Nike Inc - Class B (NKE) — Q2 2015 Earnings Call Transcript

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss Nike’s fiscal 2015 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, and at our website, investors.nike.com. Joining us on today’s call will be Nike, Inc. President and CEO Mark Parker, followed by Trevor Edwards, 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. 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 not covered by others, please feel free to re-queue and we will do our best to come back to you. Thanks for your help with this. I’ll now turn the call over to Nike, Inc. President and CEO Mark Parker.

Thank you, Kelley, and hello, everyone, and happy holidays. Q2 was another outstanding quarter for Nike, and it demonstrates our ability to continue to drive strong, profitable, sustainable growth. For the quarter, Nike Inc. revenues increased 15% to $7.4 billion. Gross margin expanded 120 basis points, diluted earnings per share increased 25% to $0.74, and we continue to deliver strong returns as our ROIC reached 27% and we increased our dividend for the 13th year in a row. Delivering results like these requires a sharp focus on our growth opportunities, making disciplined choices to invest in those areas with the highest potential for return. The world of sport is constantly evolving as is the environment in which we operate. That opens up new opportunities for Nike every day. But to identify and capitalize on those opportunities, we have to stay nimble. We need to balance making critical investments with managing risks, whether they be currency headwinds, commodity cost fluctuations, or an evolving political landscape. The word “balance” is key. To capture the tremendous growth potential we see for Nike, we must invest, and a targeted approach to making the right investments helps us drive growth and manage risk. It’s a winning strategy that has allowed us to deliver profitable, sustainable growth quarter after quarter, year after year. You know, I’m often asked how we can continue to grow, how there could still be places where Nike isn’t fully distributed. When I look at the potential in our business, I actually see the exact opposite. The more we focus on knowing, connecting, and serving the consumer, the more opportunity I see for growth and when we capture those opportunities by leveraging the power of the Nike Inc. portfolio. Let’s take apparel as an example. Today, Nike is one of the largest apparel brands in the world. But as we look up and down our apparel business, we see tremendous opportunity, from premium performance apparel to signature sportswear styles, from running, to basketball, to global football, from North America, to Western Europe, to China, from the Nike brand to Brand Jordan, to Converse, across men’s, women’s, and young athletes. And within each of those dimensions, we segment further and further to find even more opportunity to drive growth. Our diverse set of brands, categories, geographies, product types, and distribution channels provides a competitive advantage that is unmatched, and our relentless focus on serving the consumer allows us to see ever-expanding opportunities for growth within our existing portfolio. Trevor will talk in more depth about our growth drivers in the Nike brand, but let me highlight two additional areas that we’ve been investing in to accelerate growth in our business. First, our women’s business. In October, I was honored to be a part of a powerful moment for Nike Women’s. We introduced our spring/summer 2015 collections in New York City with 27 of the world’s top athletes. It was amazing to have Grand Slam winners, world record holders, and Olympic champions all in one place at the same time. We were also there to spotlight an important cultural shift that’s happening, and sport is powering women’s lives like never before. We see it every day in our digital community of 65 million women, and women are driving a larger global movement of health and fitness. They’re running in record numbers, they’re engaging in new kinds of workouts and athletic activities at a rapid pace, and that means they have new needs, which are creating new insights and inspiring new products and services. And by staying focused on the needs of the consumer, we’re driving growth in our women’s business. There is tremendous energy in women’s and a significant opportunity for us in this important business. Second is our digital strategy. We see digital as an integrated ecosystem of digital communication with consumers, digital products and services to inspire and motivate, and of course, ecommerce. All three dimensions work together to deliver premium personalized experiences for our consumers and drive growth for Nike. Consumers are engaging with technology in new ways. It’s transforming the sport experience and the way in which we connect with them. Athletes are getting a better understanding of themselves and their potential than they’ve ever had before, and we’re able to connect personally with more consumers than ever. Digital is where the consumer is today, and where they will be going forward, and we’re excited about the potential of leveraging digital technology to further drive innovation and continue to deliver increasingly seamless digital experiences for our consumers. Going a little bit deeper on ecommerce, it continues to deliver, with growth of 65% for the quarter. Our investments in infrastructure are really paying off in this space. We’re making it easier for consumers to buy our products and we’re presenting the brand in the most premium way. With opportunity for even more innovation and expansion into new markets, this really is just the beginning of what’s possible for Nike.com. Ecommerce is, without a doubt, one of our biggest and most important growth opportunities, and it will be for years to come. One of the reasons I’m so confident in our growth potential for Nike.com, and really, across our entire portfolio, is because Nike is relentless. We are always striving to deliver something better for the athlete and the consumer. We are, in a word, obsessed, and that obsession fuels innovation. Since day one, we’ve looked to athletes as a source of inspiration, and that hasn’t changed. What has changed is the pace at which athletes demand more of themselves. As they strive for new levels of performance, they demand products that help them get stronger, faster, and more agile, really better in every way. And that pushes us to deliver innovative products and services that go beyond what anyone thought was possible. And it requires us to accelerate the pace of our innovation, to improve not only what we make, but how we make it. Today, we have tools and resources available to us that would have been unimaginable five years ago, from 3D printers, to high-performance knitting machines, to advanced textiles, just to name a few. And we’re not only focused on the quantum leaps in product innovation. Equally exciting is our focus on continuously evolving our existing and proven performance technologies. Nike Air continues to be reinvented, as does Nike Free, Lunar, and Tech Fleece. We create products that are completely new and we make our existing products better. We introduce game-changing innovation in every category in every global market, and at scale. No one else can deliver innovation like Nike can, and that is our greatest competitive advantage as a company. Our ability to leverage and scale this innovation through compelling concepts and technologies across our portfolio of brands and categories, geographies and distribution channels, and on the world’s best athletes and teams, is driving tremendous growth for Nike around the world. And while I’m proud of the results we’re reporting today, I assure you that we are hungry, we’re driven, and we are laser-focused on the future. Our success lies in our ability to see what is possible and then relentlessly pursue it, to stay aggressive always, and remembering, as we say every day here at Nike, the consumer decides. Our business has breadth and depth at a scale that is unmatched in our industry, and we have the leadership team and the strategy to drive sustainable growth. That is what you’ve seen from Nike in the past and that is what you can continue to expect from us going forward. Thanks, and now here’s Trevor.

Thank you, Mark. Happy holidays, everyone. Our strong second quarter results demonstrate the tremendous momentum of the Nike brand. Let’s take a look at the numbers. On a constant currency basis, Nike brand revenue grew 17%. All geographies grew in the quarter, as did all categories except golf. The Nike brand DTC revenue increased 30%, driven by all concepts. Notably, our online business continues to be very strong, with 66% growth in the quarter, and global futures are up 11%, even as we anniversary the strong World Cup order in the prior year. The reason we deliver strong growth across our geographies and categories time and time again is clear. We never lose focus on serving our consumers. As always, these strong relationships are fueled by the power of our brands and the category offense. As we’ve discussed before, the category offense deepens our relationship with consumers by serving them through the lens of sport that matters most to them, as they compete, train, and express themselves. In other words, we live where they live. What’s more, only Nike has the broad portfolio and global reach to execute this strategy around the world. We know what works, and we know how to identify large, untapped opportunities, develop innovative products and marketing strategies on a global scale, and execute them effectively in each marketplace around the world. Now let’s look at two examples of the category offense at work: basketball and our women’s business. It’s no secret why we succeed in basketball. Our relationship with the world’s best athletes provides us great insight that produces incredible product innovation, and these products, in turn, excite and inspire consumers all over the world. Q2 was the 13th consecutive quarter of double-digit growth for our basketball category. Our position as the world’s leader in basketball was supported by strong sell-through of key Nike basketball footwear styles like the LeBron 12 and the KD7. And the Jordan brand remains a powerful growth driver, with performance products like the Air Jordan 29 as well as re-releases like the Retro Jordan 6. You can see this energy come to life with growth throughout the marketplace, from performance to sportswear, and across footwear and apparel styles. Retail destinations like our own DTC stores or the House of Hoops, with Footlocker, remain go-to locations for those who love the sport. And momentum in this category is not limited to North America. We’re also seeing great consumer response to basketball retail destinations in Europe and China, which help us realize the significant potential of these growing markets. Now let’s take a look at the women’s business. As Mark mentioned, the momentum we’re seeing in this business is incredible. The energy was certainly visible at our recent women’s event in New York. I will never forget the thrill of seeing some of the world’s greatest athletes, including Li Na, Allyson Felix, and Skylar Diggins discussing their successes and the power of women in sports. It was truly inspiring. Look forward, we remain on the path to meet our goal of a $7 billion women’s business by fiscal year 2017. We achieve this by making deep connections with consumers in the areas most important to them: running, training, and sportswear. Our strategy means connecting and serving millions of women through the digital platforms, elevating the online and in-store shopping experiences, offering premium product assortments that drive real growth and as always, leading with innovative products. These products offer consumers great fit and amazing style like never before, and they’re presented at retail in a compelling and captivating way. Great product examples from the quarter include the Nike Pro Base Layer collection and the continued strength of the Nike Pro bra as well as performance-inspired style of the Air Max collection. What’s more, we opened women's-only Nike stores in Newport Beach and Shanghai to strong consumer response. Ultimately, we see Q2 as just the beginning of great things to come in our women’s business. Now let’s turn to a few of our key geographies. In North America, we delivered another great quarter with Q2 revenue growth of 16%. That growth proves yet again the success of our strategies. For us, North America offers a roadmap for other geographies as we continue to deliver strong growth in this critical marketplace. By developing deep consumer relationships through the category offense and delivering segmented and differentiated retail destinations, we have driven sustained, profitable growth even in more developed markets where we already have significant market share. Our brand continues to resonate with consumers in North America, which is driving growth in nearly every category. Basketball, sportswear, and men’s training have continued to perform well, and we’ve seen clear acceleration in our women’s and young athletes businesses. Working with our partners, we’ve continued to see growth as we further transform the marketplace. In executions such as the Field House with Dick’s Sporting Goods, the Track Club at the Finish Line, and the young athletes concept Fly Zone with Foot Locker. Additionally, our DTC business has continued to expand, with an increase of 18% in Q2. By providing the products and the experiences our consumers demand, we expect to continue to drive growth in our largest geography. In greater China, we continue to see the benefits of our strategy to reset the marketplace. Q2 revenue growth of 21% reflects our plan to deploy a more consumer-centric distribution strategy, and this approach is definitely working. The Nike brand is exceptionally strong with consumers in China, and we hold the number one market share position in both athletic footwear and apparel. Our leadership position as a premium performance brand allows us to present the innovative products in the most compelling retail destinations in the marketplace. As a result, our whole partners have continued to see strong comp store growth and expanding profitability in the doors that have been reprofiled. This success mirrors the exceptional numbers we’ve seen in our own doors. We’ve driven this return to growth by focusing on increased retail productivity, differentiating our point of distribution and creating more focused consumer experiences. This allows us to provide a narrow but deep product assortment in each door. This better serves the consumer and also allows us to maintain the healthy inventory levels we are currently seeing in the market. We remain confident that we have the right strategy to drive sustainable, profitable growth in China over the long term. Now let’s turn to the emerging markets, which delivered 13% revenue growth in the quarter, every territory except Mexico and Korea, with five of them growing at a double-digit rate. We also saw strong performance coming from sportswear and basketball categories in the quarter. As we’ve discussed, inventory levels in Mexico remain high. This is primarily the result of an inconsistent flow of product to our wholesale partners following transition issues with our distribution center in the early fiscal year 2014. We continue to work aggressively to clear excess inventory and expect to return to more normalized levels by the end of fiscal year 2015. As with every territory in the world, our goal is to operate a healthy market, and we believe we are taking the necessary actions to achieve that goal in Mexico. In Brazil, Q2 revenue growth slowed, as volatile macroeconomic conditions make for a more challenging environment. That said, we see this environment as an opportunity to do what we do best, accelerate our transformation of the marketplace, fueled by the category offense. The consumer’s passion for sport and the Nike brand remain strong, and we are focused on creating elevated and differentiated retail experiences for our consumers in Brazil, as we have done in North America, Western Europe, and China. Online executions through Nike.com will serve as the most premium expression of the brand, offering rich product assortments across a broad range of categories. We are also working with our wholesale partners to create compelling destinations at retail, with a focus on our biggest categories: running, football, and sportswear. Near term, we are working to keep the market healthy in Brazil. We are proactively managing the flow of product into the marketplace, while also swiftly working to clear any excess inventory through the closeout channel. Long term, we remain confident that the emerging markets geography will drive significant growth for the Nike brand. Lastly, let’s take a look at Western Europe. With revenue up 24% in the quarter, we continue to see strong momentum for the Nike brand. The exceptional growth was driven by our relentless focus on the consumer and our work to transform the marketplace in line with the category offense. We continue to develop more differentiated retail executions, both in our stores and with our wholesale partners, while continuing to flow amazing products into the marketplace. All this combined to expand the market and help us take market share. Wholesale partners like Foot Locker, JD Sports, and Intersport are creating compelling category destinations in cities across the geography that are fueling growth. And just as we’ve seen in North America, our DTC business in Western Europe also continues to perform very well, delivering 40% growth in the quarter. This resulted in double-digit revenue growth in every territory and strong growth across nearly every category, with sportswear, football, and running leading the way. Western Europe is a perfect example of the tremendous opportunity that lies ahead for the Nike brand to drive long-term growth. As we finish the first half of the year, the Nike brand has never been stronger. By staying focused on the needs of the consumer, we have driven exceptional revenue and profit growth. While we feel great about the results we’ve delivered to date, we’re never satisfied. Like the athletes we serve, our focus is always on continuing to elevate our performance, and that’s what we’ll do in the second half of the year and beyond.

Thanks, Trevor. You’ve often heard us use the phrase, “Nike is a growth company.” Over our history, we’ve delivered sustained growth in revenues, profits, and cash returns to shareholders. The level we’ve delivered in recent years is particularly distinctive in today’s highly volatile and growth-challenged environment, but the phrase is more than a description of the results we’ve produced. It’s a key element of our business philosophy. Nike as a growth company is embodied in the Nike maxims, the principles we use to define our corporate culture. Nike is a growth company means that our potential is continuously expanding, and that the numbers, like the current size of a market or a previous peak profit margin, are only signposts, not limits. It means we can create growth by investing to build deep personal connections with athletes and consumers, by investing to deliver exceptional product innovations and by investing to create premium integrated marketplaces. And Nike as a growth company means we can leverage our global portfolio and operating capabilities to deliver sustainable, profitable growth, manage risk, and create shareholder value. With that introduction, I’ll now recap our Q2 results. Second quarter reported revenue for Nike Inc. increased 15%. On a currency-neutral basis, revenue increased 18%, as the Nike brand grew 17% and Converse increased 24%. Also on a currency-neutral basis, Nike brand futures ordered grew 11%, driven by a 6% increase in average selling price and a 5% increase in units. The growth reflects continued strong demand for the Nike brand, even as we anniversary robust prior year orders for global football products in advance of the 2014 World Cup. Excluding global football, total futures order growth this quarter was essentially in line with the numbers we reported last quarter. Specifically, this quarter’s futures growth was led by double-digit expansion in North America, Europe, and Greater China, with strong demand across multiple categories including sportswear, basketball, and running. On a reported basis, futures grew 7%, reflecting weaker international currencies, particularly the euro, Argentine peso, ruble, and yen. Second quarter diluted EPS increased 25% to $0.74, driven by strong revenue growth, gross margin expansion, and a lower share count, partially offset by higher SG&A investments. Gross margin expanded 120 basis points in the quarter. The increase was driven by a mix shift to higher margin products, continued growth in our higher margin DTC business, and a modest benefit from FX, partially offset by higher product input costs. Second quarter demand creation spending increased 11%, driven by digital brand marketing, sports marketing, and consumer events around the globe. Q2 operating overhead increased 19%, reflecting growth in our higher gross margin and higher cost DTC business, targeted investments in operational infrastructure, and continued investments in digital, including consumer engagement. The Q2 effective tax rate was 25.4%, a 20 basis point increase, primarily due to adjustments to tax expense on intercompany transactions and the benefit realized in the prior period from the U.S. R&D Tax Credit. These items were partially offset by an increase in earnings from operations outside the U.S., which are generally subject to a lower tax rate and the resolution of tax audits across multiple jurisdictions. Inventories at November 30 were up 11% and remain healthy overall, with the majority of the growth in North America, Europe, and Converse, and driven in part by the expansion of our DTC business. We continue to focus on inventory management, with particular attention on Brazil and Mexico, where we’re working to balance supply and demand to position those markets for ongoing growth. Now let’s take a look at some performance highlights by segment. In North America, Q2 revenue increased 16% on both a reported and currency-neutral basis, led by double-digit growth in the basketball, sportswear, men’s training, and women’s training categories. Direct to consumer revenues grew 18%, driven by 8% comp store sales growth, continued strong growth of Nike.com, and new stores. On a reported basis, Q2 EBIT for North America grew 21%, driven by revenue growth and gross margin expansion. In Western Europe, Q2 revenues increased 24% on a currency-neutral basis. The growth was broad-based, as every territory increased at a double-digit rate. Every key category also grew, led by double-digit growth for sportswear, football, and running. On a reported basis, Q2 revenue for Western Europe increased 22%. Second quarter EBIT increased 112%, driven primarily by strong revenue growth, gross margin expansion, and SG&A leverage. EBIT growth for Western Europe also benefited from two non-operating items: a legal charge included in last year’s Q2 results, and more favorable standardized exchange rates that we use for our geography segment reporting. The latter upside was largely offset within the corporate segment of our consolidated results. Revenue in Central and Eastern Europe accelerated in the quarter, expanding 25% on a currency-neutral basis. Excluding Israel, every territory reported double-digit revenue growth, and every key category expanded, except action sports. Despite strong FX headwinds, reported revenue for CEE grew 17%, and EBIT grew 19%, driven by strong revenue growth and SG&A leverage. In Greater China, currency-neutral and reported revenue grew 21%, led by double-digit growth in sportswear, running, and basketball. As Trevor discussed, the Nike brand continues to lead the market, and we’re pleased with the results of our work to reset the marketplace for sustainable, profitable growth. On a reported basis, Q2 EBIT in greater China increased 31%, driven by strong revenue growth and significant gross margin expansion, partially offset by increased investments in DTC and our new Shanghai campus. Given the continuing benefits of our strategy to reset the market, we now expect full year FY15 revenue in China to grow at a mid-teens rate. In the emerging markets geography, Q2 revenue grew 13% on a currency-neutral basis, as all territories except Mexico and Korea posted higher revenues. From a category perspective, the growth was led by sportswear, basketball, and running. Reported Q2 results in the emerging markets geography reflected the translation and gross margin impact of strong FX headwinds, as reported revenue increased only 4% and EBIT decreased 3%. The reduction in profitability was primarily due to lower gross margin and higher operating overhead for new retail stores. We continue to be confident in the long-term growth potential for the territories that comprise our emerging markets geography, and as Trevor discussed earlier, we’re executing plans in each of them to realize that potential. For Converse, revenue grew 24% on a currency-neutral basis, driven by continued strength in existing direct distribution markets such as the U.S., the growth of DTC, and market conversions in Europe and Asia. On a reported basis, revenue increased 21% but EBIT decreased 12%, driven by investments in infrastructure, demand creation, and DTC to enable long-term growth. Over the last 90 days, we’ve seen our business performance accelerate and we expect that trend to continue into the second half of fiscal 2015. At the same time, the dollar has strengthened against most other currencies and the FX markets have been extremely volatile. While our trading company structure and hedge programs do protect us from some of that volatility, we cannot entirely eliminate all FX risk. Based on what we know today, we expect the net impact of these two factors, the strengthening currency neutral business performance and the downside from the stronger dollar, will net together to deliver full year results largely in line with the expectations we shared 90 days ago. Specifically, for Q3, we expect constant dollar revenue growth in the low teens, with reported revenue growth of about 3 points lower, reflecting the stronger dollar. For the full year, we expect constant dollar revenue growth in the low double-digits, with reported revenue growth 2 to 3 points lower. We expect gross margin for Q3 to expand by about 100 basis points. Growth in our higher margin businesses, including DTC, and strategies to increase average selling prices will continue into the second half of the year. These benefits will help to offset increases in product input costs, our actions to clear excess inventory in the emerging markets, and increased FX pressure. For the full year, we now expect gross margin expansion of 100 to 125 basis points. We expect demand creation to grow at a high single to low double-digit rate for Q3, and at a high single-digit rate for the full year. Operating overhead is now expected to grow at a high teens rate for Q3 and the full year, reflecting higher variable DTC expenses as well as investments in digital innovation, new operating capabilities, and expanded capacity. We continue to expect the effective tax rate for FY15 will be approximately 24.5%. As you’ve heard from all three of us today, we’re pleased with the results we’ve delivered in the first half of FY15 and the momentum we see in our business. And notwithstanding the volatility we’ve seen recently in the macro-environment, we’re confident we’re on track to deliver strong growth for this fiscal year. We’re now ready to take your questions.

I just really wanted to ask a follow-up question on the gross margin line, Don. It’s still great expansion year over year. I think maybe you missed your projection for the second quarter a little bit. Kind of wondering, what are the swing factors quarter to quarter near term? Is it FX and input costs, and then if those are the two big factors, we can see FX, but how should we be thinking about oil and some of the other input costs that go in there?

Well, first of all, we gave a range on gross margin and our actual results were really essentially in line with that range. And as we’ve talked about before, there’s a lot of moving parts in gross margin. As we look forward with gross margin, FX is one of the things that’s changing between the second quarter and where we expect the third quarter to be. As I said in my prepared remarks, we had a very small FX upside in Q2, basically because of our hedge positions. For FY15 Q3, so next quarter, we are expecting that to start turning into a headwind. So yes, FX is the major driver. When you look at the underlying fundamentals of gross selling price improvements versus input costs, we’re continuing to make great progress from an operating standpoint on expanding margins.

Don, you called out in gross margin one of the drivers as mix shift to higher margin products. Can we get some insight into are you speaking about higher margins on some of the new apparel you’re doing? Or is it certain sneaker styles? What type of products are you mix shifting towards? And the second question was, I might have missed it, but you guys called out a lot of great things with momentum, but I don’t remember hearing Nike Free, or the word Fly Knit, or running in the U.S., but I just wanted to double check if I maybe missed something on one of those three things.

So, on your first question, this is a trend that we’ve seen for quite a while now, which is that with the strength of our brand and the flow of innovation we have into the marketplace, we have been essentially trading the consumer up to premium product. And that’s both on the apparel and the footwear side. So it’s things like Tech Fleece on the sportswear front in apparel or just generally the performance apparel we’ve seen in running, as well as a number of other performance categories. And on the footwear side, it’s marquee footwear styles, running, basketball, sportswear. So what this is is that long-term trend to building product that’s premium for the consumer and can carry that price premium. And I’m going to hand the second question off to Trevor.

Yeah, I’ll jump in there. Obviously, as we go through the results, there’s a number of categories and dimensions of the business, so we always try and give you maybe just some different flavors as to how the business is doing. So maybe speaking specifically about running, we feel good about the running category. It’s our biggest category and it’s what we always described as we really operate the complete offense. In terms of growth, for the quarter we actually saw mid to high single-digit pace growth in the second quarter. In terms of the growth, it was actually pretty widespread. We saw particular strength in Europe as well as in China. In Europe, both dimensions of Europe, so Central Eastern Europe as well as Western Europe. When you dive down specifically into North America, what we have been seeing, which is really across the board, our premium products are doing exceptionally well across the marketplace. And so all the premium products, whether it’s the Structure, the Pegasus, the Lunar Glides, those are all doing really well. Where we have opportunity is really more in the lower price points and we are actively working to get onto that, and so we are bringing better products in the marketplace, and we will be doing that. But all in all, we feel very good about our running business across the board, but clearly there’s some opportunity for us to continue to make sure we sharpen our focus along the lines of the complete offense.

As far as the Free and Fly Knit innovation from Nike, as I said before, I continue to be very bullish on both those areas of our innovation agenda. I recently spent time in our advanced R&D looking at some of the new concepts coming down the pipe here, some sooner than later. Very exciting developments in the free category as well as Fly Knit. And we continue to be as bullish as we ever have been on the potential, as far as both those areas are concerned.

The first one is, I think the China growth, I think you now are looking for mid-teens. I think that’s an improvement from the prior outlook. And I just wondered if you could elaborate a little bit more in terms of what’s developing there, how everything is going on the footwear side and the apparel side.

Yeah, great question, obviously. You know, as we’ve always been talking about, we’ve implemented a reset strategy in China, and we feel very confident that the reset strategy is working, as you could see certainly with the growth of 21%. We felt great about that result. We also see futures up 13% as a very good indication that all our strategies are in place and we’re building them into the fundamentals of the business. And so as you’ll remember, the key to the strategy was making sure that we would drive more profitable and productive retail, and so we’re seeing both of those dimensions really hit. Both were actually increasing the sell-through of product, but it’s also at a much more profitable rate. So we feel that we’re actually doing all the things that we’ve talked about. We feel very good about the continued trend on the China business. The metrics continue to show that when you look into working with our partners, their doors continue to profile really well. So again, we feel very good and the inventories in the marketplace are very clean. So all the dimensions of those businesses will suggest that we will continue to see continued strong growth in China.

I’ll just add that the strength of the brand in China is tremendous. The response to the product that we’ve introduced is also quite strong. We’ve obviously made measures to increase our productivity at retail, and we’re leveraging that across both our own doors and our partner doors in China. So we’re very excited about all of that. And then as Trevor said, the inventory situation is actually quite good. So we’re bullish on the opportunity, and I’ll mention too that we just launched dot com here less than about seven months ago in China, and the response there has exceeded our expectations. So that’s another great opportunity for us.

And I just have a quick follow-up question. Can you just elaborate on the plans, as you think about FY15 versus next year, how are you guys going to comp against the success that the Ducks have had, and the Heisman Trophy winner from the University of Oregon?

That’s a good one. That’s a tough one to beat. We’re very excited about the football championships, and we’re very happy for whichever Nike team wins.

It seems as if every other global consumer products company is complaining about a very challenging macro dynamic. Outside of the currency issues that you guys highlighted, are there any markets where you’re starting to see the second derivative turn a little bit softer, where you feel a little bit more cautious about or some disconnect between sell in and sell-through? Or is your performance really as good as it seems?

When you say second derivatives, you mean just overall consumer trends?

Well, one of the things I’d say, just as an opening, is generally what we’ve found is our product and our brand are really the keys to how successful we are in a lot of these markets. And as long as we don’t see huge moves in the macroeconomics, we believe that we can continue to generate growth in the business. And we’ve generally seen that to be the case around the world. There are a few places where we’ve seen some of the macros start to, at least in the near term, affect consumer confidence. Brazil’s an example of that. Certainly we think over time we’ve got to keep a close eye on Russia. But generally, what we’ve found is our product is one of those things that consumers find ways to continue to buy and as long as we keep the brand hot and the product right and the distribution premium, I think we’ll do fine.

And maybe just to jump in there too, I would say that we also believe that with the category offense, it provides us an ability to continue to bring innovation on multiple dimensions all the time. And that’s what we’re seeing in many of the marketplaces. So we have been able to somewhat, so to speak, buck the trend. Having said that, Brazil is clearly one of the markets that we’re continuing to work on to make sure that we stay ahead of that curve, and that’s where we’re working to accelerate the marketplace and make sure that we continue to implement our category offense more aggressively in that market.

And you’ve talked about a strategy to take sort of ongoing inflationary price increases to offset what you had believed was sort of input cost inflation for an extended horizon. Has the move in commodity markets changed your view on pricing going forward?

Well, let me wind back to the first part of that question. We actually are not pricing literally with either inflation or input cost. One of the changes that we made over the last five years or so is really focusing on the consumer as we set price. And really, it’s about the value equation that we’re trying to create with the consumer. And so when we bring innovation and brand strength and premium presentation at retail to the consumer, then you can move the consumer to premium prices. So we will obviously keep a very close eye on the consumer value equation. We are managing our entire P&L, including margins and costs and revenue and so on, and so yes, it’s part of the calculus, but the pricing is really focused on maintaining the right consumer value equation in the marketplace.

Trevor, a question for you. Visiting a number of the stores recently, the premiumization of the apparel is very evident. It also appears that the apparel collection is more tightly edited than in the past. Is that accurate? And can you also comment on the impact that you’ve seen on apparel conversion in your direct to consumer, with the directional change?

Yeah, I think you’re very astute, because absolutely that is what is taking place. I think on multiple dimensions. For instance, if you break into our apparel business and you break it out by segment, certainly you go by the women’s business. Our apparel business is doing very, very well. We’ve tightened the collections down. We’ve made sure that they actually work across the line. So we’ve seen really good strong conversions. Our apparel business within our own doors does exceptionally well. Our sportswear business, or the example of the Tech Pack, which we think is a great item and collection, actually, that’s working across the business. So we’re seeing strong conversion across. And one of the things that we’re learning, which I think Mark has always talked about this, which is by being a better retailer, we actually are better with our wholesale partners. So we’re taking that same knowledge of tightening the assortment and making sure that we apply that in the broader marketplace. And so we think that’s actually what’s driving the great growth that we’re seeing.

You know, I will say, we’re known for our footwear innovation. We’re actually accelerating our commitment to innovation in apparel, and that’s really where we’re going to shine, I think, is to continue to really stand out from a performance premium apparel position, and then leverage that across what we talk about as our complete offense. And we’ve done that, and where we’ve really gotten a lead on that, we’ve seen the consumer response has been actually quite positive. So as an innovation geek, product geek, I’m incredibly excited about applying that even more aggressively to the apparel side of our business.

There were some interesting comments in the beginning when you were talking about how you see a big apparel opportunity, how you’re investing in the Nike women’s business and you’re seeing incredible momentum there. At the end of last year, the men’s business was almost three times as big as the women’s business. So if we think about it from a big picture perspective, what’s the opportunity to close that gap over time, given the momentum you’re seeing, given the investments you’re making? And can you talk about maybe some structural reasons why the gap can’t be the same eventually?

Well, the opportunity I spoke to a little bit in my remarks, we’re seeing a big shift in women’s, just in terms of their participation in sports and being more physical. We’re seeing that online with the number of women we have participating in our Nike Plus and our training applications online. So the relationship we have with the women and the trend that we’re seeing, it’s not really a trend, as I call it. It’s more of a cultural shift. So the appetite is there for more active product, and we’re seeing that in both footwear and apparel. So the opportunity to really start to close that gap is tremendous. And we think that over the years ahead, we’ll start to reduce that differentiation between men’s as a percentage of Nike’s business versus women’s. So very, very bullish on the women’s opportunity and the response to the work that we’ve already done in elevating that part of our product and our communication.

Yeah, and I think as Mark just touched on, it really speaks to why we think the women’s is such a big and huge opportunity for us, and why we’re very focused on it. We believe we are absolutely on target to go after our $7 billion goal for fiscal year 2017, but we truly believe it’s not about that, it’s actually about beyond, continuing to really move the needle around our women’s business.

All right, well, with that, we want to thank everyone for joining us. Happy holidays, everybody, and we’ll talk to you next quarter.