Good afternoon, everyone. Welcome to NIKE, Inc.'s Fiscal 2018 Third Quarter Conference Call. For those who need to reference today's press release, you'll find it at investors.nike.com. Leading today's call is Nitesh Sharan, Vice President, Investor Relations and Treasurer. Before I turn the call over to Mr. Sharan, 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 the Annual Report filed on Form 10-K. Some forward-looking statements may concern expectations of future revenue growth or gross margin. In addition, participants may discuss non-GAAP financial measures, including references to constant dollar revenue. References to constant dollar revenue are intended to provide context as to the performance of the business eliminating foreign exchange fluctuations. Participants may also make references to other non-public financial and statistical information and non-GAAP financial measures. To the extent non-public financial and statistical information is discussed, presentations of comparable GAAP measures and quantitative reconciliations will be made available at NIKE’s Web site, investors.nike.com. Now, I would like to turn the call over to Nitesh Sharan, Vice President, Investor Relations and Treasurer.

Thank you, Operator. Hello, everyone, and thank you for joining us today to discuss NIKE, Inc.'s fiscal 2018 second 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 or at our Web site, investors.nike.com. We will start with prepared remarks then we will take your question. 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 questions to two. In the event, you have additional questions that are not covered by others, please feel free to re-queue and we will do our best to come back to you. Thanks for your cooperation on this. I'll now turn the call over to NIKE, Inc. Chairman, President and CEO, Mark Parker.

Thanks Nitesh and good afternoon everyone. I'd first like to acknowledge the changes we made last week to further evolve our culture and restructure our leadership. We became aware of some behavioral issues that are inconsistent with Nike's values of inclusivity, respect and empowerment. I'm committed to ensure that we have an environment where every Nike employee can have a positive experience and reach their full potential. As you know, I publicly committed to serve as Chairman, President and CEO of NIKE, Inc. beyond 2020. Trevor Edwards and I both agreed to a change in leadership structure in the Nike brand at this time. As we transition to our next phase of growth and continue to evolve our culture, Trevor will work with me as an advisor through this transition until he retires in August. And I'd like to thank him for his important and significant contributions in growing and strengthening the Nike brand around the world. We have a deep leadership bench at Nike and I'm confident that our restructured leadership team will continue to strengthen our culture and drive the Consumer Direct Offense. So with that this call will be led by our CFO Andy Campion and me. So let's turn to the results we delivered in Q3 and the strong momentum we're building as we look forward. Simply put the Consumer Direct Offense is working. Through 2x innovation, we're creating and scaling new product platforms while also becoming sharper editors. Through 2x direct, we're moving closer to the consumer through differentiated retail concepts leading with our mobile apps, dotcom and digital partners. And through 2x speed, we're serving consumers at their pace. During our Investor Day, we discussed the significant potential we see in our international markets. And in this quarter, we delivered strong and sustainable growth…

Thanks Mark and hello everyone on the call. Our Q3 operating results make it clear that the Consumer Direct Offense is already igniting Nike's next horizon of strong profitable growth. And there are several key themes within our performance that speak to the long-term sustainability of our momentum. First, we exceeded the revenue and gross margin expectations that we set 90 days ago fueled by an unprecedented flow of new products and innovation platforms that will scale over time. As Mark detailed in the third quarter, we launched the Nike React and the Airmax 270 platforms to extraordinary consumer demand. We also began to scale and diversify the Air Vapormax platform and the ZoomX platform and running continues to sell out as we launched new colorways. While we're clearly doubling the canes and impact of innovation our product momentum is even broader based. Our edit to amplify approach is bringing focus and accelerating growth within our power franchises like the Air Force 1 family of products and other key styles. We're running a much more complete offense, yet we still see tremendous opportunity to improve and edit how we serve our consumers. Second, our results in Q3 confirm that the Nike brand more directly connects with consumers, we see the greatest growth. Our Nike digital ecosystem in particular is setting the pace for growth in all four of our geographies. On a currency neutral basis, nike.com grew 18% globally driven by the expansion of our digital apps in international markets as well as the launch of Nike+ membership in North America. In each of our international geographies, nike.com's rate of growth outpaced the overall marketplace rate of growth by 2x or greater. And in North America nike.com not only grew but has been accelerating over the last two months. Nike…

[Operator Instructions] Your first question comes from Omar Saad with Evercore ISI.

Thanks. Good evening.

Good morning, Omar.

I wanted to ask you guys -- great job on the quarter by the way, it's great to hear all the progress and a lot of information on the call as well. It’s much appreciated.

Thank you.

The reshaping of the marketplace, wholesale especially going from I think 30000 to 40,000 partners, can you talk about the progress along that transformation where we are, what the impact has been, and maybe also layer in and put that in the context of the growth in the consumer experiences. You spent so much time talking about that aspect where you're engaging with consumers. I thought you said it was over 100% of the growth in the quarter. Are you seeing a lot of that new channel development offset that reshaping on the wholesale side? Is that the right way to think about it? Thanks guys.

Thanks Omar. Well, let's go back to the Investor meeting in October. We laid out how we want to shift the look of our overall marketplace. To be 80% differentiated is our target and that's over the next five years. And I'd say as we commented we're making some great progress on that front. You pointed out and that's what we said is Nike consumer experiences drove 100% of the growth in the quarter. That's double-digit increases in new NikePlus members which is a really key part of that strategy. We've had great feedback in terms of the NBA All-star weekend and some of the sell through in basketball, we are seeing and that involves not only our direct doors but some of our key partners. NBA All-star weekend, we had Kits and Revolve as two examples. Foot Locker was participating in that as well. And then, we're bringing some of the new concepts to market here starting very quickly with Nike Unlaced with a digital launch and then physical coming up in summer, the Nike app at retail and HyperLive are some of the examples there. As far as our -- this is impacting our overall marketplace, we're working with our key partners to help differentiate them in their respective positions. Those conversations are ongoing with most strategic partners. We've aligned on the role that they play in serving our consumers from Dick’s to Foot Locker to Nordstrom, and this is not only physical retail but its how physical and digital interact. And then, we have other digital partners which are obviously key to this transformation. Zalando and TMall, ASOS and even Instagram for example. So this is a multi-year journey for us, and I'd say we're making great progress in shaping that marketplace and I think we'll continue to elevate our own direct business, but we will also help to differentiate and elevate our key wholesale partners along the way.

And Mark, one follow up. In terms of the new shoe launches, you’ve talked about SNKRS and some of the other apps. Is this the new model for kind of those premium limited distribution shoe launches whether you're doing it internally or with a partner versus kind of the old world model? Is that the right way to think about it? Thanks.

I think digital and mobile apps for example are going to play a big and bigger role in how we launch some of these key innovations and platforms. It's definitely how consumers are shopping, and it's definitely where we're putting a lot of emphasis on how we orchestrate these launches, how we invest to serve the consumers through those apps. I think you'll see more storytelling coming to life from a digital standpoint including our mobile app based launches. So yes, I think you'll see this become a bigger and bigger part of our strategy and a bigger part of the results that we're seeing.

And then just to add to that Omar, as Mark touched on in his remarks, ideally we're also leveraging these digital applications in the physical retail environment, and we're going to be testing and iterating on the launch of the Nike app at Retail with our key flagship stores in our key cities, starting with North America.

That's a key point is the integration of physical and digital, which obviously is something that everybody is talking about. But you'll see that happen more and more with how we roll out new experiences in our own physical retail doors is that connection to digital. So this connection is going to start to blur more and more and I think one will complement the other.

Thanks Omar. Operator, we will take the next question please.

Your next question comes from Kate McShane with Citi Research.

Hi. Thank you. It's Corinna Van der Ghinst for Kate. You guys discussed the success of the Vapormax, some of these Air platforms and the React which I finally just got my hands on. But, we were just wondering what gives you confidence in the inflection in North America when the Q3 top-line was actually weaker than Q2?

Well, if you look at Q3, there is momentum that has been building through the quarter and that's where the confidence we have in terms of Q4 comes from. We're on the front end of obviously, the very front end of launching React and the response has been phenomenal. I think I said it's been a record-setting performance launch for Nike. I think that's also a case of a performance basis that has also translated well into a product that can be worn on the street. So there's performance actually driving sportswear and lifestyle in one product. The other aspect of that is, we are very committed to developing our platforms, so React starts with the Epic React running shoe, but you'll see that play out in other categories and also in more models at different price points within running. So I think that leverage is only going to build over time and that's something that isn't unique to react. It's also what we're seeing in Vapormax as well. And then, nike.com in the quarter has been a case of month-to-month acceleration and that's driven also in part by these launches and we think that that is going to continue at a strong pace and accelerate really through Q4 and beyond. So that's a big part of this as well.

Yes. And I just add, our results in the third quarter in North America were largely in line with what we expected in the quarter. The contraction was primarily a result of declines in undifferentiated wholesale and a deliberate tightening in the distribution styles within the Jordan brand. So that did have an impact on year-over-year comparisons. But as we said, we're really excited about the heat we've reignited with that brand and the clean inventory levels that we have there too. And then to your point on innovation platforms, one of the metrics that we look very closely at is the rate of sell through as we launch products at the initial levels of supply and the rate of sell through on the Nike React in particular the Airmax 270 and those other styles far exceeded our expectations. We talked about supply selling out in hours with members and in days as compared to what we expected would be weeks with more broader distribution. So that's a leading indicator of the magnitude of demand for those new innovation platforms.

I think it's safe to say that these key styles and platforms are accelerating at a more rapid pace than we've seen historically and we're doing everything we can to accelerate and leverage those platforms within the Nike brand, but across categories but also across the brands in the portfolio.

Thanks very helpful. Thank you.

Operator we will take the next question please.

Your next question comes from Jim Duffy with Stifel.

Thank you. Hello everyone. Andy, I'll start with a question for you. Your initial comments around gross margin for fiscal '19 are encouraging. It's been a long time since that FX was in but a headwind there. Was FX now expected to make a positive contribution in fiscal '19? Are there other offsets that are holding back gross margin to keep it within your kind of long-term objective range?

Well, there are obviously a number of factors within gross margin as I said we see strong gross margin expansion roughly in line with our long-term financial model. We're still completing or finalizing or planning, so we're not providing more specific guidance than that at this point. As for product cost, labor and some other input costs are increasing a little bit but we do still see strong gross pricing margin expansion in addition to FX becoming a slight tailwind. So all of those things are incorporated in our guidance. I think the headline is we see strong gross margin expansion. And to your point, we're looking forward to putting those FX headwinds behind us, but we'll update you with more specifics in terms of a range on our Q4 call.

Great. Thanks. Mark, question around Zodiac, do they have any particular strength or competency that you saw as strategic. I guess I'm curious are there particular algorithms or predictive analytics that distinguish them from your in-house capabilities or other outsourced alternatives? And then, related analytics, do you see that as an in-house competency, is that your objective to really strengthen that muscle in-house or do you expect to work with partners on an outsource spaces?

Yes. Well, first of all, the first part of your question Zodiac is a small tech company really comprised of world-class scientists and engineers who are based out of New York. They bring in-depth understanding of how to optimize consumer value and understand what's behind consumer growth or potential. We've been working with Zodiac for the past several months using their proprietary algorithms and models and I'd say we're just extremely excited about how we can more fully leverage those capabilities to accelerate some of the key pillars of our strategy. And one of the areas that I think I'd particularly call out is how they can help us power up our Nike membership to better leverage the data there to capture demand signals in our key cities and help to inform our Express Lane. Yes.

And I just add Jim, you asked is this acquisition versus in-house? The short answer is we're both building the capabilities in-house to drive our digital offense and selectively acquiring teams or technology to accelerate against that build. So we already have made significant investments in building our Nike membership team and data analytics capabilities and are fortunate to have some great talent that's joined our company over the past couple of years and bringing on teams like that at Zodiac and some other teams that we've been in discussion with are additive.

Yes. Advancing this capability, I would just say is, absolutely fundamental to fueling the strategy that we have in front of us, which is to be more personal at scale. So this is directly in line with that that critical part of our strategy.

Thank you, Jim. Operator, we will take the next question please.

Your next question comes from Simeon Siegel with Nomura Instinet.

Great. Thanks. Good afternoon guys. So recognizing exciting innovation. Any help thinking through your expectations for footwear versus apparel embedded within the North America guidance? And then just any further color you can share on the Amazon test? Thanks.

Okay. Well, we certainly see strong growth in both footwear and apparel. Looking backwards, we've had incredibly strong growth in apparel. I mentioned that apparel was -- our growth in apparel was industry leading in EMEA driven by our tech fleece business and some other innovative products like the Flyknit bra and other products within our portfolio. We see these launches of innovation as well as our focus on the power franchises fueling accelerating growth in footwear. So that it's more balanced going into fiscal year '19.

Yes. I'll just add that apparel sometimes falls in the shadow of footwear, but we are one of the largest apparel companies in the world. I think our strength comes from both our performance position and how we leverage that across sportswear. So actually we're very excited about some of the performance innovation coming in apparel. In fact our 2x innovation initiative commitment is equally being applied to apparel. And I think that will impact a product that you'll see at the World Cup, you'll see it at the NBA championships, you're seeing with our relationship with the NBA across all sport categories training. And then, it will wind up influencing more and more of the sportswear category as well where we are performing incredibly well. I'm really excited about what's coming in innovation and apparel, and then, our ability to kind of push on both sides of the performance and sportswear side. So there's a lot coming in apparel and frankly there's a lot coming in footwear -- a lot more coming in footwear than we've talked about. So I think our 2x innovation investments which really kicked into gear about two years ago are really starting to pay off. Anyway back to your second question, Amazon as you know we have -- I think you know we have been extended our pilot with Amazon and to-date it's a smaller U.S. based pilot, it's performed quite well. We've seen good sell through on a limited selection of products. We're expanding that selection of products over this next phase. Our focus on this relationship really is, how we can best work together to elevate the consumer experience and that's really a key part of all of our digital partnerships. So we continue to engage with the U.S. Digital Marketplace to look at how we can serve digital demand from consumers and Amazon is definitely a part of that. We get just a backup for a second and get the most out of the partnerships that advance our brand through better presentation through the sharing of data TMall in China, Zalando in Europe. These are great examples of those types of relationships. So we'll continue to work with Amazon to what we think will be a mutually beneficial partnership over the months ahead.

Thank you, Simeon. Operator, we'll take the next question please.

Your next question comes from Michael Binetti with Credit Suisse.

Hey guys. Good afternoon. Nice quarter congrats. Thanks for getting me in here. I'd like to ask about the investments for next year. You gave some help on the on the top-line and how to think about some of the shape of the P&L. But the investments obviously seem to be working up and down the commentary you guys are happy about it. I mean can we think about whether you'd be interested in front loading some of those investments a little more now. And can you speak to maybe how much you think SG&A growth rate would be next year is it faster than this year slower than this year with a newfound success in the investments and just any directional puts and takes to help us think about how the fiscal year and your early planning looks next to the mid-teens, long-term EPS algorithm?

Yes. Well as you know Michael we didn't give specific SG&A guidance for fiscal year '19 and there are really two reasons for that. One, we've never operated because we're not. We've never operated as if we are and we aren't capital constrained. So our top priority as we look ahead to any given fiscal year is to ensure that we're prioritizing the investments that are going to fuel growth over the long-term as compared to adhering to rigidly to a specific metric in the short-term period. The Tax Act does also afford us even more efficient access to the cash flow and the capital that we generate around the world. So yes, our planning process is taking both of those into account in the context of us having a new very focused strategy. So we're prioritizing investments specifically in innovation. I've told you in the past that we've doubled the investment innovation. We continue to make incremental investments there and I want to pause there for a moment. It's really a competitive advantage for Nike. We currently invest probably more than any other brand in the marketplace, but we're going to continue to make incremental meaningful investments. But those investments are still relatively insignificant compared to the kind of growth and returns that they generate when we consider launches like React to Vapormax and the other platforms that Mark and I have shared. So innovation is certainly a priority. We're going to continue to drive brand distinction. You probably saw our shoes go campaign over the last several months and the energy that that's creating as well as some of the energy recreated against the All-Star Weekend and other big moments in sport. And I would say even though I'm mentioning it third at the top of our list is digital capabilities both building them and like we said acquiring capabilities through teams like the team we acquired in Zodiac. And then, there are really two final areas that are on our short list of priorities making consumer experiences owned and partner that as Mark noted integrate or leverage digital in the physical environment. We are clearly doing that ourselves and we're increasingly doing that with our partners all at various stages of development. But, we are going to continue to test and iterate there. And then finally, we are prioritizing investment in Speed through two key initiatives, our Express Lane and Responsive Manufacturing. So in short, we believe these are investments that are going to drive brand distinction for Nike and fuel our next horizon of long-term sustainable profitable growth and we are going to over index our investment in those dimensions.

Thanks for that. And can I ask a quick follow-up, obviously, you are squeezing a lot of -- more funding squeeze, you talked about, it's good to hear. But then, in your comment about nike.com North America accelerating to strong double digit growth. I know one dimension that channel has been the close out sales that you guys have been so focused on the back end -- past few quarters. And you called it out in the 10-K as the markdowns what will help the margin fact there? Can you give us a sense of how much excess markdowns contribute to the gross margin in third quarter that we will see in the 10-Q and do you think that line in the gross margin atypically give us will be reversing significantly to line up with the comments that you made here today about the foam market?

Yes. I will give you a few data points on that. Overall, ASPs for the entire enterprise were up and ASPs in North America were slightly up all in. On nike.com, we saw some of the margin upside that we delivered versus the expectations we set 90 days ago was actually based on stronger gross margin in our Nike direct businesses and in particular in North America. We are seeing stronger full price sell through and we are seeing better margin on the off-price dimension of that business. Now the off-price dimension of digital is bigger today than it might have been a couple of years ago, so on a relative basis, you've got more off-price in digital and general in the marketplace but not in partner. But, I would say that has been the source of margin expansion for us. And I just summarize it by saying, we are really confident in the go forward impact of both what we are doing from a product perspective and innovation and power franchises as well as the impact of the Nike direct and digital and Nike consumer experiences on our margin.

That's really, really helpful.

Thank you, Michael.

Thanks.

Thank you. Okay. That's all we have time for today. Thank you everyone for joining. We look forward to speaking with you next quarter. Take care.

This concludes today's conference call. You may now disconnect.