measures and non-public financial and statistical information.
Before we begin let me remind you that participants on this call will make forward looking statements based on current expectations and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially.
Paul Choi: These risks and uncertainties are detailed in Nike's reports filed with the SEC and.
Paul Choi: In addition, participants may discuss non-GAAP financial measures and nonpublic financial and statistical information. Please refer to Nike's earnings press release, with Nike's website investors Nike Dot com for comparable GAAP measures and quantitative reconciliations.
Please refer to Nike's earnings press release on 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.
Paul Choi: All growth comparisons on the call today are presented on a year over year basis, and our currency neutral unless otherwise noted.
Paul Choi: 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.
Paul Choi: Thanks for your cooperation on this.
I'll now turn the call over to Nike Inc. President and CEO, John Donahoe.
John Donahoe: Thank you, Paul and hello to everyone on today's call. Nike is the market leader in sport. It's a role we take seriously. We create innovation that pushes human potential, we expand the world of sport, inviting new generations all around the globe into the community of athletes. And we feel the energy and excitement of sport itself, both on a global stage and on the ground in community and cities everywhere.
John Donahoe: Nike is the market leader in sport.
It's a role we take seriously.
We create innovation that pushes human potential we expand the world of sport inviting new generations, all around the globe into the community of athletes.
John Donahoe: And we feel the energy and excitement of sport itself, both on a global stage and on the ground in community and cities everywhere.
John Donahoe: One thing that distinguishes, Nike more than any other brand in the world, is that we get our inspiration from athletes and sport. And it was a great quarter for Nike and the athletes who inspire us. Here's just a few examples-- Kelvin Kiptum broke the marathon world record wearing the Alphafly 3, which built on our proprietary system of speed that continues to set the standard.
John Donahoe: And it was a great quarter for Nike and the athletes who inspire us here's just a few examples.
John Donahoe: <unk> kept them broke the marathon world record wearing the alpha flight III, which built on our proprietary system of speed that continues to set the standard.
John Donahoe: A'ja Wilson earned WNBA Finals MVP after leading the Las Vegas Aces to their second straight title. LeBron James and Anthony Davis led the Lakers to the first ever NBA In-season Tournament Championship. Aitana Bonmati won the women's Ballon d'Or and Sha'Carri Richardson was named USA track and field female athlete of the year.
John Donahoe: Brian James and Anthony Davis led the Lakers as our first ever NBA in season tournament Championship.
John Donahoe: <unk> won the women's bolland or.
John Donahoe: And should carry Richardson was named USA track and field female athlete of the year.
John Donahoe: Being inspired by world-class athletes like these keeps us focused on redefining what's possible. That's what sets us apart. No one changes the game like Nike, from our breakthrough innovation for toddlers with the Swoosh 1 shoe to being able to elevate beloved product like [inaudible] into an entire franchise to NBA players increasingly choosing to play in the Sabrina 1, a shoe deeply resonating across gender. Again and again, it's Nike that pushes what's possible to break the status quo.
John Donahoe: That's what sets us apart.
John Donahoe: <unk> changes the game like Nike from our breakthrough innovation for toddlers with the switch one shoe.
John Donahoe: Being able to elevate beloved product like toby's into an entire franchise.
John Donahoe: NBA players increasingly choosing to play in the Sabrina one. A few deeply resonating across gender. And again, it's Nike that pushes what's possible to break the status quo.
A few deeply resonating across gender.
John Donahoe: And again, it's Nike that pushes what's possible to break the status quo.
John Donahoe: Now, in addition to creating best-in-class innovation, great companies must also focus on strong execution. And that's what we did in Q2. Delivering our second $13 billion quarter, this one on top of last year's extraordinary 27% growth. And we drove more than 20% growth in earnings per share this quarter. Simply put, this is the result of relentless execution by our team and an uneven macro backdrop.
John Donahoe: And Thats, what we did in Q2.
John Donahoe: Delivering our second $13 billion quarter. This one on top of last year's extraordinary 27% growth.
John Donahoe: And we drove more than 20% growth in earnings per share this quarter.
John Donahoe: Simply put this is the result of relentless execution by our team and an uneven macro backdrop.
John Donahoe: Looking at holiday, we outpaced the industry, driving growth of close to 10%. Nike Digital had its strongest Black Friday week ever and a record number of consumers shopped in our stores over the long Thanksgiving weekend. And in Greater China, brick-and-mortar grew double digits during National Day holiday and Nike once again outperformed the industry during Double 11 as the number one sports brand on Tmall.
John Donahoe: Nike digital had its strongest black Friday week ever and a record number of consumers shopped in our stores over the long Thanksgiving weekend.
John Donahoe: And in greater China brick and mortar grew double digits during national day holiday and Nike once again outperformed the industry. During double 11 is the number one sports brand on Tmall.
John Donahoe: These holiday results when combined with Q2's earnings growth and our continued healthy inventory, showcase how we're executing against our priorities even in the face of a highly promotional environment and increasing macro volatility.
John Donahoe: Last quarter, I talked about how we're getting back on our front foot, accelerating the flow of our innovation and executing with excellence across our winning formula of innovative product x distinctive storytelling x differentiated marketplace experiences. Let me give you a few examples of where we've demonstrated progress.
John Donahoe: Let me give you a few examples of where we've demonstrated progress.
John Donahoe: Within our running business, we're driving deeper connections with the running community. We recently launched our most innovative trail shoe yet, the Ultrafly, at the world's Pinnacle trail race. We hosted over 1,000 runners for a uniquely Nike experience, which drove energy and positive feedback from both elite runners and the broader trail-running community. And we partner with top RSC doors for a series of community activations centered on the Ultrafly and other key products like Peg Trail and Wildhorse.
John Donahoe: We recently launched our most innovative trail shoe yet the ultra fly at the world's Pinnacle trial rates.
John Donahoe: We hosted over 1000 runners for a uniquely Nike experience, which drove energy and positive feedback from both elite runners and the broader trail running community.
And we partner with top RSC doors for a series of community Activations centered on the ultra fly and other key products like Peg Trail and Wild horse.
John Donahoe: All of this led to growth of over 20% and our trail running portfolio for the quarter. And global football, we're fueling growth through strategic only Nike athlete storytelling. As you know we have a three silo construct in men's football. We impaired <unk> Holland with the Phantom Boot Jamal Lucy Allah with the tempo and Kelly and the buffet and Marcus Rashford, leading the material.
John Donahoe: And global football, we're fueling growth through strategic only Nike athlete storytelling.
John Donahoe: As you know we have a three silo construct in men's football.
John Donahoe: We impaired <unk> Holland with the Phantom Boot Jamal Lucy Allah with the tempo and Kelly and the buffet and Marcus Rashford, leading the material.
John Donahoe: With the game's greatest showcasing our product superiority and our seamless execution to pull this innovation through the marketplace. All three franchises are up strong double digits, even lapping last year's strong performance with the men's World Cup.
John Donahoe: And then lifestyle, where driving a women's led geo by Geo marketing acceleration behind <unk> K, a standout shoe and our fast growing retro running line.
John Donahoe: Being fueled by a tongue in cheek campaign, that's resonated with this consumer and a creator partnership strategy, that's delivered head to toe style inspiration.
John Donahoe: Her preferred media channels.
John Donahoe: All of this catalyze the V. Two K to very strong sell through in the quarter with exciting potential for this style is still to come.
John Donahoe: All three of these examples offer an early indication of the growth we aspire to we have real opportunity to drive progress across many dimensions of our business and that's our priority moving forward.
John Donahoe: At Nike, we like to say, we're on the offense always when we see something that need solving we don't wait around we solve it.
John Donahoe: And so as we look to the future, we know where we must focus.
Three areas will always drive our distinction and competitive separation.
John Donahoe: Product innovation storytelling that connects and marketplace execution.
John Donahoe: When <unk> had its best we create impact on a scale that can't be matched.
John Donahoe: Grounded in sport centered in youth culture, inviting consumers around the world into our brands.
John Donahoe: The second half of fiscal 'twenty four represents the start of a multiyear product innovation cycle that will introduce new franchises concepts and platforms.
<unk> our full portfolio.
John Donahoe: And while there'll be some key moments in the second half this new innovation cycle will take some time to fully ramp up given our size and scale.
John Donahoe: Now we know we have an outsized opportunity to drive long term profitable growth.
John Donahoe: And we have areas of significant growth potential like womens Jordan brand and running each of which requires focused investment to reach full potential.
John Donahoe: We also must get deeper traction on our key speed initiatives.
John Donahoe: Today, we know we must be faster increasing the pace of innovation.
John Donahoe: Increasing the pace of market to consumer and increasing our agility and responsiveness.
John Donahoe: To drive this will embrace a significant savings plan to create investment capacity to fuel profitable growth at speed and scale.
John Donahoe: Areas of potential savings include simplifying our product portfolio.
John Donahoe: Increasing automation and the use of technology.
John Donahoe: Streamlining our organization and leveraging our scale to drive greater efficiency.
John Donahoe: Let me just acknowledge that this work will be led with respect and thoughtfulness as we move to improve the ways in which we work and build a leaner and stronger company for the future.
John Donahoe: Matt will provide more detail on this later in the call.
John Donahoe: Now we've made some progress as we look to accelerate growth in our business.
John Donahoe: And I want to walk through two key areas today, where we're investing for future and further growth our women's business and Jordan brand.
John Donahoe: Both womens and Jordan are opportunities that are grounded in performance.
And the ability to drive culture and lifestyle.
John Donahoe: With the latter providing even greater scale and growth opportunities.
John Donahoe: First let's discuss womens.
John Donahoe: Which is already a roughly $9 billion business and that's just the Nike brand, excluding Jordan and converse.
John Donahoe: Our women's business has grown high single digits on average over the past three years.
John Donahoe: And while we're encouraged by this progress we now have line of sight into what we believe is the best plan, we've ever had to accelerate growth in womens.
Our plan makes us even more confident in serving her through sport and style.
Today about 40% of our members are women consumers they make up a bigger proportion of new members and their demand per member is growing faster.
John Donahoe: We see great opportunity to better serve this consumer by responding to her needs across the spectrum of performance and lifestyle.
Let me first touch on performance, where we're focused on innovating for her to create new opportunities. We didn't we did not previously serve.
John Donahoe: We've now built a collection of rosin leggings across different price points.
John Donahoe: This includes our statement leggings, Zen Vigo and Universal all of which are above $100. A price point, we were not previously in.
John Donahoe: These lagging serve her with a whole new approach to fit and comfort thanks to new material innovation.
John Donahoe: And we're holistically elevating our retail presentation and storytelling to help her find the right product for her exact needs.
More and more women are joining our brand by purchasing these leggings in fact, all told statement leggings fueled our fitness apparel growth in women's for the quarter.
John Donahoe: And in footwear, we're seeing very strong sell through for the Motiva.
With a comfortable and distinctive design. This shows how we dimensionalize performance and to walk in.
John Donahoe: And free Med Con is also performing very well serving her need for versatility by expanding a fitness shoe.
John Donahoe: Comfortable everyday wear.
John Donahoe: And at the same time, when we look at women's lifestyle, we've established our leadership position in women's sportswear through a focus on style and comfort.
John Donahoe: With iconic franchises like Air Force, one chunk, CT and fleece, all of which drive continued momentum with new energy and design.
John Donahoe: And we're also fueling the rapidly growing retro running trend with our portfolio of styles like the <unk> <unk> and <unk>.
In fact, even with a sequentially increasing the supply.
John Donahoe: Demand for this entire line is so strong to remain there remains tremendous opportunity to grow further.
John Donahoe: We're excited to scale these styles over the next few seasons.
John Donahoe: And so today, we are taking the right steps to serve our women consumer with energy and sharpness and were fully aligned and accelerating our offense to raise our game with an eye to the immense opportunity we see going forward.
John Donahoe: Now, let's discuss Jordan brand.
John Donahoe: Which is on a clear path to become the number two footwear brand in North America.
John Donahoe: The biggest brand not named Nike.
We're fueling the strong momentum in Jordan by growing a Monday to Friday business with a more diverse product portfolio on top of our very successful launch business.
John Donahoe: Over the past few years, we've driven strong growth in the Jordan business by bringing more dimensions into the brand.
John Donahoe: We're proving that Jordan can be more than retro more than footwear more than men's and more than North America.
John Donahoe: And our approach to growth, we will continue to bring life and growth over the coming years.
John Donahoe: And this is just the beginning for Jordan brand as we see even greater growth potential through our plan for deeper investment.
John Donahoe: Woodford Jordan will come in areas like merchandising marketing and marketplace.
For instance today.
John Donahoe: Jordan brand performance product is outpacing overall growth with Jordan Reigniting, it's encore presence in basketball with a strongest signature portfolio ever as Tatum Luca Zion pushed the brand to new heights, both on and off the court.
Jordans also expanding beyond basketball.
John Donahoe: Into for example, golf global football and American football.
And Jordan Women's and kids continues to lead the brand's overall growth women's and kids business share within Jordan have increased seven points over the past three years.
John Donahoe: And Jordan apparel is now a roughly $1 billion business, averaging almost 20% growth.
John Donahoe: Over the past three years.
John Donahoe: We're also building new dimensions, and the iconic AJ, one franchise across high mid and low as well as through women's led dimensions, such as the elevate and the Brooklyn Booth.
John Donahoe: And I'd also like to spotlight Jordan's strategic approach and success with our remix footwear line.
John Donahoe: Which again has already surpassed the $1 billion annual revenue Mark with high double digit growth.
Led by styles like the Max Aura in the stadium 90 remix has increased Jordan's accessibility through more affordable price points and an expanded distribution with key partners.
John Donahoe: And last but not least jordan's share from international markets continues to expand as we bring the brand to global cities in an authentic way.
John Donahoe: This is shown up as we pilot the Jordan destination tab, and the Nike Commerce App in EMEA with strong early results.
And the Jordan World of flight doors in Milan, Tokyo, and Seoul have emerged as the Companys most productive retail concepts.
John Donahoe: The Sky's the limit for Jordan as we continue to invest and explore what's possible for one of the world's leading brands.
John Donahoe: In the end, we are moving with confidence against the opportunities we see.
John Donahoe: And looking ahead to the next calendar year, we remain single minded in our focus to compete and win.
John Donahoe: I wouldn't trade our position with anyone.
John Donahoe: And with that I'll turn the call over to Matt.
Matt Friend: Thanks, John and Hello to everyone on the call Nike.
Matt Friend: Nike second quarter financial performance reflected our proactive marketplace management and disciplined execution with.
Matt Friend: With tremendous delivery by our teams in a dynamic environment.
Matt Friend: Revenue was up slightly versus the prior year.
Matt Friend: <unk>, 1% on a reported basis.
Matt Friend: As we compare to 17% reported and 27% currency neutral revenue growth one year ago.
Matt Friend: Gross margins expanded despite a highly promotional marketplace.
Matt Friend: And combined with disciplined SG&A management earnings per share and free cash flow accelerated.
Matt Friend: As I said last quarter, we believe we are turning the corner and driving more profitable and sustainable growth.
Matt Friend: At the same time, there were a number of puts and takes in the quarter.
Matt Friend: So before I walk through our financial results, let me share some perspective on our performance in light of current macro and consumer trends as well as additional insight into our business direction.
Matt Friend: Now as you recall, we moved proactively in the prior year to liquidate excess inventory and reduced wholesale sell in for the first half of fiscal 'twenty four.
Matt Friend: And while this has dampened our reported revenue growth through Q2 total retail sales in the quarter grew across the marketplace on top of double digit growth in the prior year.
Matt Friend: Asps were up across both footwear and apparel and <unk> grew across channels.
Matt Friend: Average order values among Nike members increased versus the prior year.
Matt Friend: Our higher priced products in particular have been resilient with our $100 plus footwear models driving strong growth in units sold across the marketplace and.
Matt Friend: And overall, we have maintained lower markdown rates than many of our competitors.
Matt Friend: In the most impactful consumer shopping moments Nike's brand strength created even greater separation we.
Matt Friend: We delivered market leading results in greater China in double 11.
Matt Friend: And over the Black Friday, and cyber week period, Nike direct grew approximately 10% across North America, EMEA and APAC.
In Q2, Nike direct once again led our growth and Horseshit wholesale shipments exceeded our expectations.
Having said that we are seeing indications of more cautious consumer behavior around the world.
Matt Friend: In an uneven macro environment.
Matt Friend: Total retail sales across the marketplace fell short of our expectations with softer demand outside the key consumer moments.
Matt Friend: While Nike store traffic continued to grow we saw softness in digital traffic and higher levels of promotional activity across the marketplace.
Matt Friend: As a result, we are adjusting our channel growth plans for the remainder of the year.
Looking to our product portfolio, our top franchises continue to drive strong full price sales.
But we intentionally manage the lifecycle of these models across the marketplace for long term value.
Matt Friend: Given the promotional environment and the cautious consumer behavior that we are seeing we are stepping up our plans to reduce marketplace supply of our key franchises.
Matt Friend: Our goal is to Nike's brand heat and energy on what is new as we accelerate our product innovation cycle.
Matt Friend: We have seen encouraging signs from recent consumer activations around some of Nike's latest innovation and newness.
Matt Friend: And we intend to accelerate our pace through the Paris Olympics and beyond.
Matt Friend: While this will initially take some time.
Matt Friend: We are confident in our pipeline and the product journeys stories and consumer energy to come.
Now as you heard from John our priority is to drive sustainable and profitable long term growth while building a faster more efficient Nike.
Matt Friend: Since fiscal 19, our investments and accelerating nike's consumer direct vision have created new operating capabilities.
Matt Friend: Added tens of millions of new members to our member base and delivered a return of more than $12 billion of incremental revenue.
Matt Friend: However, we have also added complexity and inefficiency.
Matt Friend: In this competitive environment, we need to accelerate our pace of innovation elevate our marketplace experiences maximize the impact of our storytelling and increase our speed and responsiveness all in service of the consumer.
Matt Friend: To do this we are creating investment capacity to fuel nikes next phase of innovation growth and profitability.
Matt Friend: We are identifying opportunities across the company to deliver up to 2 billion in cumulative cost savings over the next three years.
Matt Friend: Both up and down our P&L and across our value chain.
Matt Friend: Some examples include simplifying our product assortment.
Matt Friend: Improving supply chain efficiency.
Matt Friend: Leveraging our scale to lower the marginal cost of operations.
Increasing automation and speed from data and technology.
Matt Friend: Green lighting, our organizational structure.
Matt Friend: Reducing management layers and enhancing our procurement capabilities.
Matt Friend: And as we look to drive greater efficiency and productivity, we will reallocate and invest the majority of these savings to deliver the greatest consumer impact on our largest growth opportunities.
Matt Friend: Ultimately, we believe that building, a faster and more efficient Nike will accelerate future growth and innovation and deliver long term profitability.
Matt Friend: <unk> value for years to come.
Matt Friend: We will continue sharing updates over the coming quarters.
Matt Friend: Now, let me turn to our Nike, Inc, second quarter results and.
Matt Friend: In Q2, Nike, Inc. Revenue was up 1% on a reported basis and down 1% on a currency neutral basis, following our strong topline growth one year ago.
Matt Friend: Nike direct grew 4% with Nike stores up, 9% and Nike digital up 1%, while wholesale declined 3%.
Matt Friend: Gross margins expanded 170 basis points to 44, 6% on a reported basis driven by strategic pricing actions lower ocean freight rates.
Matt Friend: Proved supply chain efficiency and modest markdown improvements partially offset.
Matt Friend: <unk> offset by higher product input costs.
This included impacts from approximately 60 basis points of unfavorable changes in net foreign currency exchange rates.
Matt Friend: SG&A grew 1% on a reported basis favorable to our expectations through disciplined expense management and some shifts in timing of spending.
Matt Friend: Our effective tax rate for the quarter was 17, 9% compared to 19, 3% for the same period last year.
Matt Friend: Diluted earnings per share was $1 <unk> up 21% year over year.
Matt Friend: Nike inventory dollars were down 14% versus the prior year and down high single digits versus the prior quarter.
Matt Friend: In total Nike inventory dollars are down over one 5 billion.
Matt Friend: From the peak at the end of Q1 in the prior year with.
With days of inventory continuing to improve.
Matt Friend: Total footwear and apparel inventory units across the marketplace are down double digits versus the prior year.
Matt Friend: Yeah.
Now, let me turn to our operating segments.
Matt Friend: In North America.
Matt Friend: Q2 revenue declined 3% with wholesale down 9% versus the prior year Nike.
Matt Friend: Nike direct grew 3% with Nike stores up, 4% and Nike digital up 2% EBIT.
Matt Friend: EBIT grew 2% on a reported basis.
This fall is extraordinary growth in Q2 of fiscal 'twenty, three with North America revenue up 31%, Nike direct up 23%, Nike digital up 31% and wholesale up 37%.
Matt Friend: This quarter, we saw mid single digit retail sales growth with key partners, including Dick's Sporting goods JD finish line and Herbert <unk>.
Matt Friend: Jordan in women's led our momentum in the marketplace with Jordan remix footwear grew double digits and the AJ 11 gratitude release delivered the brand's largest shock drop ever.
Matt Friend: Within women's dumped free met Con and our $100 plus statement leggings delivered strong growth.
Matt Friend: In addition structure 25, and <unk> 17, our latest updates for everyday runners drove positive response from consumers and running specialty partners.
In EMEA Q2 revenue declined 3% with wholesale down 8%.
Matt Friend: Nike direct was up 7% as Nike stores grew 8% and Nike digital grew 7%.
Matt Friend: EBIT declined 6% on a reported basis.
Matt Friend: As a reminder, this also compares to tremendous growth in Q2 of fiscal 'twenty, three with EMEA revenue up 33%, Nike direct up 44%, Nike digital up 62% and wholesale up 28%.
Matt Friend: Against the backdrop.
Matt Friend: Backdrop of increased macro headwinds, we saw strong consumer response to newness and premium innovation.
Matt Friend: Our winterized running products drove positive sell through along with strong growth from Invincible vapor fly and ultra fly.
Matt Friend: The arterial and Phantom and Tiempo grew double digits.
Matt Friend: And our retro running styles, including <unk> <unk> <unk> thousand and shocks continue to energize the marketplace.
In greater China.
Matt Friend: China Q2 revenue grew 8% and wholesale grew 19% Nike.
Matt Friend: Nike direct declined 4% with Nike stores, growing 16% and Nike digital declining 22%.
Matt Friend: EBIT grew 1% on a reported basis with multiple points of impact from foreign exchange.
Matt Friend: On the whole we are seeing a highly promotional marketplace with increased macro headwinds, especially on digital.
Matt Friend: That said Q2 was another strong quarter in brick and mortar with continued improvement in full price sales and sales and Nike owned and partner doors growing mid teens versus the prior year.
Matt Friend: We also continue to see strong momentum with key strategic partners, including top sports and power Shang.
Matt Friend: And Nike continues to strengthen its lead as Chinese consumers number one cool and favorite brand.
Matt Friend: Turning to our product portfolio performance outpaced lifestyle, this quarter with innovation and hyper local storytelling resonating with consumers.
Matt Friend: Saw strong momentum in basketball fitness retro running footwear and winterized apparel.
Matt Friend: Locally inspired express lane collections, including our Street dance inspired dunk and hyper local Pegasus releases, where top choices for consumers.
Matt Friend: And overall, our inventory remains healthy with units down and improved markdown rates versus the prior year.
Matt Friend: Looking ahead, we continue to closely monitor.
Matt Friend: Operating environment.
We remain confident in Nike's brand strength, our deep consumer connections and our foundation for long term growth in China.
Matt Friend: <unk> Q2 revenue grew 10% and wholesale grew 7%.
Matt Friend: Nike direct grew 15% as Nike stores grew 17% and Nike digital grew 14%.
Matt Friend: EBIT grew 7% on a reported basis.
Southeast Asia, and India, Korea, and Mexico grew double digits, leading a record quarter for the geography.
Matt Friend: Our flip cart and Minto platforms drove strong growth in India.
Matt Friend: Korea led record number days sales in the geography and.
Matt Friend: In Mexico accelerated its digital momentum over the blend Finn shopping holiday.
Matt Friend: We saw strong momentum across our portfolio led by Jordan and kits.
Matt Friend: Jordan brand delivered strong growth and remix footwear.
Matt Friend: Hey, one essentials in signature basketball.
Matt Friend: In kids lifestyle, and global football grew double digits with positive momentum from all kids Fleece, CT Boro and the material.
Matt Friend: All told our team executed with tremendous focus and agility to deliver our Q2 results while managing through volatility.
Matt Friend: Last quarter as I provided guidance I highlighted a number of risks in our operating environment, including the effects of a stronger U S dollar on foreign currency translation.
Matt Friend: Consumer demand over the holiday season, and our second half wholesale order books.
Looking forward the impact of these risks is becoming clear and as a result, we are adjusting our full year financial outlook.
Matt Friend: Looking to the balance of the year, we expect Q3 reported revenue to be slightly negative as we again compare to double digit growth in the prior year and.
Matt Friend: And Q4 reported revenue to be up low single digits.
Matt Friend: With full year reported revenue now growing approximately 1%.
Matt Friend: This new outlook reflects increased macro headwinds, particularly in greater China and EMEA.
Matt Friend: Adjusted digital growth plans based on recent digital traffic softness and higher marketplace promotions.
Matt Friend: Lifecycle management of key product franchises.
Matt Friend: And a stronger U S. Dollar that has negatively impacted second half reported revenue versus 90 days ago.
Matt Friend: I will also remind you that there are approximately 400 basis points of headwinds from supply disruptions and accelerated liquidation in the prior year.
Matt Friend: We expect increased gross margin expansion and our second half with Q3 margins expanding 160 to 180 basis points and Q4 margins expanding 225 to 250 basis points.
Matt Friend: We continue to expect full year gross margins to expand 140 to 160 basis points.
Matt Friend: This reflects benefits from strategic price increases improved ocean freight rates and supply chain efficiency.
Matt Friend: Partially offset by higher product input costs, and approximately 60 basis points of impact from foreign exchange headwinds.
Matt Friend: We expect full year SG&A growth to improved to low single digits, excluding restructuring charges.
Matt Friend: As we continue to tightly manage expenses and improve productivity and efficiency.
Matt Friend: Specifically, we expect SG&A dollars in both Q3 and Q4 to be modestly above our first half run rate excluding the charge.
Matt Friend: We anticipate a restructuring charge of $400 million to $450 million in our second half.
Matt Friend: Primarily related to severance costs, which will be recognized largely in the third quarter.
Matt Friend: We expect full year SG&A, including the restructuring charge to grow mid single digits.
Matt Friend: We now expect other income and expense, including net interest income to be 275 million to $325 million for the full year.
Matt Friend: We continue to expect our full year effective tax rate to be in the high teens range.
Matt Friend: Taken altogether strong gross margin execution and disciplined cost controls are enabling us to offset softer second half revenue and drive earnings growth.
Matt Friend: Excluding restructuring charges, we expect to deliver on our prior full year earnings outlook.
Matt Friend: While we expect the operating environment to remain dynamic we have been here before and we know that moments like this are when Nike operates and executes at its best.
Matt Friend: We will stay on the offense manage risk optimize opportunity and leverage our strengths to create even further competitive separation.
Matt Friend: As we move forward our focus is building a faster more efficient Nike and embracing the opportunities in front of us to accelerate sustainable and more profitable growth.
Matt Friend: And so with that let's open up the call for questions.
Speaker Change: Thank you if you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Speaker Change: If you would like to withdraw your question again Crestar. One we also ask that you. Please limit yourself to one question.
Your first question comes from the line of Matthew Boss from Jpmorgan. Please go ahead. Your line is open.
Matthew Boss: Great. Thanks.
Matthew Boss: So two part question Jon could you maybe elaborate on the structural changes that you cited that.
Matthew Boss: Maybe in the pivot to the front foot on innovation.
Matthew Boss: Just the structural changes that you see supporting that and what that means for the product pipeline as we think to next year and then Matt maybe putting that portion of the press release relative to the commentary around the second half just how best to fund that.
Speaker Change: And could you help break down the change in your second quarter revenue for your second half revenue outlook between retail and wholesale.
Speaker Change: Okay.
Speaker Change: Sure Matt Yeah, Let me go ahead and start.
Speaker Change: Matt talking a bit about the environment that we're operating in right now.
Speaker Change: And what's changed and what we're seeing.
Speaker Change: We obviously delivered a strong quarter and delivered revenue in line with the guidance. We gave 90 days ago and are incredibly pleased with the disciplined execution and management of the marketplace, including our inventory being down 14% in Nike plus partner inventory being down double digits versus the prior year.
Speaker Change: But what we saw in the quarter was a bifurcation of performance and specifically what I mean is that we saw incredibly strong performance for the Nike brand over the largest consumer moments, if you book and from back to school in the prior quarter through Black Friday, and cyber Monday this quarter, but in the periods in between we saw.
Speaker Change: Softer performance in the marketplace and as a result of that total retail sales in the quarter.
Speaker Change: We're below the expectations that we set for ourselves 90 days ago.
Speaker Change: As a result of that and specifically considering the promotional activity, we see in the marketplace and some of the softness in digital we've lowered our guidance for the balance of this year.
Speaker Change: And provided a little bit of sharpness for you on Q3 and Q4 in particular Q3 really is reflective of the comparisons to the prior year much like we anniversaried this quarter.
Speaker Change: But overall.
Speaker Change: <unk>.
Speaker Change: We've taken a more prudent approach to our planning for the balance of the year given the increased macro headwinds, we're seeing in China and EMEA in particular.
Speaker Change: And the way that we've adjusted our digital growth downward.
Speaker Change: On the traffic softness that we've seen and the higher marketplace promotions.
Speaker Change: And so connected to what John will talk about in a second our focus is on newness and innovation, particularly because in an environment like this where the consumer is cautious and we're seeing higher levels of promotional activity, it's newness and innovation, which really creates brand distinction in this environment and we're even seeing it in the <unk>.
Speaker Change: Text of.
Speaker Change: Recent releases and recent product introductions that we've had over the last 60 to 90 days.
And Matt to the first part of your question regarding the structural changes.
Six months ago, we we realigned our entire organization under Heidi O'neill and Greg Williams as our co president.
Speaker Change: And it's it is making a huge difference in our focus and ability to to execute and as you know we're single mindedly focused on aligning our entire team to drive what Nike does best innovative product combined with distinctive storytelling combined with unique marketplace experiences.
Speaker Change: And as Matt just said, we have a real focus Heidi Craig and team is a real focus on newness and driving our next product innovation cycle.
Speaker Change: Which will elevate our entire portfolio right. This is what Nike does best and we're doing it with consistency and scale, where we want a breakthrough thats our focus.
Speaker Change: And so youre seeing some.
Speaker Change: You pick one example, where youre seeing some.
Speaker Change: Early results look what's happening in basketball right now right, we're bringing fresh innovative product at scale. So the past six months, we've launched Sabrina one <unk> 'twenty, one tatum one luca to the.
Speaker Change: <unk> one you saw <unk> come back.
Speaker Change: Two nights ago that job one on Christmas day.
Speaker Change: And so thats, creating huge momentum in basketball with great innovation and in the next three months, we add to that GT cut which is one of our most innovative shoes to date. The book, one, which we think has great appeal on and off the court and of course, Kobe, which we think has huge potential.
Speaker Change: On an ongoing basis and so this is driving momentum both on the court through performance like Nike does innovation and performance and off the court and that translates into lifestyle. You may have seen libra was worrying to lunar Rome.
Speaker Change: Walking into his game the other night and literally <unk> Solodyn and sneakers. The day, we launched it two days ago.
Speaker Change: And so what Youre seeing is when we focus our guns on driving performance innovation translating that into lifestyle, we can cut through and drive scale and consistency like no. One else can so as we look ahead, we're excited about 10th anniversary of Air Max Day.
Speaker Change: That's coming up in March.
Speaker Change: The Air Max DN is our best Air Max product in years, Youll see us really get behind it that will be I think about the successful shoe, but more importantly can help lift the air Max portfolio.
Speaker Change: With running.
Speaker Change: We will be focusing on.
Speaker Change: Calendar 'twenty four would be the year of Pegasus for us with the Peg 41, and Peg family refresh and then we're getting excited and gearing up for the Olympics right in Paris. This summer that's been Nike shines its best Youll see us really using air as a source of innovation both in performance and in lifestyle and so are the <unk>.
Speaker Change: Call. It a pivot I, just think it's an acceleration and alignment and an acceleration of speed and focus.
Speaker Change: <unk> is distinct and we feel it.
Speaker Change: Your next question comes from the line of Michael Binetti from Evercore ISI. Please go ahead. Your line is open.
Michael Binetti: Hey, guys. Thanks for taking our questions here and thanks for all the detail today, particularly around some of the longer term thinking in the business.
Some of the longer term commentary is pretty helpful. I'm. Just wondering if we can help true up the margin story for the next few years.
Michael Binetti: I guess would you.
Michael Binetti: The $2 billion in cost savings, we said the majority will be reinvested.
Michael Binetti: Trying to think back to the longer term target of getting the business to the high teens margins. This should go a long way.
Michael Binetti: Is your feeling of the net amount of these efficiencies takes us to that multiyear target and then considering Matt the commentary on the second half revenues here a lot of it sounds like it's macro in China.
Speaker Change: Maybe some help thinking about as we look past 24 do you have visibility yet to say hey, we've got the controllable to help us offset.
Speaker Change: Some of the some of the macro pressures that we see to make 25, an algorithm revenue year.
Sure Michael let me start on the margins.
Speaker Change: I think that this quarter was really a strong proof point with strong gross margin expansion and operating margin expansion.
Speaker Change: And the team's execution in gross margin in particular was was was really strong.
Speaker Change: When we look at the drivers of it it's a combination of recovery of the transitory headwinds, which we've been talking about for.
A couple of years now, but also structural drivers.
Speaker Change: Price increases.
Which we've been able to sustain in this environment.
Speaker Change: And supply chain efficiencies, specifically, meaning that we're improving our cost per unit as we deliver product into the marketplace and so the underlying drivers that were behind our long term margin goals are still there and this quarter's a great proof point as we're on that trajectory.
Speaker Change: The way to connected to the safe to invest plan is to think a little bit about.
Speaker Change: The opportunities for us to be.
Speaker Change: To drive more profitable growth as we look forward and I have been talking for a couple of quarters now about lowing lowering our marginal cost of growth.
Speaker Change: And when I look back on some of the long term targets that we've given like SG&A.
Speaker Change: As a percentage of revenue being below pre pandemic levels, we've largely done it but when we look at our resources today, we see greater opportunity for efficiency and effectiveness and reinvesting some of those resources.
Speaker Change: For higher return opportunities like John mentioned, and so that's really what we're focused on.
Speaker Change: We'll remind you what I said on the call, which is that it isn't just SG&A the $2 billion save to invest plan is up and down the P&L and it's across our value chain and so we will see.
Benefits in SG&A, but we really are looking at the business Holistically.
Speaker Change: And our focus as we look forward is to drive.
More profitable growth over the next several years, we remain confident in the long term margin goals that we've been talking about.
And so as we approached 25, we know that were due to provide an update on those long term goals, but we still remain confident on the on the endpoint.
As it relates to the revenue just hit it quickly.
Speaker Change: Yes, we are largely seeing adjustments based on increased macro headwinds in China.
Speaker Change: And in Europe.
Speaker Change: The element that we can control and this is the commentary I made around managing our franchises. We have incredibly strong franchises. In fact, we build dimension to franchises. It's what we do to drive growth in our business and we continue to see those largest franchises driving year over year.
Speaker Change: Our growth.
Speaker Change: And selling at levels of full price realization that's above that.
The goals that we've set for the business.
Speaker Change: But we know in an environment like this when the consumers under pressure and.
Speaker Change: And the promotional activity is higher that is its newness and innovation, which causes the consumer to act and John just referenced a number of products.
Speaker Change: And product launches in the last 45 to 60 days, where we're seeing an incredible amount of consumer energy in response to newness and new stories, and we've seen either full sellouts or incredibly high levels of full price selling.
Speaker Change: And I won't rename all the products but.
Speaker Change: What it demonstrates is what we already know which is that in this type of an environment. What we control is accelerating our pace of innovation and newness in order to give the consumer something to want to continue to invest in this category and we think that we can do it like nobody else and so what youre hearing from us is a controllable.
Speaker Change: Effort to accelerate that pace, managing some of the larger franchises and and really accelerating as we go forward that.
Speaker Change: That will start with that many of the items, we've been talking about in our portfolio.
Through the balance of this year and then the acceleration youre going to see and feel.
Speaker Change: Especially as we focus our brand heat on this newness.
Speaker Change: We will carry us into 'twenty five we know it's going to take time, because you got to scale. This newness and the innovation and Thats what were focused on doing so.
Speaker Change: Our guidance for the second half from a controllable perspective is also reflecting on the proactive actions, we're taking to manage our product portfolio.
Speaker Change: As we look forward.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Gabriella Carbone from Deutsche Bank. Please go ahead. Your line is open.
Gabriella Carbone: Katherine Keller.
Gabriella Carbone: Okay.
Katherine Keller: Oh, hi, Thank you so much for taking my question, sorry about that I wanted to dig in a little bit more on the running category, particularly.
Katherine Keller: How is your approach to this category maybe changed over the past year and then I know you mentioned trail running are there any other product in the category you mentioned scaling moving ahead.
Katherine Keller: <unk> seen good katzenberg sponsored that you're excited about.
Speaker Change: Yes, Gabriele we've made running a key priority we talk about three areas, we're really getting behind where we see huge growth opportunity.
Speaker Change: Being womens Jordan and running.
And as you said in running we tend to break it into three categories and for US It starts with road racing.
That's the pinnacle that's the peak.
And as you as you know in the past three to six months, we are dominating it through the Alpha fly three which debuted in the Chicago Marathon Kelvin kept them as I mentioned in my remarks set a world record, it's dominating the podiums for both men and women and that'll actually be launching available to the public in Q3 and as we see people going in.
Speaker Change: Two racing into the to the Olympics, both marathon and otherwise are our performance running for racing is unmatched.
Speaker Change: And then as trail.
Speaker Change: As you mentioned, that's the fastest growing segment grew 20% for us and we do what we do is innovations driving it so the ultra fly trail, which is the first.
Speaker Change: Trail shoe with a carbon fiber plate, that's again very Nike very classic Nike innovation performance innovation, along with Peg trail into the Gama.
Speaker Change: Trail is growing fast partly because trail running is growing but increasingly trail shoes are becoming lifestyle shoes that are being worn on the streets, particularly in EMEA and in Europe, but also around the world. So we will continue to invest in great product there as well as as I said in my remarks, our ground game and then.
In the road running your everyday running category. This is the area, where we have the most work and so we have good product.
Speaker Change: We had some nice some nice wins in the quarter the structure 25, and the <unk> 17, which were our latest updates for everyday runners. They had positive response from consumers and specialty runners, but we're very focused on building out our ground game with everyday runners and that means getting into the <unk> back into the <unk> and being <unk>.
Speaker Change: We're runners or whether it's not just at the marathons, where the elite runners are but the the everyday races in the key cities around the world and the running communities and Youll see US we are steadily investing in that in building our presence there and as we look forward.
Speaker Change: In terms of driving scale in everyday running as I mentioned earlier, we're focused on Texas, that's our largest franchise one of the largest franchises in and.
And running history period, and we're very excited about <unk> 41, and updates across the <unk> family, which are coming in calendar 'twenty four so.
Speaker Change: A lot of focus and we will report.
Speaker Change: Everyday running its going to be quarter by quarter steady progress steady progress steady progress toward our goal.
Speaker Change: I'd just add to that we're excited about the product portfolio, we have below $100.
Speaker Change: And that product offering that's coming to market in the coming quarters. We will also enable us to get back on our front foot at an important price point in both across in multiple markets across the world.
Speaker Change: Your next question comes from the line of Lorraine Hutchinson from Bank of America. Please go ahead. Your line is open.
Lorraine Hutchinson: Thank you good afternoon, I wanted to focus on the China margin for a minute and I was just curious outside of the FX hit that you're facing do you see an opportunity to drive margins in China back towards pre COVID-19 level or has something changed that makes that market less profitable.
Yes.
Well Lorraine, let me, let me first just step back and look at how we see China for a minute and then we'll talk about margins because if you don't have a great business, it's hard to have great margins.
Lorraine Hutchinson: And the fact is we feel very good about our position in China, and our ability to compete and that has not changed from 90 days ago.
Lorraine Hutchinson: In China Sport is back that China consumers back out on the street with a real focus on active and healthy lifestyles do you see the government encouraging sport and healthy lifestyles and Gen. Z is the most active generation ever so that's a tailwind for our industry.
Lorraine Hutchinson: And so even in the face of macro uncertainty our brand is continuing to resonate.
Lorraine Hutchinson: And we're doing with Nike does so well, which is taking global products global innovations global brand global athletes and powerfully combining them and connecting them to local culture, and local sports and local consumer moments and wonderful example, last quarter as the Elliott kept yogi the world's best Marathon.
<unk> did a tour through China right before the China, The Shanghai Marathon as you know we sponsor the Shanghai Marathon.
Lorraine Hutchinson: And sure enough, we dominated shoe counts in the top 100, we swept the women's podium.
Lorraine Hutchinson: And thats, bringing energy and running and in the lifestyle of running and it's growing the market I mean, I think we are where we went in with grew 8%.
Lorraine Hutchinson: Yes, theres some macro.
Lorraine Hutchinson: Headwinds, but we feel very good about our position and our ability to compete.
Speaker Change: Yeah and on the profitability side, what I would say Lorraine is that this quarter. If we exclude the impact of FX, our EBIT grew faster than revenue in greater China.
Speaker Change: And so I think it's a great proof point that.
Speaker Change: We can start to expand margins and move back towards where we were prior to the pandemic.
Speaker Change: I did mention that the marketplace is highly promotional and we're seeing that especially on digital and so in the near term that promotional in nature of the marketplace is holding us back.
Speaker Change: But what I would tell you that our inventories our inventory units are down versus the prior year.
Speaker Change: Our full price realization is continuing to improve and our stores and our partner stores.
Speaker Change: And.
Speaker Change: As we look at the environment that we're in right now we're not going to race to the bottom on digital we're going to focus on prioritizing brand health and brand strength and right now the digital marketplace in particular.
Speaker Change: Is a is at the highest of promotional activity.
Speaker Change: And so.
An element of us revising our guidance for the balance of this year is an acknowledgment that we don't want to chase that that's not even Nike is we're going to focus on innovation and newness and building a strong business in the marketplace on things like the basketball products that John referenced we're super excited about bringing <unk> to market in greater China.
The Jordan business continues to have tremendous resonance there and thats, how were going to grow and continue to compete in that in that market.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of John Kernan from TD Cowen. Please go ahead. Your line is open.
John Kernan: Excellent happy holidays, and thanks for taking my question.
John Kernan: Matt how should we think about operating overhead and demand creation going forward as we think about the overall SG&A piece of that business Theres obviously.
John Kernan: Some restructuring and some cost savings, but is this a time you need to reinvest given the changes in the competitive environment and the need to.
John Kernan: Reinvigorated product cycle and the marketing.
John Kernan: How we should think about the SG&A algorithm going forward.
Yes, I mean, John when we think about this safe to invest.
John Kernan: And the value it will create and the capacity it will create for us to be able to invest.
John Kernan: Invested the biggest growth opportunities, we see we don't envision that as being people, we envision that as being consumer facing investment.
John Kernan: Bringing product innovation to market and having maximum impact with the consumer and so.
John Kernan: Our goal here is to see a reallocation of resources through this program.
John Kernan: So that more of our dollars are going towards consumer facing activities that can have the kind of impact that you referenced and we believe when we look at the size of the market and our position against some of the.
John Kernan: The categories that John referenced and we're the way the consumer is continuing to encourage us to bring them, new and interesting things from a Jordan perspective, we see opportunity to continue to grow our business and that's where our focus is so I think we're going to we're focused on driving more profitable growth that.
John Kernan: Should mean that there is some leverage in SG&A, but you should also expect to see us.
Reinvesting some of the resources that we're taking out of the business back in things that are consumer facing that have an impact on sport and that continued in to enable us to maximize the impact of the stories that we want to tell that's exactly why we're doing it because we want to double down on our investments to capitalize on.
John Kernan: Growth.
Your next question comes from the line of Ike borrowed from Wells Fargo. Please go ahead. Your line is open.
Hey, good afternoon. Thanks for taking the question maybe for you just on <unk>.
John Kernan: On the North American market can you just comment more broadly or specifically on the current state of the inventory situation, maybe both yours and just competitively what you're seeing out there in holiday and then just timeline on when you think that.
John Kernan: The inventory dynamics and at least North America might be.
John Kernan: More cleaned up our more for more healthy for.
John Kernan: For the brand to start to.
John Kernan: To better price realization and growth.
Sure well so in the quarter, we did see growth in retail sales in North America versus the prior year.
Remember it wasn't a lot of growth because we were comping, some very significant growth rates in the prior year.
John Kernan: The actions that we've taken on inventory.
John Kernan: Are significant and our inventory units are down strong double digits in North America, that's the biggest market, where we've seen the biggest movement in our inventory when we look at the level of inventory in our partners' relative to their current level of retail sales. We feel good about the weeks of supply that we have there and what I would tell.
John Kernan: Are you in the in the large majority of our partners. We also are seeing the highest mix of current season inventory that we've seen in many many seasons and so we feel great that our partners are positioned to put our newest and.
John Kernan: And most relevant product in front of the consumer.
We are watching the marketplace closely because.
John Kernan: My comments around the big consumer moments in the in between periods apply to North America as well and so we are watching cautious consumer behavior, there, but at this point, we feel great about our inventory and that's why we're so focused on newness and innovation, because that's what's going to pull us through a promotional marketplace like we have and so there is death.
John Kernan: A lot of inventory in the market across brands, but we feel great about where we are and newness and innovation is what will enable us to earn open to buy and our partners and will enable us to reaccelerate the top line.
Okay.
Speaker Change: Our last question comes from the line of Paul <unk> from Citi. Please go ahead. Your line is open.
Paul: Hey, Thanks, guys I'm curious if you could talk about and quantify the accumulative free drag that you've seen over the past two years and the timing of how you will recapture that freight drag in F. 'twenty four versus F. 35, just based on your recent freight contracts I am one of the offsets as we think about.
Paul: Potential puts and takes on the gross margin line 'twenty four 'twenty five.
Paul: Sure we've been talking about 200 basis points of impact from Ocean freight.
Paul: Cumulatively over the past few years, and we started to see those transitory benefits begin to recapture here in the second quarter some of our upside in the quarter versus our guidance was it came a little bit earlier than we had anticipated.
Our rates for this year, what and so we expect to continue to see up to see that the recovery of that in.
Paul: In Q3 and Q4.
One of the other transitory impacts that were watching closely with markdowns and right. Now we are only planning for a very modest amount of markdown recovery relative.
Paul: Relative to the markdowns that we incurred in the prior year and that's just given where the marketplace is we've decided to take a more prudent approach to our margin guidance for the balance of the year.
Paul: Given some of the uncertainties that are out there so.
When we looked at the balance of this year, we're encouraged by the second half expansion.
Paul: <unk> higher than the first half expansion and one of the other things that we're starting to get visibility into when we look at our margins in the fourth quarter as product costs product input costs are starting to flip to a tailwind and so when we think about the long term margin goals that we have.
Paul: The teams are executing well and we continue to be encouraged with what we're seeing through this year.
Paul: Yeah.
Paul: Yeah.
Speaker Change: Thank you everyone. This concludes today's conference call. Thank you for your participation and you may now disconnect.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yeah.