Nike 2027 Q1 Earnings Call

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss Nike, Inc.'s first quarter fiscal 2027 results. Joining us on today's call will be Nike, Inc. President and CEO Elliott Hill and CFO Dave Denton. 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 or Nike's website, investors.nike.com, for comparable GAAP measures and quantitative reconciliations. All growth comparisons on the call today are presented on a year-over-year basis and are currency neutral unless otherwise noted.

We will start with prepared remarks and then open the call for questions. We would like to allow as many of you to ask questions as possible in our allotted time, so we'd appreciate you limiting your initial question to one. Thank you for your cooperation on this. I'll now turn the call over to Nike, Inc. President and CEO Elliott Hill.

Before I begin, I want to welcome Dave Denton to Nike. Dave brings deep financial expertise, strong operational leadership, and a proven track record of helping world-class companies grow. I'm excited to partner with him and the rest of our senior leadership team to serve consumers better, accelerate our profitability, and create long-term value for shareholders. For the first quarter, results were in line with our expectations. Nike, Inc. revenue was within the range we guided to. Gross margin improved, as we said it would, and we managed costs with discipline. Importantly, the quarter showed the sport offense is driving results. Our Nike brand performance portfolio continued to grow. Last fiscal year, we grew this business to $16 billion. We built on that foundation this quarter, growing Nike performance by another high single digits. Today, I'll share more about the momentum we're seeing across our key sports.

Despite that progress, our Nike performance business is not yet large enough to offset the pressure we're seeing in Nike Sportswear, Jordan Brand, and Greater China. We're taking deliberate actions to strengthen those businesses, but realizing the full benefit of those efforts will take time. On the call, I'll provide more detail on what we're doing and why. Dave and I will share how we're transforming Nike's operating model to scale the success of the sport offense across the company. This work has been underway for some time, and it's an important part of building Nike the right way for the long term. Let me start with Nike Sportswear, Jordan Brand, and Greater China. We've identified the areas that need improvement and are actively repositioning these important businesses. Nike Sportswear, which accounted for just under half of this quarter's revenue, was down low double digits.

The decline reflected a combination of deliberate actions, product underperformance, and broader marketplace pressure. The first factor was one we expected. As planned, we reduced revenue from the Dunk by nearly 50% in the quarter. That resulted in roughly $200 million headwind in sportswear. In addition, some aged higher volume sportswear footwear sold through below expectations. Looking ahead, that has impacted our future order books as we proactively work with our wholesale partners to work through excess inventory to create a healthy marketplace. Overall, there's a lack of energy in the lifestyle space right now, which is impacting traffic. Yes, the consumer is cautious. But as the leader in the industry, it's on us to bring more creativity to sportswear. The headline decline only tells part of the story. Within sportswear, several major franchises are healthy and growing.

The Air Force 1, one of the most important sneakers in the world, is now driving a stable full-price business through new dimensions and seasonal materials and colors. We also have a handful of sportswear footwear franchises that have scaled over several seasons that grew by strong double digits in this quarter, led by our running-inspired silhouettes, the P-6000 and the Vomero 5. And where we have introduced newness at scale, we've seen early success. We launched Studio Fleece for women and Solo Fleece for men during back-to-school season, and the Studio Fleece was the best performing apparel collection of the quarter in all of Nike, Inc. The common thread across these successful franchises is clarity. They know exactly who they are serving. That's the lesson. The sportswear consumer isn't one audience. It's a collection of consumers with distinct needs, tastes, and motivations.

We're organizing sportswear assortments the same way we've organized our performance business, around specific consumer insights and distinct style preferences. We're breaking down the sportswear business into smaller areas of focus to create a more diverse product portfolio and a more differentiated marketplace. We'll see less of a sea of sameness that's hurting the lifestyle marketplace across our brands and our competitors right now. That's how we believe we'll move from managing a few successful sportswear franchises to building a deep bench of winners across the entire marketplace. With Jordan Brand footwear, we're going to get back to leading the scarcity model that we created. Simply put, we've been oversupplying our iconic retro product, asking them to do too much. As we've done with the Air Jordan 1, we will deliberately reduce the volume and frequency of specific Jordan retro launches. We've discussed it with our wholesale partners.

Together, we will restore balance to the marketplace to create a foundation for more profitable and sustainable growth. In the near term, North America will feel the biggest impact. To give you a better sense of the scale of these actions, in Q1, the Jordan Brand represented 13% of our global business, with revenue falling by mid-teens. Here's why we're doing this. When consumers see the Jumpman, it should feel special. It should feel earned. Every decision we're making is designed to ensure the Jordan Brand remains as coveted a decade from now as it has been for the past several decades. Let's turn to Greater China, where for the quarter, revenue declined 26%. With a new leadership team in place for the past six months, we have been moving with urgency to alter the landscape and improve our position in the marketplace.

As we announced in July, we are activating a plan to clean up the digital side of this market. We are eliminating distribution through channels that are not aligned with our marketplace strategy, which will decrease the deep discounting of our brands. We will anchor Nike's and Jordan's digital marketplace in China around fewer, higher quality experiences through the official Nike flagship storefronts on Tmall, JD.com, and Douyin, alongside nike.com and the Nike app. We believe a tightened digital ecosystem of Nike flagships will enable a more premium brand presentation with clearer product stories and a more connected consumer journey. The focus will allow our top partners to concentrate on creating inspirational brick-and-mortar retail experiences. The majority of our partners' physical doors in Greater China have not been refreshed in the past seven years. When we elevate retail experience and lead with sport, we see results.

In Shanghai, our House of Innovation has delivered 10 consecutive months of growth since making that shift. In the near term, revenues and profitability in China will be impacted. We expect our digital cleanup to take multiple seasons as we continue to take targeted actions with our partners to improve inventory levels. Taken together, Nike Sportswear, Jordan Brand, and Greater China represent significant work ahead. But we know what healthy looks like, and we're taking deliberate actions to get there. These challenges are significant, but they are not the whole story at Nike. At the same time, the sport offense is delivering measurable progress against our performance portfolio. Here's what that looked like this quarter. Running is up double digits again with consistent share gains. Global Nike Football benefited from World Cup energy to drive strong double-digit growth in all four geos. Training grew globally, led by EMEIA.

Basketball was up double digits in North America, with expectation that the sport will continue its momentum in Q2. Both Tennis and Golf grew double digits. In Nike Running, our innovation in max cushioning helped reignite this business. Led by the strength of the Vomero franchise, we've nearly tripled our share of the max cushioning category over the past year. Now we're entering the next phase of Nike Running. Over the past two months, we've introduced four new footwear innovations, three in our racing silo and one in our Pegasus silo, each built around a different runner, a distance, and a goal. In August, we launched the Pegasus Plus 2, a fast tempo training shoe with a curved Air Zoom unit for a quick, smooth ride. In September, we unveiled the Alphafly 4, a lighter, more energy-giving version of our most celebrated marathon shoe.

Yesterday, we introduced two new shoes that span the spectrum of runners. The Swooshfly, our entry-level marathon racing shoe designed for the four-hour-plus runner. Nike Apex, a super shoe with double-stacked Air Zoom units that deliver an incredible 40% more energy than the Alphafly 3. In global football, we are pleased with our World Cup results as we doubled our World Cup team kits sales compared to the 2022 tournament. One of our strategies going into the tournament was to use the energy to invest in a much needed refresh of the global football marketplace. This quarter, the newly elevated marketplace helped drive stronger sales in our club football kits this quarter, which was up high teens. That is critical because club football fans buy season after season. Training is one of Nike's largest untapped performance opportunities because every athlete trains. We are seeing success across the portfolio.

Nike Motiva has quickly become one of our top-selling franchises. Nike Pro and Metcon are industry icons, and we just introduced the Nike Hybrid Footwear system for both running and strength movements to serve the fast-growing world of hybrid training and racing. The new Nike Air Zoom Hyperslide brings the next recovery innovation from our Nike Hyperice partnership to a more accessible price point. In basketball, where we are the global leaders, one of our most powerful growth opportunities is the women's game. Nike Basketball has grown our women's signature business nearly 500% from FY 2022 to FY 2026. Today, we activated the largest women's signature shoe launch in Nike's history, the Caitlin 1. It will launch in 5,000 doors, twice the average for a Nike Basketball signature shoe, supported by our largest Nike product campaign for the holiday season. What we have learned through the sport offense is that focus wins.