Good afternoon, everyone. Welcome to NIKE's Fiscal 2012 Third Quarter Conference Call. For those who need to reference today's press release, you'll find it at https://investors.nikeinc.com. Leading today's call is Kelley Hall, Vice President of Treasury and Investor Relations. Before I turn the call over to Ms. Hall, 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 the reports filed with the SEC, including Forms 8-K, 10-K and 10-Q. Some forward-looking statements concern future orders that are not necessarily indicative of changes in total revenues for subsequent period due to mix of futures and At-Once orders, exchange rate fluctuations, order cancellations and discounts, which may vary significantly from quarter-to-quarter. In addition, it is important to remember a significant portion of NIKE, Inc.'s business including equipment, NIKE Golf, Cole Haan, Converse, Hurley and Umbro, are not included in these futures number. Finally, participants may discuss non-GAAP financial measures, including references to total wholesale equivalent sales for NIKE, Inc. businesses that have license sales. Wholesale equivalent sales include those reported revenue and estimations of sales by licensees based on the royalties paid. References to total wholesale equivalent sales are only intended to provide context as to the overall current market footprint of the brands owned by NIKE, Inc., and should not be relied upon as a financial measure of actual results. Participants may also make references to other nonpublic financial and statistical information and non-GAAP financial measures. Discussion of nonpublic financial and statistical information and presentations of comparable GAAP measures and quantitative reconciliations can be found at NIKE's website, https://investors.nikeinc.com. Now I would like to turn the call over to Kelley Hall, Vice President, Treasury and Investor Relations.

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE's fiscal 2012 third quarter results. As the operator indicated, participants on today's call may discuss non-GAAP financial measures. You will find the appropriate reconciliations in our press release, which was issued about an hour ago and at our website, investors.nikeinc.com. Joining us on today's call will be NIKE, Inc. President and CEO, Mark Parker; followed by Charlie Denson, President of the NIKE Brand; and finally, you will hear from our Chief Financial Officer, Don Blair, who will give you an in-depth review of our financial results. Following their prepared remarks, we will take your questions. [Operator Instructions] Thanks for your cooperation on this. I'll now turn the call over to NIKE, Inc. President and CEO, Mark Parker.

Thanks, Kelley, and good afternoon, everyone. Q3 was another strong quarter of double-digit growth for NIKE, Inc. NIKE, Inc. revenue for the quarter grew 15% to $5.8 billion. Earnings per share grew 11% to $1.20 and NIKE Brand global futures grew 15%. That performance illustrates what NIKE is all about, and as the relentless flow of innovation to serve athletes, celebrate sports and create opportunities for everyday athletes to connect with NIKE and each other around the world. Collaboration is essential to how we innovate and grow. At NIKE, that always starts with insights from athletes, from the elite competitor to the everyday athlete. And it expands from there to include partners inside and outside our industry who inspire new ways of thinking; our retail partners, our manufacturing partners, universities, technology companies, NGOs, entrepreneurs and many more. In our business, it's collaboration and the ability to consistently innovate that create momentum and fuel long-term growth. And that's what I'm going to talk to you about today. When all met here on the NIKE campus last June, I said, "We're entering a time of unprecedented and game changing innovation." And that's what you saw from NIKE in Q3, and there's much more to come. We introduced the NIKE FuelBand, incredibly simple, intuitive and powerful. Not only are we leveraging digital technology, we're advancing it by creating broader assets for people who love sports, seek fitness and thrive on competition. The FuelBand is more than a digital device. It's really an invitation for athletes of all levels to pursue their true potential. We also delivered a new generation of Nike+ in basketball and training, extending the reach of digital tools to make athletes better. The FuelBand and Nike+ deliver on the most important aspects of a young athlete's life, and that's the…

Thanks, Mark. Good afternoon, everybody. Well The NIKE Brand delivered a lot of great innovation this quarter. Consumers expect that from us and is what fueled the type of results we're seeing. On a constant currency basis, global revenue for the NIKE Brand was up 16%. Global futures are up 18%. We grew revenues in every geography except for Japan, which is still recuperating from that devastating event from last year. And all 7 of our key categories increased revenue, with 5 growing at double-digit rates. And our brand DTC revenue increased over 20%, driven by comp store growth in both factory and in-line doors, as well as online sales increasing by over 25%. We consistently refer to 3 key components in our ongoing success: product innovation, brand strength and premium distribution. That's what drives our growth. So let's start by looking at Basketball. In Q3, we saw the return of the NBA and we launched 4 signature shoes: the Air Jordan 2012; the Nike Kobe VII System Supreme; the 5th signature shoe for L.A. Clipper Chris Paul and a new Kevin Durant shoe called Zoom KD 4. We also saw a new Air Force 1 Low Supreme and a little shoe called the Zoom Foamposite “Galaxy” One, which brought people out to the stores by the thousands. On the Apparel side, we launched the new Hyper Elite uniforms for 9 leading college teams heading into March Madness in the NCAA tournament. On the Brand side, we're extending the Nike+ community of more than 6 million registered users into the world of basketball with the release of the Hyperdunk Plus [ph]. For the first time, you can digitally track your speed, quickness, vertical jump, as well as generate NikeFuel points. And the data transmits directly to your smartphone, where you…

Thanks, Charlie. I'd like to begin with 3 key points we'd like you to take away from today's call. One, that our largest businesses continue to demonstrate powerful momentum, fueled by innovative products and deep consumer connections. Two, that we have tremendous opportunities for growth, and we're investing in them. And three, that we'll continue to balance investing for long-term growth and delivering near-term financial performance. Let's take the first point. Powerful momentum in our largest businesses. As Charlie told you earlier, the NIKE Brand delivered tremendous performance in Q3 with broad-based growth across the NIKE Brand portfolio, particularly significant are the results we're seeing in North America, where execution of the category offense across product, brand and distribution is driving tremendous growth in all of our key categories in both Footwear and Apparel, performance product and Sportswear, Men’s and Women’s. We've made great progress over the last few years but haven't yet reached the full potential of the category offense even in North America. And we believe we have greater opportunities internationally. We also see tremendous growth and potential at Converse. Year-to-date, Converse revenues are up 17% to $1 billion, reflecting consistent growth in North America and successful market conversions in the U.K. and China over the last 18 months. On a wholesale equivalent basis, Converse is already a $2.5 billion global brand with incredible, untapped opportunities for growth. Point two, we're investing in our growth opportunities. I share Mark and Charlie's excitement about the innovations we launched in the third quarter, as well as what is yet to come. These innovations are delivering game-changing products for lead athletes and compelling products and experiences for consumers. They also give you an early look at some of the technologies we're deploying in our supply chain to make high-performance products using…

[Operator Instructions] Your first question will come from the line of Bob Drbul with Barclays.

I guess the first question that I have for you is on the inventory comments earlier, can you put any numbers around the unit issues? The units, the excess units that you have? And any more numbers around the Sportswear dollar numbers in China and in Europe?

First of all, with respect to the units, we were up 12% for the NIKE Brand in units, Bob. And over 1/2 of that increase was in transit and the biggest driver there as we talked about earlier is the change in factory deliveries. Last year, as you know, we were very short on Footwear capacity. We have largely caught up now, and we've seen deliveries come back to normal. And that's really driven our Footwear inventories higher. So that's really the biggest driver of the 12% unit increase. With respect to the pieces in China and Europe, I don't have those value numbers right off the top of my head. But I would tell you based on the comment I made earlier in the script over 1/2 of the increase in inventory in value terms is coming out of the businesses where we have the strongest momentum, North America, Emerging Markets and China Footwear.

Okay, great. And then just a question on the futures side of it, can you comment a little bit on how much the NFL early orders impacted the futures and any commentary around the early orders on Hyperdunk or Flyknit that are in these numbers today?

Bob, this is Charlie. As you know, we don't disclose specific information around either events or specific product. It's obvious that those are 2 now reoccurring items that are new to the mix, and we've had some very strong success coming out of both of those arenas. So the good news is they're now both reoccurring and we're looking forward to the growth both out of the Nike+ introduction into basketball, as well as the relationship with the NFL.

Yes, Bob, I think just to dimensionalize here, too. If you look at our sales trends before the events and the NFL were in the futures number, we've been growing double digits. And we just told you that for FY '13 we're expecting revenue growth at the high end or slightly above our long-term target range. So there is obviously an impact to the NFL and the events, but we've got very strong underlying demand curve as well for the rest of the business.

And we're just getting started.

Your next question will come from the line of Kate McShane with Citi Investment.

I'm wondering if you could walk us through some of the drivers of growth in China. I know Footwear sales have been very strong as you called out before. But is there any more color you can give us on how much comp increase is driving your growth there and how much is from new product introduction and incremental distribution?

Yes, Kate, I don't have the comp store numbers right now. I would say that we are still seeing growth coming out of both, both in retail expansion as well as comp-store door growth. And I think that we would expect to see both of those continue.

And I think Kate, just to reinforce something that Charlie said earlier in his prepared remarks, we do believe there's a large opportunity to increase the productivity of our distribution in China. And as we really move the category offense into distribution there and Amplify Sport on the Apparel side, we're really confident we're going to be raising the productivity of that distribution.

Okay, great. And then my second question is more longer term, your shop-in-shop initiative has been very successful in the U.S. And is there any opportunity in the rest of North America or maybe in Europe to build out this initiative?

Well, yes, definitely. I think as we continue to see the category offense takes shape in some of the other markets outside the U.S., one of the most productive pieces of that execution has been some of that shop-in-shop work. So we are emphasizing both the shop-in-shop, as well as trying to define and proof of concept category destinations. We're very bullish on both of them. And I would expect to see more of the above in all of the markets around the world.

And I would add, our category offense is really coming into its own, and that's putting us in a better position to really execute some of that type of retail.

Your next question will come from the line of Chris Svezia with Susquehanna Financial.

I guess first on the -- with regard to the inventory, I'm just curious about how long would you expect it to take, to kind of get through the inventory both in Europe from the Sportswear business and in China, just sort of what's the timing on that.

Well -- this is Charlie. We -- as we always talk about, this is one of the things we focus a lot on. I would say that we have very aggressive plans in place to continue to move through some of those situations that you spoke to. At the same time, we've got great brand strength in both markets. We have a very strong Footwear business obviously in both markets, and it complements where we're at in Apparel. So the biggest issue is around that Sportswear piece in Europe and in China in Apparel. And I'm pretty confident that we're going to move through that certainly over the next 6 months.

Okay. And then Don, just a quick question for you. When you talked about just sort of preliminarily, when you look at 2013, you expect gross margin rate to improve. Any thoughts about if that turns positive? Or are you just talking about directional improvement? Or you're actually talking that to be positive? I think it would be positive, but I'm just kind of curious, if you can elaborate.

Yes, what I meant by that is we expect it to be higher in fiscal 2013 on the full year than it will be for 2012 full year. So we do expect it to be higher.

Your next question will come from the line of Michelle Tan with Goldman Sachs.

I was wondering if you could clarify just I think this is what you're saying, but on the gross margin adjustment to your previous plan in Q4 and the miss in Q3, is the vast majority of that, these pockets of excess inventory that you have on the Sportswear side?

Yes, the main variance versus what we had expected was what it cost us to move inventory a little more aggressively. And just to put that in context there really wasn't much of a difference year-on-year on those costs. We just expected them to improve in the third quarter, and they really didn't. So it's really been that. The input costs are overwhelmingly the biggest impact year-on-year. But in terms of where we thought we were going to be when we talked to you on the last call, it really was a little bit more aggressive moving of inventory.

Okay. And then as we look forward and think about kind of the big pressure points that you've been experiencing on the margin, the IMU pressure because of product costs relative to pricing, the closeout pressure that you've had and the supply-chain issues that you've had on some of the hotter products, when we think about the time frame for those to become -- each of those things to become year-over-year upsides drivers, when do each of those 3, in your mind kind, of roughly start to kick in?

Well starting at the tail end, I mean we've talked about capacity a minute ago, but we are largely caught up on capacity. When I say largely caught up, I mean the growth rates that we're seeing here both in terms of what we reported in the third quarter and the order book, I mean, there’s still very, very rapid growth. So there is no finish line on that as we would say. But right now, we're really in good shape in terms of factory deliveries. Charlie talked a little bit about the perspective on inventory. And we gave you some sense that we think that's an equation we think works out over the first half of fiscal 2013. With respect to raw materials costs, that one is, as Mark said, easing but not yet or maybe not returning to where it ultimately was 2009 or 2010. And then as everyone has said labor costs continue to go up. Now balancing against that, in the third quarter, we were probably at 4% to 5% up in unit sales price. And you heard the futures disclosure around unit increases about plus 8%. And as Charlie said earlier, we have a lot of confidence that the innovation pipeline and the brand strength we have right now gives us the flexibility to continue over the long term to improve our gross margins.

And I'll add, we continue to be as aggressive as we've ever been and looking at innovation in product and the supply chain to offset those margin pressures and look at ways to actually expand our margins through new manufacturing methods. I mentioned Flyknit. There's quite a few other major initiatives along the same line that we're investing in that we think will have some significant impact over the longer term on the margin expansion opportunity.

Okay, that's great. And is there's any kind of more help you could give us on when the pricing that you're starting to take actually starts to re-extends some of the IMU against the cost kind of curve that you're starting to see or that you see through the next several quarters?

Yes, at this point, Michelle, we wouldn't want to start giving quarterly guidance on margin. We're, I think, providing quite a bit of direction around where we think 2013 is. But as I said earlier, we really haven't gotten our planning process completed. But we do expect sequential improvement as we said in the fourth quarter and then overall for 2013, I think we'll be better.

Your next question will come from the line of Omar Saad with ISI Group.

I had a couple of quick questions. On the inflation piece, if we think about the persistence of the inflation issue, and it's not just you guys a lot of other companies is in this kind of soft goods world going through the experiences, is it possible that we've just come off of this period of really extended deflation? And I know you have decades of deflation and maybe perhaps we're entering an extended period of inflation especially given commodities, as well as labor rates in emerging markets. And how do you think about that long term in how you position the business, the brand, the pricing, the cost structure? And I also had a follow-up question on the Flyknit, too, if I could.

Okay. Well I guess to tee this up, I think Mark made the comment earlier, I do believe that we do expect there's going to be ongoing volatility in input costs. And certainly, over the really long term, we would expect these costs to generally go up. So we don't plan for a radical return to low commodity prices. And as Mark said also, we think labor generally is going to be headed higher. That's why for us, the long-term strategy really is about innovation, which I'm going to turn over to Mark on the Flyknit side. But also it's about continuing to strengthen our brand. And as you put that innovation in the marketplace and you have a very strong brand, it gives you the ability to have flexibility in terms of how you price the product. And over the long term, brand strength, innovation, those are the things that really let you manage the margin equation and continue to expand it.

Yes, we're not sitting around waiting for prices on materials. Certainly, labor to come down to any historical levels. We're acting very aggressively to apply any opportunity we think is meaningful to really innovate in other ways to take those input costs down and again, like I said, to improve our gross margin picture. And that's a very active, aggressive part of our innovation agenda for the company.

Yes, got you. And Mark, while I have you, on the Flyknit, how -- should we think about this as a platform? Kind of in the way in the past, you've had the Air, the Shox, the Free, the Lunar that can be just kind of taken out across categories. Or is it different because it's a different production technique? And I'm assuming it's a proprietary production technique as well. If you could respond to that too, it would be great.

The quick answer is yes, yes, and yes. Yes, it's something that we can leverage across the categories, no doubt. I think the potential to leverage this technology is greater than anything we've seen in the past. It really applies to literally every category of footwear that we produce. And frankly even Apparel, as we move forward. So there's -- that's why I'm incredibly excited about this. There’s the leverage we get from a production standpoint, the sustainability story and then, of course, performance. It's really all of those things in one. And we're at the very front end of the potential here. We do see this as a way not only to create a higher performance, more sustainable product but one that actually will gives us significantly better margins as we scale this.

Your next question comes from the line of Taposh Bari with Jefferies.

I wanted to ask a question about just the moving parts around price and cost. So on the pricing side, it looks like you're up by 4% to 5% in the quarter. Futures indicated, up about 8%. And then on the cost side, it looks like up about 20% versus up 15% last quarter. So can you just give us some directional color as you see it now in terms of your visibilty? Are those kind of like the peaks on both the pricing and costing that we should expect going forward? And should we start to see some deceleration over the coming quarters?

All right. So forgive me on the math here a little bit. I think you just quoted a 20% number on cost. So let me just -- I think you're taking that from the inventory cost per unit.

Correct.

Okay. So first thing, as Charlie mentioned in his script and I did too, there's really 2 factors driving up average cost per unit in the inventory. One is higher cost per unit of individual styles of footwear and apparel. That's about 15 points or so. There's about 5 points in there which is just a higher mix of footwear. And that's because the factories caught up, and we've got more footwear on the water. So the actual cost number in the inventory is more like 15%, not 20%. And one thing to bear in mind here is that cost of goods is about half of revenues. So if you were trying to equate the 2, you'd be talking about more like 7.5%, if you follow me. So that -- just to dimensionalize, that's about what's in the inventory, plus or minus. And I think as all of us have said here along the way, this is a very dynamic equation. There is constantly moving parts here around both the revenue equation, around price and mix, and on the cost side in terms of materials and labor and innovation that goes into how we design and produce products. So what we would point you to is that 2013 perspective right now, we do expect year-on-year to be above 2012 on gross margin in 2013. And over the long haul, we are still committed to expanding our margins over time.

I just want to add couple of other qualitative pieces to that, too. I think as we've talked about on the cost side and especially looking at the inventories, I mean the quality of our inventory right now with on-time deliveries and some of the things that we've been challenged with over the past year are in a much, much better condition. So we feel really good about that as we move into summer and fall into these big events. So that's something we feel really good about. And I think with regards to how it affects some of the pricing and our ability to continue to put new and innovative product and consumer experiences into the marketplace, the consumer continues to see the value in those things. And we have confidence both from a brand and a product-innovation standpoint that we're going to continue to deliver on those things.

Your next question comes from the line of Michael Binetti with UBS.

So I guess maybe we can start with some of the price increases in some of the early reads you're seeing. And maybe you could -- I was a little surprise to hear Europe Apparel come up as an area where you had to clear some inventories since the reported revenue number actually grew a bit and looks a little better when we got the press release. So you had such success here with double-digit growth in the U.S. and it seems like it's taking longer to roll out that strategy in Europe. I'm wondering if you can tell us maybe a little bit more on the forensics on the state of the Apparel business over there, what do you think is not catching on and what's some of the changes that you think you need to make?

Yes, I think maybe we're guilty a little bit of overreacting to the European Apparel piece only in a sense that the performance side of the equation is performing extremely well. And we're very happy with that. And as kind of reflective of my commentary, we're really going to leverage that performance success and better align some of the sportswear. So sportswear apparel inventory situation, that is the issue. So we feel very good about that. And to your point, I think one of the challenges is we haven't been able to -- or we haven't executed, I guess, the category piece, as well as we should. And I think we called that out. And it is the focus going forward in Europe is to get that in a better place. And we think it will have, really, a very positive effect on the overall position of the business. The brand continues to be extremely strong. We're still the #1 brand in Europe. The Footwear positioning is -- market share lead is still very considerable. And we feel -- like I said, Western Europe is still a very, very big growth opportunity for the brand.

We have a very strong performance position in Europe like we do around the world. And our unique proposition in Sportswear is to leverage that performance position. And we think we have some good room for opportunity to do that in Europe, maybe more so than any other region or territory around the world. So that's really our focus, is to take our unique proposition and performance that is going to come to a new crescendo here with the European Championships and the Olympics and really leverage that much more effectively like we have in North America and the Emerging Markets particularly, and do that in Europe.

Okay. And then I don't think we've had enough questions on gross margin, so I'll go ahead and throw one in. But on the -- as you think about how to guide us for the following quarters on gross margins, I have to think that you want to -- the numbers you've been giving us for the guidance for the last few quarters really haven't been hitting the optimistic scenario that you probably like to come out and tell us, right? Last quarter we thought it was going to be down 50 in the fourth. And now, down a little more than that. So as you think about how to set the guidance and where to be conservative and how to think about where the pricing is working versus where we should set expectations for how much we're going to have to clear product, is there anything different about how you approach guidance for the fourth quarter here that said maybe we're a bit more conservative considering we came in a little bit below where we wanted to be here in the last couple of quarters?

Well that's a tough one to respond to there, Michael. But what I would say to you is there's a lot of moving parts in gross margin. And what I would tell you is we feel fantastic about the fundamental drivers that we control. We always talk about the fact that there are some pieces of the equation we control, some we don't. We have taken more wide scale price increases for spring and summer. We're really pleased with how those are playing out in the marketplace on sell-through. The strength of our brand and the innovation pipeline give us good opportunities to take price and have it stick and both of those are strong as they've ever been. We've got some great innovations coming that I think -- we talked about Flyknit that take labor out, take waste out. In the long run, those are all the things that are going to let us move this equation. I would love to get it exactly right every quarter. I don't always do it exactly right. But if you look at the long-term equities that we have in the business, our ability to manage gross margin, we feel great about where this is playing out. And we are seeing sequential improvement. It's getting better, not quite as fast as we hope but it is getting better.

Right. And just a quick housekeeping question. You guys are usually helpful in telling us if the futures window is stronger in the front half or the back half. Can I ask that how that looks?

It's balanced across both halves of the window.

And is the futures window now reflecting all the price increases that are planned? Or is there another incremental step-up from the price increase that might be rolling out a little bit later anywhere?

Well the current futures window would include spring and a little piece of summer. And that would include the current price less basically.

That's all the time we have for questions today. So I want to say thank you to everybody for joining us. And we will talk to you next quarter.

Ladies and gentlemen, this does conclude today's conference call. Thank you all for joining, and you may now disconnect.