Q1 2025 Nike Inc Earnings Call
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Speaker Change: Good afternoon everyone. Welcome to Nike Inks, fiscal 2025 First Quarter Conference call. For those.
Paul Trussell: Who want to reference today's press release you'll find it at investors.niky.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.
Paul Trussell: Thank you, Operator. Hello everyone and thank you for joining us today to discuss Nike Inc. Fiscal 2025, First Quarter Results.
Speaker Change: 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 risk and uncertainty that could cause actual results to differ material.
Speaker Change: These risks and uncertainties are detailed and Nike's reports found with the SEC.
Speaker Change: In addition, participants may discuss non-gap financial measures and non-public financial and statistical information.
Speaker Change: Please refer to Nike's earnings, press release or Nike's website, investors.n Nike.com for comparable gap measures and quantitative reconciliation.
Speaker Change: All growth comparisons on the call today are presented on a year-over-year basis in our currency neutral unless otherwise noted.
Speaker Change: Joining us on today's call is one speaker, Nike Inks, Executive Vice President and Chief Financial Officer Matt Friend
Speaker Change: We will start with prepared remarks and then open up for questions. Today's call will be abbreviated as compared to past earnings calls.
Speaker Change: In order to allow as many of you to ask questions as possible in our latter term, we would appreciate you limiting yourself to one question. I'll now turn the call over to Matt.
Matt Friend: Thanks for all and hello to everyone on the call.
Matt Friend: Before we get into review the first quarter, let me acknowledge that we are reporting our results in a transitional moment.
Matt Friend: As John Retires as President and CEO.
Matt Friend: and Elliott Hill joins us as our new president and CEO on October 14.
Speaker Change: First, we deeply appreciate John's contributions to Nike.
Speaker Change: He has served on our board, led our company through a global pandemic and meaningful supply chain disruption.
Speaker Change: Accelerated our digital transformation.
Speaker Change: and initiated new Nike community investments around the world.
Speaker Change: We thank him for all he has done to move 90 forward.
Speaker Change: As we look ahead, we're excited to welcome Elliot back to Nike.
Speaker Change: Elliot is a beloved Nike veteran.
Speaker Change: who brings a powerful connection to our employees and culture.
Speaker Change: I'd eat love for our brand.
Speaker Change: and a passion for sport.
Elliot: Over his 32 years with the company, he built a proven track record of leading our global teams, brands and businesses.
Elliot: With significant expertise in delivering growth, by bringing product and storytelling with impact into an integrated marketplace.
Speaker Change: Our board believes that LA is the right leader to drive Nike's next stage of growth.
Speaker Change: Having had the opportunity to work closely with Eliot for many years.
Speaker Change: He leaves with a passion that inspires the best from the team.
Speaker Change: Our employees response to this announcement has been tremendous.
Speaker Change: You can feel the energy and the enthusiasm walking around campus.
Speaker Change: and we've heard nothing but excitement from our teammates around the world, including our alumni network, as well as our partners.
Speaker Change: We all look forward to working with Elliott at the Leeds Nike's next chapter.
Speaker Change: Given our CEO transition, and with three quarters left in the fiscal year
Speaker Change: We are withdrawing our full-year guidance.
Speaker Change: We intend to provide quarterly guidance for the balance of the fiscal year.
Elliott Hill: This provides Elliott with the flexibility to reconnect with our employees and teams.
Speaker Change: I evaluate the current strategies in business trends.
Speaker Change: and develop our plans to best position the business for fiscal 26 and beyond.
Speaker Change: To that end, we have also decided to postpone our investor day.
Speaker Change: Now, let me turn to the discussion towards our current business.
Speaker Change: Thank you first quarter results largely met our expectations at last quarter.
Speaker Change: We are moving aggressively to shift our product portfolio.
Speaker Change: Create Better Balance in our Business and re-energize BrandlMensom through Sport.
Speaker Change: That says, I come back at this scale takes time.
Speaker Change: and while there are some early winds, we have yet to turn the corner.
Speaker Change: Today I want to provide a deeper insight into the trends we saw in our first quarter.
Speaker Change: Then I will speak to the Portfolio Shes that we are driving and the implications for our near-from performance.
Speaker Change: I will also touch on some of those early wins, including indicators to track our progress.
Speaker Change: and last I will review our financial performance and Q2 Outlook.
Speaker Change: Let's start with a deeper look into the first quarter.
Speaker Change: While Q1 revenue was largely in line with our plan 90 days ago.
Speaker Change: We delivered lower units sales than we expected.
Speaker Change: Partially offset by a higher ASP.
Trussell: Trussell declined to cross Nike direct, or more significant than we anticipated.
Trussell: We saw particular softness and traffic on 90 digital.
Trussell: as well as in our Parker stores in Greater China.
Trussell: As a result, retail sales under performed our plan.
Trussell: including our will-sale partners, with slightly elevating marketplace inventory, requiring higher levels of promotional activity in Q1 to drive conversion.
Trussell: This included the back-to-school period, as our results under performed the market.
Trussell: We saw source traffic improve in August and growth in factory stores in Q1, but the overall period fell short of our expectations.
Trussell: However, two ones showed that we took an important step forward as we shift our portfolio to create better balance in our business.
Trussell: We have been intentionally reducing the proportion of our business, driven by our classic footwear franchises.
Trussell: Air Force One, Air Jordan One, and Dunk.
Trussell: And as expected, Nike revenue in Q1 from these franchises, decelerated, declining more than the total business.
Trussell: As we tighten the marketplace supply,
Trussell: We expect this trend to continue tempering our reported revenue over the coming seasons.
Trussell: Our timeline is different across each franchise, each geography and each channel.
Trussell: Overall, we have taken the most aggressive actions in Nike Direct and especially digital.
Trussell: and Q1, these franchises were down nearly 50% versus the prior year on Nike Digital.
Trussell: While we saw much better sales trends in wholesale.
Trussell: So, we are reacting, we are actively rebalancing product allocations to our highest traffic channel.
Speaker Change: in order to maximize French-Ithalton full-price realization.
Speaker Change: In the near term, this will have implications for certain dimensions of our business.
Speaker Change: Our men's and women's lifestyle business with planned down double digits in Q1 and we expect these declines to continue through the year.
Speaker Change: The Jordan Brand was planned down double digits this quarter.
Speaker Change: and we expect Jordan to be down at the same rate for fiscal 25.
Speaker Change: and we expect 90 digital to decline double digits in fiscal 25 versus the prior year.
Speaker Change: All taking together these trends drove a mid-single digit headwind on Q1 revenue.
Speaker Change: As we look ahead, we are working to position new products in the past as a consumer.
Speaker Change: Create scale for new ideas and drive more balanced marketplace growth.
Speaker Change: Part of feedback on our future product pipeline has been very positive.
Speaker Change: I have the chance to meet with many of them at our partner's summit in Paris during the summer Olympics.
Speaker Change: and directly hear their response to the products and stories that we have come in our second half.
Speaker Change: We also gave them a sneak peek to what is coming in 4th 25th
Speaker Change: Deepening confidence in our accelerated pace of innovation to build a more compelling future of product pipeline.
Speaker Change: Progress with partners will be accelerated through new brand momentum and new energy with consumers.
Speaker Change: But the multi-brand environment is very competitive today.
Speaker Change: and it will take time to expand market share.
Speaker Change: This was reflected in our Spring 25 order books.
Speaker Change: which came in roughly flat versus the prior year, a little lighter than we did planned.
Speaker Change: Our teams are now hustling to close out the upcoming summer season.
Speaker Change: closely engaging our partners as we finalize bookings.
Speaker Change: Now, let's turn to some of the early wins that we are seeing, especially as our teams get back on the offense and sport with consumers.
Speaker Change: This quarter, we saw growth in multiple sport dimensions.
Speaker Change: and indicator that we are gaining traction.
Speaker Change: This was led by men's fitness.
Speaker Change: Men's Global Football and Men's and Women's Running Footwear.
Speaker Change: In addition, two of our largest performance franchises.
Speaker Change: Mercurio and Global Football, and the GT series in basketball, delivered double-digit growth across all channels.
Speaker Change: We are especially encouraged by the momentum building in our running offense.
Speaker Change: This has been one of our toughest fights over the past few years.
Speaker Change: and it is one of our biggest opportunities.
Speaker Change: Our team's focus to your first in driving our comeback.
Speaker Change: and more recently.
Speaker Change: Men's and women's running footwear to liver positive growth in Q1.
Speaker Change: A meaningful improvement versus a prior quarter.
Speaker Change: The Orderbook, looking forward is strong.
Speaker Change: With Spring 25 Footwear Unit set to grow double digits versus the prior year.
Speaker Change: In North America, we were up double digits this quarter with running specialty partners.
Speaker Change: and our holiday and spring order books will build on that strength.
Speaker Change: We also just launched a new campaign, one of our biggest running brand investments in years, which will carry into fall and holiday.
Speaker Change: So far consumer engagement has been very strong.
Speaker Change: Meanwhile, our ground game activations are creating energy and running communities around the world.
Speaker Change: In addition, our Pegasus 41 launch showed the impact that we create when we launch new ideas at scale.
Speaker Change: delivering mid-teamed growth above last year's Pegasus model.
Speaker Change: and this is just the start. As we scale the franchise through multiple dimensions, I trail, I peg plus, and coming in spring peg premium, which introduces visible, full-length, Nike Air with more energy return than ever.
Speaker Change: Most importantly, we are most optimistic regarding the full product pipeline and running across footwear and a peril that we will bring over the coming seasons.
Speaker Change: This includes a new maximum cushioning system in an iconic line, blending comfort and style for our office, smoothest ride yet.
Speaker Change: A premium model that combines high-stack, a zoom-ed phone and zoom error for a new sensation that had test runners raving.
Speaker Change: A refresh line up of performance running apparel, including new women's lead designs.
Speaker Change: The latest Nike Trail models, updated for even better traction and durability.
Speaker Change: and new franchises below a hundred dollars that scale innovation to more accessible price
Speaker Change: Looking more broadly across our product portfolio, particularly in footwear, we see clear indications of progress in accelerating newness and innovation.
Speaker Change: Q1 revenue from new footwear products with a strong double-vigious versus the prior year.
Speaker Change: This includes multiple franchises that have scaled quickly, but you've found unit growth over the past 12 months.
Speaker Change: For example, in performance footwear, Sabrina has grown roughly five times.
Speaker Change: Kobe has nearly quadrupled, and Alphafly has almost tripled.
Speaker Change: Meanwhile, in lifestyle, what we call our look of running business.
Speaker Change: Led by the Merrill 5, B2K and P6000 has grown more than four times over the past year.
Speaker Change: While this is not yet large enough to offset the declines elsewhere in our portfolio.
Speaker Change: We are getting ground.
Speaker Change: As we look to the spring season, contributions from newness and innovation will take a significant step forward, with growth and footwear units of mid to high single digits versus the prior year.
Speaker Change: and over the coming seasons.
Speaker Change: We expect to see sequential gains in the percentage of newness and innovation as a mix of our total footwear business.
Speaker Change: As we move forward, we are continuing to invest to grow, while saying discipline on costs.
Speaker Change: For our team, this means tightly managing operating overhead, and reallocating resources to maximize consumer impact and growth.
Speaker Change: You saw that this summer with our personal Olympics campaign, winning isn't for anyone.
Speaker Change: We led with a voice of the athlete on Sports Biggest Stage
Speaker Change: Back by one of our biggest brand investments in years.
Speaker Change: As Nike athletes dominated the metal count.
Speaker Change: 90-owned over 60% of total share of voice during the games.
Speaker Change: Resonating a specially deeply with our athletes and gently consumers.
Speaker Change: Most importantly, the summer was just the start. With the investment lined up behind a steady cadence of bigger, bolder brand storytelling to come.
Speaker Change: In addition, we are investing with our partners to elevate and differentiate our brand and retail.
Speaker Change: For example, last year we partnered with Dick Sportingood to introduce an elevated women's fitness concept.
Speaker Change: which is generating impressive year-over-year comparisons in pilot doors.
Speaker Change: We also teamed up with Footwalkers, introduced a new concept, home court in their doors, with a shared vision to deliver a fresh new, multi-brand basketball experience.
Speaker Change: By bringing the best of Nike, we create sport-inspired distinctions for consumers.
Speaker Change: and deliver attractive returns for both Nike and our partners.
Speaker Change: Together we shape the kind of retail environments that drives competitive separation and segment the marketplace for growth.
Speaker Change: and enabling us to serve consumers through strong assortments.
Speaker Change: with full expression across each dimension of our portfolio.
Speaker Change: i
Speaker Change: All told, we expected the return to strong growth will take time.
Speaker Change: But we believe that we have all the right building blocks.
Speaker Change: especially with Elliott now leading us forward.
Speaker Change: Now, let me turn to our first quarter financial results.
Speaker Change: and Q191 Inc. Revenue declined 10% on a reported basis.
Speaker Change: and 9% on a currency neutral basis.
Speaker Change: and Matthew Direct was down 12%
Speaker Change: with 90 stores up 1% and 90 digital is down 20%.
Speaker Change: Hoseal was down 7%.
Speaker Change: Gross margins expanded 120 basis points, the 45.4% on a reported basis.
Speaker Change: Primarily due to lower Nike brand product costs.
Speaker Change: Lowerwareouting and logistics costs, and benefits from strategic pricing actions in the prior year.
Speaker Change: SQ&A decline 2% on a reported basis.
Speaker Change: With accelerated investment in demand creation, more than offset by a reduction in overhead expenses.
Speaker Change: is primarily driven by ways related savings.
Speaker Change: Our effective tax rate with 19.6 compared to 12% for the same period last year.
Speaker Change: Thy wounded earnings for share was 70 cents.
Speaker Change: Next!
Speaker Change: Let me turn to our operating settings.
Speaker Change: Given similar themes across many of our geographies, I will keep my comments here briefer than usual.
Speaker Change: In North America, 21 revenue is down 11%.
Speaker Change: 90 direct declined 11%
Speaker Change: with Nike Digital Down 15%.
Speaker Change: and 90 stores down 1%.
Paul Stels: Paul Stels declined 11%.
Paul Stels: Reflecting Unfavorable Shipping timing.
Paul Stels: Eve is a client 15% on a reported basis.
Paul Stels: with GrossMorgan Expansion Offset by Higher Investment in Demand Creation.
Paul Stels: This quarter's highlights included brand activations around a full summer of hoops.
Paul Stels: We engage players in fans with our New York versus New York series.
Paul Stels: Our WMBA All Star Celebration
Paul Stels: Jordan Grappchen's basketball in Chicago and L.A. and our mom will be invitational.
Paul Stels: In a May Act, she won revenue with down 12%.
Paul Stels: 19 direct decline 12%, with 90 digital down 24%.
Paul Stels: and Nike stores up 3%.
Paul Stels: Paul failed to climb to 11%.
Speaker Change: Even to climb 15% on a reported basis
Speaker Change: This summer in Paris, both 19 Jordan were unvisible.
Speaker Change: with our Olympics campaign just about everywhere you could look on billboards, big screens, on the side of buildings and most importantly across all of our retail touchpoints.
Speaker Change: In addition, Jordan introduced its new campaign with a six-week district 23 takeover in the city, a global one-on-one basketball tournament.
Speaker Change: and the brands first ever twitch live stream.
Speaker Change: which drove over 10 million views, the biggest ever activation for any brand on the platform.
Speaker Change: and APLA Q1 revenue was down 2%.
Speaker Change: 19 direct declines 4% with 90 digital down 15%.
Speaker Change: and Nike stores up 9%.
Paul Trussell: Paul Trussell declined 1%
Paul Trussell: Even to climb 3% on a reported basis.
Paul Trussell: This quarter, we celebrated the opening of our new Nike and Jordan World Flight Door in Mexico City.
Paul Trussell: Our largest retail space in Latin America.
Paul Trussell: and 1st dual grand shopping experience.
Paul Trussell: Q1 traffic and sales for this concept far exceeded our plan.
Paul Trussell: with consumer seeking out exclusive products, never only experiences.
Paul Trussell: and our latest women's and your own assortments.
Paul Trussell: For Greater China, let me go a little deeper into this quarter's performance.
Paul Trussell: 21 revenue was down 3%.
Paul Trussell: Nike Direct declined 16%.
Paul Trussell: with 90 digital down 34%.
Paul Trussell: and 90 stores down 4%
Paul Trussell: Paul Say I will do 10%
Paul Trussell: Even declined 4% on a reported basis.
Paul Trussell: This summer retail sales moderated across the industry.
Nike Inks: and Nike was not immune as traffic decelerated in our channels with lower self-urface.
Nike Inks: This has resulted in elevated inventory of the marketplace in an already promotional environment.
Nike Inks: That being said, Nike continues to be the number one sports brand in China.
Nike Inks: and we continue to create brand distinction when we bring our best stories and products to local consumers.
Nike Inks: Over the summer, we drove incredible social buzz, with storytelling around Nike athlete, Jung Chi-Win, who took home goal this China's first Olympic tennis champion.
Nike Inks: Jordan's first athlete to her in China since the pandemic was also a big success.
Speaker Change: As Luca, Tatum, Paolo, and Zion Connected with Young Fans and Shonhain, Beijing.
Speaker Change: Talk innovation and sport performance continues to resonate.
Speaker Change: This quarter standout included Tag 41, Alpha Fly and Sabrina 2.
Speaker Change: In addition, consumer response to our latest pro-Tro release proves that Toby remains one of the most beloved athletes in China.
Speaker Change: While our outlook for the near term has moderated.
Speaker Change: We remain optimistic about the long-term opportunities for sport and for Nike and China.
Speaker Change: Now, let me provide specific guidance for the second quarter.
Speaker Change: We expect Q2 revenues to be down in the 8 to 10% range.
Speaker Change: We expect Q2 gross margins to be down approximately 150 basis points.
Speaker Change: with Higher Promotions.
Speaker Change: Channel mixed headwinds and supply chain due leverage, more than offsetting lower product costs and a decreasing benefit from strategic pricing actions.
Speaker Change: We expect that she and A to be roughly flat versus the prior year.
Speaker Change: Within Christ the Man Creation Investment.
Speaker Change: largely offset by tighter operating overhead.
Speaker Change: We expect other income and expense, including that interest income, to be 30 to 40 million.
Speaker Change: Reflecting Lower Interest Rate.
Speaker Change: and we expect our effective task straight to be in the high teams range.
Speaker Change: Although we will not be providing for your guidance for the remainder of this fiscal year, we do want to provide additional color.
Speaker Change: To help you understand our latest read of Nike's business trajectory.
Speaker Change: As we see it today, prior to our leadership transition.
Speaker Change: Looking forward, our revenue expectations have moderated since the start of the year. Given traffic trends on Nike Digital.
Speaker Change: Retail sales trends across the marketplace.
Speaker Change: and final order books for spring.
Speaker Change: Franchise management actions will continue throughout the year and we expect a similar impact in scale to what we experience in Q1.
Speaker Change: However, we continue to see indications of slight second half improvement in revenue trends, versus our first half, as we plan to introduce and scale newness and innovation across the marketplace.
Speaker Change: We now expect gross margins to decline versus the prior year. Due to incremental headwinds, based on the previously mentioned factors.
Speaker Change: We intend to remain disciplined on costs, especially operating overhead, while we invest a few old brand momentum.
Speaker Change: Before I'm around, I'd like to finish with this.
Speaker Change: Throughout our history, Nike has always faced pressure.
Speaker Change: Nike was born through adversity.
Speaker Change: Every obstacle, every setback with an opportunity to learn.
Speaker Change: to adjust and to improve.
Speaker Change: This is the foundational mindset at Nike, inspired by athletes and competition.
Speaker Change: and today is no different.
Speaker Change: Diversity creates sharper focus.
Speaker Change: Weeding to innovation and new growth.
Speaker Change: We will continue to address the challenges head on.
Speaker Change: and we look forward to doing so with Aliens Leadership.
Speaker Change: With that, let's open up the call for questions.
Speaker Change: Thank you. We will now begin the question and answer session. If you'd like to ask a question, please press star. One, I'm your telephone chief.
Speaker Change: 2. Raise your hand and join the Q.
Speaker Change: Your first question comes from Bob Drubble, please go ahead.
Speaker Change: and Matt, good afternoon, hey, Bob.
Bob Drubble: Um, I was just wondering if it's on the...
Bob Drubble: Inventory situation. I think you talked about specifically China being elevated. Can you sort of break down some more regional and your perspective on where we are with Inventory regionally with some of the, you know, if I use the word dislocation.
Bob Drubble: with some of the classics in North America specifically.
Speaker Change: Surebot, I'd start by saying that as we look at the performance of our business over the
Speaker Change: Retail sales have underperform plan.
Speaker Change: and that's the statement about the overall portfolio. It doesn't specifically relate to just the classics.
Speaker Change: While we saw growth in retail sales in North America and China in Q1, we are seeing slightly elevated inventory as a result of the retail sales plans falling behind.
Speaker Change: and so, as we've looked at our outlook for the remainder of the year and the commentary around trend moderating, we've taken into consideration a more muted point of view on retail sales trends and also the gross margin implications of
Speaker Change: of needing to, not only be more promotional to work through some of this elevated inventory, but also acknowledging the fact that...
Speaker Change: You know, the outlook for the balance of the years is going to require us to be more promotional as we're scaling new ideas and concepts while working through the rest of the product portfolio.
Speaker Change: Your next question comes from the line of Alex Stretton with Morgan's family. Please go ahead.
Alex Stretton: Perfect, think about that. I just wanted to drill down on this kind of unit disappointment in the quarter.
Alex Stretton: Have you guys identified what exactly like the biggest calendars or problem areas are that you didn't expect a few months ago and then just zooming out as you look forward. Have you guys identified the key metrics your monitoring just to gain combat progress throughout the year?
Alex Stretton: Yeah, Alex, I mean, overall, you know, when we look at the business and it's total.
Speaker Change: You know, we're encouraged by the performance that we've seen on the new products that we've brought to market and we've delivered, you know, I mentioned we delivered double digit growth in our new products.
Speaker Change: and it continues to give us encouraging signs as we see the team focus on sport and performance and the way that those products are landing in the marketplace and the growth that we're driving.
Speaker Change: As it relates to our performance in the quarter and the unit, the unit misses. I would start by saying that in greater China, we did see performance in the quarter under four more planned.
Speaker Change: and so that was one factor that impacted our unit, our unit decline.
Speaker Change: What I would say more broadly than that is just general macro across the different geographies.
Speaker Change: We just saw them were softness for another season and so our teams are on it, they are focused on moving through these slightly elevated inventories. They're not in a place that causes us
Speaker Change: You know, significant concern at this point in time, but they do require us to be proactive and to take action. And that's what we're focused on doing. While we bring newness and innovation at a greater scale with greater impact in the second hour for this year.
Speaker Change: On digital, we did see, you know, we were down 20% in the quarter of digital, and that was largely driven by the three classic franchises being down.
Speaker Change: 50% versus the prior year, and the sales trends for those franchises in the wholesale channel were substantially better.
Speaker Change: And so that also had an impact on our Q1 results
Speaker Change: but as I said, we planned for the declines and on those big three franchises.
Speaker Change: and we're continuing to manage the inventory of those franchises carefully, beginning with Nike Digital so that we can put the product.
Speaker Change: where the traffic is, and we can drive high school price realization on that product in the right channels in the marketplace in order to continue to manage the long-term health of those franchises.
Speaker Change: Here next question comes from the line of Michael Penetti with Evercore ISI. Please go ahead.
Michael Penetti: Thanks for all the help here. Matt, I guess just one thing in the near term, you said that the spring order books actualized a little over the year expecting that you mentioned some elements of the second half revenue outlook that are maybe a few bright spots versus what you thought 90 days ago and you just helped me reconcile those two comments.
Speaker Change: I guess, and then thinking a little bit more long-term.
Speaker Change: I think the plan previously was to direct the consumer to rise in mix.
Paul: and Paul the Margins.
Speaker Change: of the company up as the margins in the DTC segment rise above wholesale after some pretty heavy investing that did to stage that the DTC business for scale is.
Speaker Change: Are those investments in place and did it become leverageable over time, or are there elements of the in the DC business that need to keep growing as you do look ahead of getting back to growth as that business?
Speaker Change: Sure Michael, well starting with the spring order books what I've mentioned is that our order books came in with our partners at flat versus the prior year and it was a little light relative to what we expected.
Speaker Change: What we're seeing in there that we're encouraged by, very excited by, is the fact that we're seeing you this and innovation scaling in the second half.
Speaker Change: And so I mentioned that footwear units related to newness and innovation, we define that as products that have been introduced, there either new or have been introduced within the last eight seasons.
Speaker Change: are growing mid to high single digits in the second half and in particular in that spring season.
Speaker Change: Underneath that, where we look with the most obstinism and where we've been focused first is running.
Speaker Change: I talked about the momentum that is building and running and this is where our teams started focusing first more than a year ago This quarter of the men's and women's running footwear was up and it was the first time we got positive growth in several quarters
Speaker Change: Well, we look at the order books for spring footwear, men's and women's running footwear is growing double digit.
Speaker Change: Our North America running specialty partners were up double digits in Q1 and the order books for holiday and for spring are getting us indications that we're going to sustain that momentum.
Speaker Change: and when you look at the way we're investing behind the brand.
Speaker Change: The ground game that we're operating, you know, if you visited any running events around the world.
Speaker Change: I recently ran a half marathon and saw Nike, Nike quite present but I know they were very present over the Berlin Marathon and multiple activations around the world. We're focused on being present with runners in their communities.
Speaker Change: in order to truly land the impact.
Speaker Change: of our product portfolio. And then I talked about the pipeline of what's coming.
Speaker Change: and we're really excited about a number of things that are coming.
Speaker Change: in our product pipeline.
Speaker Change: including new cushioning innovation, new premium models that are blending foams and zoom air.
Speaker Change: for a new running sensation.
Speaker Change: We've completely refreshed the lineup of our performance running apparel.
Speaker Change: which has always been a strength for Nike and so we're excited about the product that we're bringing there.
Speaker Change: The trail models that we've got are continuing to perform well in the marketplace and we're excited about the growth that we see in the running segment around trail.
Speaker Change: and then lastly we've talked about the core opportunity which we define below $100.
Speaker Change: and our teams have been focused, leveraging our...
Speaker Change: Speed Lane, to be able to get product to market faster at below $100, and you know this represents several billion dollars worth of revenue that we walked away from over the last couple of years.
Speaker Change: and our partners are very excited about the new product that's coming in this dimension. So running in core are the two areas where we're most optimistic that we see momentum building from an innovation in a newness perspective.
Speaker Change: and Matthew Friend, Matthew Friend, Matthew
Speaker Change: As far as we're question about DTC and...
Speaker Change: The investments that we've made in DTC, we continue to see opportunities to more profitably run our direct business.
Speaker Change: We talked about the investments that we were making against expectations for further growth and we were largely meeting the demand that the consumer was driving towards those channels.
Speaker Change: We continue to see opportunity to drive efficiencies in the profitability of our direct business.
Speaker Change: and that includes a higher mix of full price product in our direct channels, but also leveraging supply chain capabilities against the capacity that we've been affected built to serve our DTC business.
Speaker Change: As we've talked about to the last couple quarters, our focus is on driving growth across the entire marketplace. Balance growth across the entire marketplace.
Speaker Change: and that is where our teams have been focused and that's where you'll continue to see us trying to drive growth and improve profitability across both dimensions of the marketplace.
Speaker Change: Your next question comes from the line of Simon Seagull with BML. Please go ahead.
Simon Seagull: Thanks, hey, good afternoon guys.
Simon Seagull: Matt, thank you for all this. Any color you can be willing to provide or just order Magin to you to know how large each of the core franchises that you are resetting are at this point. And just make sure that you'd like to take them. And then just revenues were down as little as it is, but the gross margin is still grew nicely this quarter. So any context on the margins of those franchises that are being reset versus the rest of the product. Thank you.
Speaker Change: Well, we've been talking about for a couple of quarters, is trying to create better balance in our business and over the last couple of years, one of the things that we've talked about but especially this last year is that we are portfolio has gotten too concentrated.
Speaker Change: particularly against these classic dimensions.
Speaker Change: Our team that tried to bring new dimension to these classics and as a result of that, we've created an incredibly large amount of consumer demand. But at the same time, the portfolio was largely concentrated against these styles.
Speaker Change: Classics Footwear is an important dimension of our overall portfolio. You know, internally at Nike, we refer to these products as icons.
Speaker Change: They're incredibly culturally relevant, and they will continue to be an important part of our portfolio overall. But this quarter in particular, we took a big step forward in the reduction of these products.
Speaker Change: Codding them to decline more than the total overall business so that we can start to shift the portfolio back in order.
Speaker Change: and we're going to continue to take those steps over the coming quarters and what I can tell you is that the continued actions results in us expecting to see a headwind.
Speaker Change: Similar to what we experienced in the first quarter, in other words, a mid-single-digit headwing on revenue for the balance of this year, as a result of more proactively managing these franchises back into a proper place within the overall portfolio.
Speaker Change: They are Long-Tanger Products
Speaker Change: They do drive attractive margins for the company, especially when we sell them through digital.
Speaker Change: and so a part of the pressure on margins and...
Speaker Change: The additional color that we've provided on the balance of the year is that by...
Speaker Change: Driving the dimensionality more particularly in the Nike Direct Channel and particularly in the digital channels, it does create a transitory headwind on margin as we right-size the portfolio largely focused on the digital side of the direct side of the business.
Speaker Change: But looking forward, like I said, these products will continue to remain an important part of the portfolio. We just are focused on trying to accelerate newness and innovation in order to create more momentum with consumers and more energy with consumers.
Speaker Change: Jimmers.
Speaker Change: Here next question comes from the line of Lorraine Hutchinson with Bank of America. Please go ahead.
Lorraine Hutchinson: Thank you, good afternoon. How would you characterize the receptivity of your wholesale partners to get behind some of the new launches? And how are your partners feeling about the level of inventory in the wholesale channel? Now and for the spring season.
Speaker Change: Yeah, it's a great question Lorraine, you know, we've been working our teams have been closely engaging with our partners.
Lorraine Hutchinson: since we acknowledge.
Lorraine Hutchinson: You know some of the missteps related to over centering on direct.
Lorraine Hutchinson: and I think the momentum that we're building with our partners is very encouraging.
Lorraine Hutchinson: I referenced specifically the interactions that I was personally a part of in Paris during the summer Olympics.
Lorraine Hutchinson: But, you know, our geography teams, Tom Petty, you know, our partners are leaning in in order to be able to, you know, to, to, to, me and I grow them momentum for Nike on the wholesale side.
Lorraine Hutchinson: and I wouldn't drive past the fact that, you know, what's most important in wholesale.
Lorraine Hutchinson: is we've got to have a breath of distribution segmented to create and demonstrate the full dimension of the Nike portfolio across men's women's and kids, across sports dimensions and the Jordan Brand.
Lorraine Hutchinson: and one of the ways that we do that is we invest with our partners to elevate and differentiate our brand of retail.
Lorraine Hutchinson: That isn't a new playbook for Nike, but it's one that enables us to play to our strength.
Lorraine Hutchinson: and we've got a couple of proof points that we're already working on with partners.
Lorraine Hutchinson: on the sporting good side.
Speaker Change: We're excited about the women's pad and concept, the women's fitness concept that we've been testing with Dix in their house sport. It's set to be ready to pilot, given the return that it's driving for both us and for Dix.
Speaker Change: We're excited about bringing a new energy to basketball with Foot Locker and you remember the house at Hoops Concept, you know, coming forward now with this new home court concept.
Eliot: and to be honest with you, you know, maybe I'll take an opportunity to tie this a little bit back to Eliot because, you know, this is a similar approach that we took when we ignited growth in North America back in 2010.
Eliot: You know, when we say things like we need to sharpen our focus on sport
Eliot: It doesn't just mean that we need to sell more performance products, what it means is that we have to create deeper connections with consumers through sport.
Eliot: and that's where our relationship starts.
Eliot: and when we create connections with consumers through sport, that enables us to extend into sportswear and lifestyle.
Eliot: and one of the things that we did in North America back in 2010, when our business was.
Eliot: and stagnating from a growth perspective.
La: and LA was a new general manager at that time, which we reprofiled the marketplace.
La: Around Sport to ignite growth in the marketplace and the net results of that was double-digit growth over the next four years and really set the foundation for Nike to grow throughout the decades of 2010.
La: and so that is where our focus in our attention has been. Digital is still and direct is still an important part of our overall marketplace strategy. Having direct connections with consumers is strategically important.
La: But our consumers want to connect directly with Nike whether it's in our own channel or with a partner. And so we're going to continue to focus to elevate and to raise the marketplace and bring the best of Nike to the market.
La: Here next question comes from the line of Paul Lidges with City, please go ahead.
Paul Lidges: Hey, Bencays, you mentioned the running of double digit in North America and your running specialty partners. Can you talk about how far that business?
Paul Lidges: I've fallen from some peak to trough how much you think you have to regain in that channel within North America and also the second quarter goes margin to Connie and you mentioned just to mention that by vision, you know, where your bigger pressure points are.
Speaker Change: and the across the board where the larger declines versus smaller declines.
Speaker Change: Well, on your first question, Paul, what I would say is that we've acknowledged that we've lost market share in the running specialty channel.
Speaker Change: More than four years ago, we pulled back on our engagement with that channel and as a result of that, we saw market show losses.
Speaker Change: But what I would also say is that the importance of investing and connecting in the running specialty channel extends way beyond the business impact of a driving revenue there.
Speaker Change: It's about the community of running. It's about connecting directly with runners.
Speaker Change: and while we've seen tremendous success at the top of the pyramid with innovation, with Marathon's and on the track.
Speaker Change: We haven't made as much progress.
Speaker Change: with every day runs. And that's where our team's focus and attention has been over the last year.
Speaker Change: And what I can tell you is that some of the statistics that I highlighted are there as indicators for us and for you to see the momentum that's building for us in that dimension of the business.
Speaker Change: and it is incredibly important to Nike.
Speaker Change: Thank you for running company.
Ant: Thank you for running for Ant.
Ant: And if you've incredibly important for Nike to win with runners.
Ant: and so our commitment to reinvesting in those channels with those partners on the ground every day is how we're going to change the trajectory of this business.
Ant: and the proof points in the indicators that I provided are our early signals of confidence that this momentum is building and then the pipeline of product that we've got coming behind it were incredibly excited about and you'll see it extend from running specialty into sporting goods.
Ant: You'll see some of these innovations cross the line into lifestyle based on the ways that we bring the products of market and so we're deeply encouraged by that momentum that's coming and running.
Speaker Change: As a relates to the second quarter margin question, I guess what I would tell you is this.
Speaker Change: There are a number of puts in takes between Q1 and Q2 on margin.
Speaker Change: and the higher promotions that we reference.
Speaker Change: Some of the channel mixed headwinds, the supply chain, the leverage.
Speaker Change: As well as the action to manage the marketplace, they're largely across the portfolio. I wouldn't point out one particular geography, more so than the other, in terms of where a particular challenge lies.
Speaker Change: We are seeing a lessening benefit from product costs in Q2 and from strategic pricing actions in the prior year which we still saw in Q1 of this year.
Speaker Change: and so that's also playing an impact on the year over your comparisons.
Speaker Change: And then I guess what I would also highlight is, you know, we're watching the EFCO sports strike really closely, we haven't baked anything in for a timeline on the EFCO sports strike, but that's a possibility of a risk related to what we're talking about right now.
Speaker Change: We have time for one more question and that question comes from Brooke Roach with Goldman Sachs. Please go ahead.
Brooke Roach: Good afternoon and thank you for taking our question.
Brooke Roach: I was hoping we could dig in a little bit more on the China business and what you're seeing between the Reef on the macro and what specific to 90, how should we be thinking about your inventory levels by Channel in China and what types of engagement are you seeing on some of your franchise products versus your new innovation with the Chinese consumer today. Thank you.
Speaker Change: Well, as I mentioned in my prepared remarks, our traffic was soft across all channels in the quarter.
Speaker Change: When we look at the performance in our business, we look at our industry and we look across industry.
Speaker Change: For what we can see Nike's not immune to the challenges with the consumer in greater China today.
Speaker Change: The Marketplace has been promotional and we've actually been...
Speaker Change: Seeing improvements in full price realization over the past few seasons as we've managed our inventory very carefully.
Speaker Change: But this quarter we were more aggressive in promotional activity, given the traffic trends and given what we were more broadly across the industry.
Speaker Change: I think that you can probably most notably see where we're focused on inventory on the wholesale side, where our revenue was up 10% in Q1
Speaker Change: This was partly impacted by shipping timing, but retail sales grew in the quarter but they didn't grow at that rate.
Speaker Change: and so we're focused on proactively managing forward-looking order books with our partners but also margin assistance.
Speaker Change: in order to move through excess inventory so that we can ensure that we stay healthy. And our partners are getting behind the newness and the innovation that's coming in the second half of the year.
Speaker Change: In the first quarter, our top innovation and sport performance stories actually resonated quite well.
Speaker Change: Peg 41, Peg at the 41 performed really strongly, Alphafly 3 and running is growing in China.
Speaker Change: Sabrina 2, KD, resonated with consumers.
Speaker Change: and I mentioned Kobe. Kobe's a beloved athlete in China and it was one of the biggest opportunities we saw to bring Kobe back into the product family and we're incredibly excited about the energy that is building in China for Kobe.
Speaker Change: and so we believe that when we create distinction in the marketplace, whether it's against our global competitors or local competitors, when we bring our best stories in our best products to the marketplace.
Speaker Change: and I think we can send you the feedback.
Speaker Change: As it relates to the classic franchises, there was definitely strong demand for the classic franchises in China.
Speaker Change: Jordan is a big business in Greater China and we're watching and managing that business carefully.
Speaker Change: But our focus and attention is really on performance and innovation, and you heard me say before that innovation has the highest mix of business in China relative to some of our other geographies.
Speaker Change: Now, as we look long-term, even though we've moderated our near-term expectations for China for the remainder of this year, sport is a growth industry in China.
Speaker Change: Sport Participation is on the rise.
Speaker Change: and we believe that we're optimistic about the long-term possibilities for Nike and Greater China. We're going to keep playing our strengths around innovation and newness.
Speaker Change: We think of the investments that we have in the marketplace.
Speaker Change: from a retail point of view and the way that we present our products to consumers through our partners' tours.
Speaker Change: gives us an opportunity to present our brand in a way that we can't do anywhere else in the world.
Speaker Change: and we're focused on capabilities that we've been building, specifically China for China around product, around our digital platforms and supply chain, in order to be able to continue to serve the local consumer at the speed that that marketplace is moving.
Speaker Change: So we're optimistic about the long-term opportunity for Nike and China and the long-term opportunity for sport in China.
Speaker Change: Ladies and gentlemen, that does conclude today's conference call. Thank you for your participation and you may now disconnect.