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Good afternoon, everyone, and welcome to NIKE, Inc.'s Fourth Quarter Fiscal 2026 Conference Call. For those who want to reference today's press release, you'll find it at investors.nike.com. Leading today's call is Paul Trussell, VP of Corporate Finance and Treasurer. I'd now like to turn the call over to Paul Trussell.

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE, Inc.'s fourth quarter fiscal 2026 results. Joining us on today's call will be NIKE, Inc. President and CEO, Elliott Hill; and EVP and CFO, Matt Friend.

Before we begin, let me remind you that participants on this call will make forward-looking statements based on current expectations, and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in NIKE's reports filed with the SEC. In addition, participants may discuss non-GAAP financial measures and nonpublic financial and statistical information. Please refer to NIKE's earnings press release or NIKE's website, investors.nike.com. for comparable GAAP measures and quantitative reconciliations. All growth comparisons on the call today are presented on a year-over-year basis and are currency neutral unless otherwise noted.

We will start with prepared remarks and then open the call for questions. We would like to allow as many -- as many of you to ask questions as possible in our allotted time, so we'd appreciate you limiting your initial question to one. Thank you for your cooperation on this.

I'll now turn the call over to NIKE Inc., President and CEO, Elliott Hill.

Thank you, Paul. I'm proud of the progress our team made in fiscal year '26. When I look back at where we started the year and where we are today, it's clear that we're building a much stronger foundation for our company. Through our win now priorities, we're elevating the fundamentals of our business across our team culture, innovative product, brand strength, and how we serve consumers in our countries and cities. We're making meaningful structural improvements in each of them. Win Now is making the comeback possible. And importantly, it's what's enabled us to move about 8,000 teammates into verticals sport teams under our new operating model, the Sport Offense, while also taking meaningful steps to simplify and accelerate our supply chain and technology. As our foundation approves, the Sport Offense is starting to create impact. Our renewed obsession with sport and the success of our athletes is fueling energy for our brands and building momentum in our performance business, which grew mid-single digits this fiscal year.

Overall, the results aren't there yet. We know we're not living up to our full potential, particularly in Nike Sportswear and Jordan Streetwear, where sell-through remains challenged, impacting both current discounting and future order books. We're operating in a more complex macro environment, where we're seeing an added pressure on traffic and discretionary spending across our geographies. But we're focused on what we can control, bringing each sport together across product, brand, marketplace and operations and deepening our connections with athletes, consumers and partners. When those dimensions connect, they create the Nike multiplier. It's repeatable and sustainable. That's why I'm confident we're building NIKE the right way, not for the next quarter, but for the next decade. Now the opportunity is consistency, execution across every part of the portfolio. From here, we have to prove it every season.

Now let me walk you through the details of the clearest signals of our progress in FY '26. This year, we directed our marketing, social and communications outreach to build influence across a wide network of sport-specific communities. We did that through our deep portfolio of athletes, creators and sport partners. And through those networks, we brought energy and a uniquely NIKE point of view to sports moments, both big and small. When we lead with sport authentically, consumers respond. And we see that in both internal and external brand tracking. Our focus now is translating that brand strength into healthier demand, cleaner marketplaces and sustainable growth. You can see the same energy in our broader product pipeline, too. We're now -- we've now delivered five consecutive quarters of double-digit growth in Nike Running. And over that period, we've added roughly $1 billion to our running business.

In FY '26, across Western Europe and North America, we gained 5 points of running market share in statement footwear, more than any other top 5 brand. The integrated marketplace is one of our most important areas of transformation. We've been rebuilding our wholesale relationships, expanding our outreach and improving how we show up across channels. For the fiscal year, wholesale revenue grew 4%, led by double-digit growth in North America. And we've also made significant investments in physical marketplace, refreshing more than 15,000 spaces in wholesale doors around the world. In Nike Direct, we've taken equally important steps. We're elevating the user experience by leading with performance, celebrating sport moments, and we're discounting less on Nike Digital.

In FY '26, we've elevated more than 150 stores with sport-led experiences. Over time, we will continue to rezone and elevate our fleet and close doors that are no longer aligned to our strategy. At our scale, this takes time. We're not finished yet. I'm confident our investments in the integrated marketplace will pay dividends for years to come. We're also investing in experiences in our key countries and cities to accelerate demand. In global football, our grassroots tournament, Toma, has reached more than 10,000 kids across 25 cities to date.

In basketball, we continue to invest globally from our partnerships with the Chinese High School Basketball League and its 600 teams to Jordan's, the one tournament in 20 cities around the world.

In Running, we launched the After Dark Tour in Shanghai. It will reach 7 cities this fall. Last year, 50,000 runners joined and 1/3 were first-time runners. And with our more expanded reach, we expect even more impact. Being more local matters, it deepens connection, it builds loyalty, and it creates a full market for our brands and products.

As we strengthened NIKE Inc.'s foundation, we're taking decisive action across our supply chain to lower cost, streamline operations and rightsize our distribution network to match the demand ahead. We've redeployed resources from our Nike Direct technology teams to better support the company end-to-end across the entire value chain. And we're investing in advanced tools and capabilities to improve speed, precision and reliability in everything we create from air manufacturing and materials innovation, to how we plan, make and move product to the marketplace. At its core, this work is about serving athletes better and creating a more profitable business. That's especially important in Greater China, a critical long-term growth market for NIKE, where we are fully committed to winning.

Our teams in China are executing a comprehensive reset returning to sport and innovation, taking a more local approach to product creation and building a territory-level offense. At the same time, we're reimagining how we operate in the marketplace. We are working with partners in evaluating new ways to accelerate our return to growth, so we can be more premium, more culturally connected and move at the speed of the Chinese consumer with seamless journeys across digital and physical retail.

In the near term, we're executing cleaning up inventory, investing in must-win doors and when we invest, we're seeing sales increase increase high single digits. I'm confident in our leaders and our plans to restore long-term marketplace health in Greater China. Converse sharpened its strategy this quarter. It's getting clearer on the role it plays within NIKE, Inc., and where it will grow, especially with the Chuck Taylor and Jack Purcell franchises. As part of that focus, we announced that Shai Gilgeous-Alexander has joined the Nike Basketball family. Shai and Nike Basketball are a perfect match. This move allows Converse to fully focus on serving creators through its lifestyle business. That clarity matters. When we're focused, we win. And right now, Global Football is the best example of that playing out through the Sport Offense. It's been an incredible few weeks of the World Cup. What feels different this time around is we're not treating the tournament as a single moment. We're using it to reshape our business, telling a connected story over time, engaging different communities in relevant ways and building momentum that carries well beyond the tournament. We built a full Nike Football universe. It started with a simple image of 31 Polaroid, a map of what was to come. An epic film called Rip the Script followed, branching off into individual athlete stories, collaborator collections, innovation unveils, retail experience and local tournaments. We built it this way because the next generation wants to engage with sport on their terms, discovering and sharing and participating in the story as it unfolds every beat every story is a doorway given different micro communities their own way in. This is the way to reach scale in today's culture.

By the first week of the World Cup, we had 1.5 billion views of our various stories. This is about deeply understanding today's consumers and building modern, meaningful and innovative connections with them. This is nothing new for NIKE. Once again, we're out front, rewriting our own marketing playbook. At the center of the Nike Football universe is amazing product. We launched Aero-FIT in our National Team kits to help athletes compete in extreme conditions. By the start of the tournament, we had already sold 2.5x the number of kits compared to the same period in World Cup '22.

Earlier in the year, we redesigned our Tiempo and Phantom franchises and before the tournament, we launched our new Mercurial into expressions of speed. At launch, the Mercurial became the fastest-selling 24-hour launch for cleated footwear in the history of Nike Direct. We also connected Nike Mind to the tournament and team colors to fuel our new innovation. With our X2 collections, we created amazing energy with leading creators, and we reached scale to Nike Sportswear, Skate, Casa and N7 to connect deeper with broader football culture. And as we talked about last quarter, we're activating the marketplace, elevating over 5,000 football doors around the world. The World Cup is always a moment to prove ourselves. It's one of the toughest battlegrounds in sport, and we're coming with our best. We're leading the conversation in shaping football culture, a strong early proof point for the Sport Offense.

As we move into fiscal year 2017, we're focused on building on that momentum. Here's what you can expect from our teams. As we scale the Sport Offense across more sports, we expect growth to expand beyond running into training, basketball and ACG, but that progress will continue to be uneven. We expect Sportswear and Jordan Streetwear to continue to be negative this fiscal year, with improvement expected in the back half. We know changing their trajectory is critical to restoring sustainable top line growth because, together, they represent approximately half of our revenue.

We are moving quickly to reposition both businesses. In the second half, Nike Sportswear will introduce more than a dozen new footwear styles each with distinct consumer journeys. This work will take time to scale and translate into consistent results. Our teams are also focused on inspiring the consumer in modern ways while driving commercial impact at local sports moments. And we will continue to invest in how we show up as a premium brand in both digital and physical retail, including a plan to elevate 50% of our Nike Direct owned fleet by the end of the fiscal year. Across the enterprise, we'll operate with even greater discipline to improve planning accuracy, strengthen inventory management and expand our margins over time.

Most importantly, we look forward to sharing the next phase of our growth strategy at our Investor Day on November 16 and 17. Before I pass it to Matt, I want to take a moment and recognize him for his many contributions to Nike over his nearly 18 years at this company. Matt helped guide the company through a demanding stretch, and he has been a trusted partner to me and to this team. I appreciate his continued support and its commitment to ensuring a seamless transition in the coming weeks and months. I'd like to thank him for all he has done for Nike and wish him the very best in his next chapter.

Thanks, Elliott. I've truly valued the partnership with you and this team, and I'm proud of the progress that we've made together.

As we close fiscal '26, we made meaningful progress across the business through rebalancing the product portfolio, driving momentum and growth in performance while reducing classic footwear franchises by more than $2 billion, keeping revenue flat on a reported basis versus the prior year, stabilizing gross margins, excluding the impact of incremental tariffs. Taking initial steps to reset our cost base and improve operating efficiency and effectiveness and our balance sheet is strong with substantial liquidity and flexibility to operate as we go forward. Our fourth quarter financial performance was in line with our expectations. However, the operating environment became more challenging as we progress through the quarter. After a stronger start in March, especially in North America. By mid-April, we began to see a deceleration in retail sales trends. Our consumer is under pressure around the world, and we can particularly see it having a larger impact on sportswear, which declined double digits in the quarter with a similar decline in retail sales.

At the same time, momentum in Performance Sports continued to build, growing mid-single digits and delivering positive year-over-year retail sales comps across running, training and global football as well as other sports. We are monitoring marketplace inventory and promotions closely and adjusting by plans to manage future supply and sell-in with demand and improvement in full price sales.

Before I turn to our results, I want to address an unplanned benefit related to tariffs, which was recognized in the quarter and was not included in our previous financial guidance. In the fourth quarter, we determined that the financial recovery of claims related to incremental tariffs paid under IEEPA had become probable. This resulted in the recognition of a onetime benefit of $986 million, offsetting the IEEPA tariffs embedded within cost of sales that had been expensed through the income statement throughout fiscal '26. As of quarter end on May 31, we collected over $300 million of cash related to these claims. The remainder of the benefit was recorded to accounts receivable as we await recovery. Tariffs remain a dynamic cost headwind that we expect to continue looking forward. And so I will share more on our rate assumptions later in my remarks.

Now I will turn to our fourth quarter results. For the quarter, revenues were down 1% on a reported basis and down 4% on a currency-neutral basis, reflecting modest growth in North America more than offset by expected declines in Greater China, EMEA and Converse. Nike Direct was down 9%, with Nike Digital declining 12% and Nike Stores down 7%. Wholesale grew 1%. Gross margin was 49.2%, up 890 basis points versus the prior year, driven by a 900 basis point benefit related to recovery of IEEPA tariffs. Excluding this benefit, gross margin would have been 40.2%, down 10 basis points versus the prior year, which included additional severance costs related to supply chain actions in North America and EMEA, we highlighted last quarter. We expect these actions will deliver positive operating leverage and gross margin in fiscal '27.

SG&A was down 2% on a reported basis versus the prior year, reflecting continued discipline managing expenses while accelerating investment for the World Cup. Our effective tax rate was 19.6%. Earnings per share for the quarter was $0.72 and excluding the benefit on tariff recovery was $0.20. Inventory was flat versus the prior year, with continued progress made to address aged inventory in Greater China. For the full year, revenue was flat on a reported basis and down 2% on a currency-neutral basis. Gross margin was 42.9%, up 20 basis points versus the prior year, including a 210 basis point benefit related to recovery of IEEPA tariffs. Excluding the benefit, gross margin would have been 40.8%. Diluted earnings per share was $2.10, down 3% versus the prior year. Excluding the benefit on tariff recovery, earnings per share would have been $1.58.

Looking at our reported full year results for fiscal '26, you can clearly see that our gross margin slightly expanded, while earnings per share modestly declined. Despite significant investment and nearly $400 million of severance charges made to reposition and create a healthier foundation for our business.

Now I will turn to performance in the geographies. In North America, Q4 revenue grew 3%. The Nike Direct was down 6%, while Nike Digital was down 5%. Nike Stores were down 7%. Wholesale grew 10%. EBIT increased 91% on a reported basis. And excluding the tariff refund benefit, EBIT would have declined 1%. North America continues to drive momentum and performance, including strong double-digit growth in Global Football and Running as well as growth in Kids and Golf. Sportswear was down high single digits.

Retail sales grew over the first 6 weeks of the quarter. However, we did see a deceleration in late April which we continue to monitor closely, particularly in Sportswear and Jordan Streetwear. Wholesale revenue growth was driven by new and existing distribution. One highlight I'd like to note is that our revenue growth and retail sales comp with Foot Locker was positive for the first time in 4 years, and we continue to be encouraged about the path ahead. Inventory grew mid-single digits, in line with our plans with a healthy closeout mix. And importantly, excluding the tariff refund benefit underlying gross margin profitability continued to improve year-over-year.

In EMEA, Q4 revenue was down 6%. Nike Direct declined 16% with Nike Digital down 24% and and Nike Stores down 9%. Wholesale was down 1%. EBIT was down 8% on a reported basis. EMEA continues to work through heightened inventory and promotional levels disruption in the Middle East and a higher portfolio mix of sportswear than our other geographies. We had continued momentum in performance through Running, Global Football and Golf, all of which grew double digits versus the prior year. Although digital revenue declined, off price was down over 50%, following aggressive actions to reduce promotions. This resulted in a 15-point improvement in full price realization. Sportswear declined double digits and sell-through continues to be challenging. And so we have tightened buys and moderated sell-in plans for the near term. Total inventory dollars were up low double digits, with actions in place to reduce supply and accelerate liquidation to improve marketplace health.

In Greater China, Q4 revenue declined 17%. Nike Direct declined 14%, with Nike Digital down 25% and Nike Stores down 9%. Wholesale declined 19%. EBIT was down 20% on a reported basis. As you heard Elliott say, there are several changes underway in Greater China, and the team continues to execute on their plan. In-season sell-through has improved sequentially and average retail discounts are down. We are seeing recovery in full price realization on digital after more aggressive actions to reduce promotions over the last two quarters. Running grew mid-single digits, and global football and tennis were up double digits. Our Pinnacle retail expression, the House of Innovation in Shanghai, posted double-digit growth for the quarter. We also saw sales growth in the doors that we have reset, and encouraging initial results at our newest ACG door in Nanjing. Inventory was down double digits with units also down double digits. We continue to take actions with partners to clean up the marketplace and expect revenue trends in Greater China over the near term to be in line with recent performance.

In APLA, Q4 revenue was down 1%. Nike Direct declined 3%, with Nike Digital down 8% and Nike Stores up 2%. Wholesale was up 1%. EBIT declined 1% on a reported basis. The business across this geography continues to be mixed, with strength in select territories and Performance Sports offset by ongoing pressure in Sportswear, Running and Global Football grew double digits with high single-digit growth in Tennis and ACG. Across the marketplace, the team is focused on elevation and expansion. Where we have invested in elevated retail, we are seeing a strong increase in comp sales growth. We also added new digital partners across 5 Southeast Asian countries. Inventory grew high single digits versus the prior year with a sequential improvement in closeout mix, as inventory actions continue across the geography.

Now I will turn to our outlook. The environment around us continues to be volatile, including evolving tariff qualities ongoing disruption in the Middle East, oil prices and other factors that could impact operating costs, consumer behavior and weakness in store traffic and retail sales. These assumptions reflect the macro environment as it stands today, and we are not expecting the environment to improve meaningfully over the next 6 months. Last quarter, we provided guidance which cumulatively included the fourth quarter of fiscal '26 through the first two quarters of fiscal '27 with revenues to be down low single digits, gross margins to inflect positive in Q2 and earnings to be flattish over this period.

We reiterate our expectation for earnings to be flattish over that time period, excluding the benefit from tariff recovery. However, the composition has shifted. Considering the current macro environment as well as recent sell-through trends, we are taking actions to tighten buys, reduce future sell-in and manage inventory. This will result in revenue moderating, but also higher gross margins. We now expect revenue to be down low- to mid-single digits, with Q2 having a sequential deceleration from Q1 due to some unique factors equating to a multi-point headwind, including higher digital promotions in the prior year in EMEA and timing of North America wholesale shipments. We now expect gross margin expansion earlier, beginning in Q1. We will continue to be disciplined with SG&A management, driving productivity benefits and operating overhead beginning in Q1.

Specifically for the first quarter, we expect reported revenues to be down low- to mid-single digits with no expected benefit from foreign exchange and currency neutral revenue growth consistent with recent performance. We expect gross margin in Q1 to be slightly positive. The tariff environment continues to be uncertain. Our forecast is based on incremental tariff rates of 10% continuing through the end of July and then increasing to 15% thereafter as we communicated last quarter. We expect Q1 SG&A dollars to be flat with operating overhead declining, while demand creation grows high single digits as we invest into the World Cup. We expect our full year tax rate to be in the low 20% range. While the environment remains volatile, and it is taking more time for the top line to inflect positively, we remain confident in the actions we control to improve EBIT margins and increased cash flow from operations. We are tightly managing expenses, reallocating resources to elevate retail and drive deeper consumer connections and taking actions to structurally improve the efficiency and profitability of our supply chain as well as NIKE's overall business.

With that, I will pass it back to Elliot.

Before we go to questions, I want to leave you with one thought. We spent a lot of time this quarter talking about the sport, the highs, the setbacks, the pressures that define teams. Yet there's one I keep coming back to. Earlier this month, we watched something special happened in New York. The Knicks became NBA Champions, a team that had carried the weight of expectations for more than 50 years, finally broke through. And when you look at what happened at the final buzzer, the trophy, the celebration, the joy across the city, it's easy to think, that's where it was won, but it wasn't. The championship wasn't built on a single series or even in one season. It was built over time through setbacks and step forwards through relationships and buying into a system where everyone knows their role.

You saw it when it mattered most because every one of those wins in the finals was a fight, double-digit deficits. They didn't flinch. They didn't panic. They went to work, chipping away, one stop, one bucket, another stop, again and again, that's not luck. That's a team that's ready. Most importantly, that's belief. Belief in their system, belief in each other. [ Runs then ] kept coming. Towns was disruptive at both ends. Heart made hustle plays. Different players, one goal, all focused on closing the gap, possession by possession. And that's what I see in our team. We believe in our system and each other in the way we're building this, not because the work is finished and not because every result is where we want it to be today, but because we know what it's built on. I see the progress. I see the structural change. I see the foundation getting stronger. I see the Sport Offense taken hold. I see a team that's been tested and is ready for what's in front of us.

The Knicks reminded all of us if something important. The real story is never just the celebration. The real story is everything it took to get there. And that's exactly how we're building Nike, the right way. Because the goal isn't one championship. It's build the team that can do it again and again.

Operator, we're ready for questions.

[Operator Instructions] Our first question will come from the line of Adrienne Yih with Barclays.

Elliott, one of the things we talked about was kind of the difficulty in [indiscernible] price sell-through of primarily sportswear. I'm just trying to figure out how much R&D and innovation investments in the sports works category to drive kind of future growth? If you're pulling back on inventory, and focusing on full price selling, having struggled in full price selling. Just wondering how you can get the performance success to halo out to sportswear.

Great question. Thank you, Adrienne. Let me start first with the Sport Offense because I think it's really important for everyone on the call to understand. We understand the importance of getting both Nike Sportswear and Jordan Streetwear back to growth. With that said, our point of this differentiation or point of distinction, what creates authenticity for Nike is our sport business. And that creates the halo over both of those brands. It's also which differentiates us from fashion brands. And so the reason why we've put so much time on the Sport offense is because we believe that's how we create that authenticity around that business. We've created a portfolio of sport verticals, small functional teams focused on consumer, NIKE running, which I'm sure we'll dive into here in a minute. It led the way. And as you heard in the prepared remarks, we've had great response with the sharp, sharp focus on the consumer whether it's the product, whether it's the investments we've made on the ground in retail, with [ Ekins ] or tech reps, and the results are clear. Running grew $5 billion -- $1 billion over the last 5 quarters, and we gained 5 market share points.

Shifting over to other sports. We see it in the Sport Offense. It's working in real time, Nike Basketball. That team, yes, we have A'ja 1 -- A'ja 2, the Ja 3, but the way they respond around the Knicks, championship has been phenomenal. The ad we ran, the championship product, the preorders in footwear, Nike Football, I'm inspired. You heard me talk about that in my prepared remarks around the way the Nike Football Team is leveraging the World Cup to create a halo over the Nike brand, not just sport, but also culture, and we would not be doing that if we weren't in the Sport Offense, and we see momentum gaining training, tennis, golf, outdoor. I'll use one example before I jump to sportswear. I'm not sure if you guys watched Serena today, but she had the Radical Air on. That's a performance product, and that will start to show up, that innovation will start to show up in some of our sportswear as well. So when we lead with sport, we win. As it relates to Sportswear and Jordan, we have taken $2 billion out of the market in FY '26 of our classic franchises.

We do have now dedicated teams against each of those consumers. And so that team now is looking to the future. And in the second half of FY '27, Sportswear is going to introduce more than a dozen new footwear styles. And it's not just going back to the Vault and doing old retro shoes, it is leveraging innovation, and you'll see some newness and freshness coming in new silhouettes. And so the sports team moving to quickly reposition the business being more community-driven, on the ground, working with local creators, authentic storytelling and product. We're investing in accelerating our local product creation as well. You'll see us leverage that more around the world. And in the end, it's going to take time to scale, but I'm confident in the work that the teams are doing.

Our next question will come from the line of Bob Drbul with BTIG.

Matt, I just want to say thanks for the last 17 years. It's been a pleasure, and wish you all the best.

Thanks, Bob.

I guess if I could shift, Elliot, when you look at the innovation pipeline, I think 1 of the bright spots really has been the Mind. I guess, two parts to this is that when you think about your ability to scale the mindset and sort of broaden that out, can you talk about what you're doing throughout the business how quickly that can occur. And I guess the second piece of it is just when you think about the innovation over the next 6 to 18 months, where are you most optimistic, most excited about what is coming in the pipeline?

Yes. Thank you, Bob. Here -- I'll go back to -- we're leading with the Sport Offense. We had now had those small cross-functional teams against each of the sports, obsessing the consumer, taking the insights for the consumer, translating that into a relentless flow of innovative, beautiful coveted product across footwear, apparel and accessories. And we needed to get that going, Bob. That's where a Nike Mind comes from, as an example. And so the first time you're going to see the product across all of the sports that the team's worked on from brief to the market will be spring '27. So that will be the first time you're going to see the fruits of those teams efforts. But nevertheless, I am excited what the team continues to do in running where they set it up. This quarter alone, we launched the PEG 42, and it was a full length encapsulated Zoom Airbag and sold through well. As I look forward to running the Aero-FIT product that we launched in football is going to show up and running. Apparel in fall '26. We've got a Vomero Plus 2 coming in, new and running. ACG continues to bring really interesting product, the radical airflow is amazing looking products, and that sold well. The long sleep sold out immediately. And you'll see us then also leverage that innovation across multiple sport categories. Football, we've talked a lot about Aero-FIT, the Mercurial pack coming back next year with the Women's World Cup, I'm excited. We're hosting a bunch of retailers today -- yesterday and today in New York. We've had tremendous feedback to the product coming there, both in sport and in culture, basketball, excited about the dimension that the team is bringing there. Of course, [indiscernible] coming, that will be launched in the -- in holiday '26, training Nike Mind. I -- we see a big opportunity there, and you'll see us scale that beyond the slide coming in spring of '27. Free MetCon, another performance fabric innovation with free. That's doing well. Nike Pro, men's and women's. And so the point there is -- and it's not just performance, I think the team is doing a nice job of launching new products in sportswear. Probably the best example this quarter would be the moon shoe. So short answer to your question is it's taken time to get the flow of innovation and product going, but I'm excited by what the team is doing. I'm confident in the teams and you'll start to see a season in, season out, that relentless flow product that we expect and you expect out of Nike.

Our next question will come from the line of Matthew Boss with JPMorgan.

So Elliott, could you elaborate on the sequential cadence of sell-through trends across performance relative to sportswear. And what you see as the optimal mix between performance and sportswear roughly -- versus the roughly 50-50 split today? And then, Matt, just on the numbers, could you help us just bridge the drivers first quarter revenue is down low to mid-single digits, further moderation in the second quarter just relative to the negative 1% decline here in the fourth quarter as the base.

Thank you, Matthew. Again, we don't break out sell-through by sport and sportswear. What I can tell you is, we had a strong start in March, especially in North America on itself where we watch it. The teams watch and track it every single week. We're on it, watch and sell-through. And then by mid-April, we began to see a deceleration in retail sales trends. And that softness did coincide with our -- we believe our consumer being more under pressure, impacting traffic and discretionary spend. But Matt did touch on it, I think, in his prepared remarks, we are seeing a strong bounce back with the World Cup momentum right now. So as we moved into June, we are seeing a halo that is being created by the World Cup. So it's something that we will continue to monitor every single quarter -- or excuse me, every single week and make the necessary adjustments that we need to make on forward orders.

In terms of optimal mix, I think, ultimately, the consumer is going to decide what the optimal mix is. It's not something that's predetermined. I think if we predetermine we want x business to be bigger than the other, I think it forces our teams to do unnatural things to get to that number. So it is not a number that we're driving the teams towards. We're going to let the consumer ultimately decide the mix of sport to sportswear.

And Matt, on the revenue guide, I think the way to think about it is we provided specificity on the first quarter that we expect revenue to be down low- to mid-single digits. And I think the biggest driver in Q1 versus Q4 is the fact that FX will no longer be a tailwind to revenue. Outside of that, we don't expect a meaningful change in the mix of the portfolio or anything else. As it relates to Q2, we just wanted to highlight that we expect the sequential deceleration relative to Q1. As you'll recall, in Q2 of last year, there were some anomalies that drove our revenue in that particular quarter. And the two largest ones that equate to a multi-point headwind were much higher level of digital promotions in EMEA last year in the second quarter. And you can see from our results this quarter, we've taken a massive turn on the amount of promotional activity that's on nike.com and on our digital platforms in Europe. And our off-price business was off -- was down 50% versus the prior year. It's the right decision. It's strategically what Elliott highlighted as he came in, that we need to reposition digital to be a premium business. But that's going to create a comp issue in Q2 of next year. And then we also had extraordinarily high wholesale growth in North America in Q2 last year, also related to some timing anomalies. So we just wanted to call that out in advance as we think about this performance over the next two quarters.

Our next question will come from the line of Lorraine Hutchinson with Bank of America.

I was hoping you could go into a little more detail on your China strategy. It sounds like there are some renovations underway for the physical fleet, but how are you thinking about the direct-to-consumer, particularly the digital business from here?

Yes. Lorraine, and I've said this every quarter that I've been on this call, and I'll continue to say it. China, it's the second largest market today. It will be the second largest market in near term or 3, 5 years from now. And so we remain committed to serving the Chinese consumer. We're going to do it through sport. I think the key in China is we have to get back to growth in China, we have to be more premium and culturally relevant, and we have to lead with sport. It's those three things. In sport, some of the proof points running did grow mid-single digits this quarter. We had a great launch of the Peg 42 there. The team just didn't sell it online. We sold it in physical doors. 2,000 doors, and we really elevated the presentation, which is what we need to do more of. Global Football was up double digits. We launched the material. We had a really good storytelling, both digitally and physical on that. The team is moving resources out to our territories in our cities, connecting with consumers, which I think is also critical to our success there. We've got the after-dark tour from a running perspective up and going there. We celebrated the Chinese basketball league, I talked about that. But we know that's not enough, right? And so we are going to take additional actions to reimagine the marketplace. Number one, it's got to be easier for a consumer to find, and we do have to be more culturally connected. We're repositioning the brands as premium to do that. We've got to continue to clean up the marketplace and elevate the marketplace. We have to invest in elevating online and offline storefronts, so that we have a consistent consumer experience between that online experience that you referenced and then the offline experience. And we know that success in China is going to require deep local partnerships, and we continue to execute the reset with both online and brick-and-mortar in mind and those partners in mind. And so we're working closely with them. Two last points local for local. We have hired our resourcing our Greater China local product creation team. They will be delivering locally designed, developed and manufactured product in China in holiday '27. And then the last thing I'll say is it's been great to have Cathy Sparks leading that team. I have a tremendous amount of confidence in her and her team. We have a clear diagnosis. We have a plan in place, and we're moving with urgency. So overall, pleased with the progress we're making in China.

Our next question comes from the line of...

I was just going to add that we also highlighted this quarter the progress that the team continues to make in China. And I just wanted to reiterate a couple of things that I said on the call. We're seeing recovery in full price realization on digital. So in addition to what everything Elliott said, the team has taken aggressive actions to reduce promotions over the last two quarters, and we are seeing that bear fruit on our -- across our digital -- across the digital properties in Greater China, including partners. Our pinnacle retail store, the most premium Nike Store that we have in China is in Shanghai, the House of Innovation, and it grew double digits in the quarter, a reflection of elevating retail and focusing on sport in the market. And then as Elliott referenced in his remarks, where we've elevated our other retail doors with our partners, as we talked about our top door offense, we're seeing strong comp performance in those doors for another sequential quarter. And so we continue to be encouraged by the actions that we're taking and the decision that we've taken to sell in less inventory into the marketplace in order to create a more full-price business. And the progress that we're making with our partners on aged inventory in the marketplace is meaningful. And so as we look forward, we do expect that the revenue trends in Greater China over the near term will be in line with our recent performance. and we continue to believe that profitability will bottom before sales in this market.

Our next question will come from the line of Michael Binetti with Evercore ISI.

Matthew, my thank you for the last 17 years, wishing you all the best.

Thanks, Michael.

Maybe just a couple of brief comments on where the order books on the wholesale side saw the most impact what geos got better was but then maybe just a qualitative thought on the back half of fiscal '27. I know you commented Sportswear, it will be down for the year but improves in the second half. Is that -- so that's negative for the full year, is that negative as you start to look out to the spring summer '27 books? And how are retailers in general approaching spring/summer '27 overall, given the pretty aggressive actions you guys are taking as you work through the channels here.

Well, so here's what I'd just say on the outlook as we look out, and we reiterate that we expect earnings to be flattish. I want to start there over the quarter period that we guided. But we do know the composition has changed. Matt hit on that in his prepared remarks. Part of that is the softer sell-through and weaker macro environment. And we are tracking the sell-through weekly and making adjustments. But we expect revenues over that period that we guided to be down low single digits to mid-single digits. At the same time, we expect gross margins to expand in Q1, and we are actively managing costs in our business, and we will see the benefits beginning in Q2. And so we look forward to sharing more about our overall view of the future at Investor Day from an outlook perspective. So again, overall, that's how we're seeing the the balance of this calendar year. And then we -- like I said, we continue to track sell-through the order books, and we're making the adjustments that we need to make.

Our next question will come from the line of Aneesha Sherman with Bernstein.

Best wishes to you, Matt. Elliott, about 6 months ago, you talked about being in the middle innings on the turnover we now go into fiscal '27. Can you give us an update on where you're at? And do you expect FY '28 to be the first "normal" year of operations? And then, Matt, a follow-up on margins. You've said there's a clear path to double-digit margins today. You guided for a faster inflection in margins than before. Can you walk through some of the main drivers of this margin inflection that are aside from operating leverage, so excluding sales growth, what gives you the confidence that margins will inflect first?

Yes. Well, first of all, I don't think there's been anything normal since I've sat in this chair. There's been nothing normal about this, but we -- in December of '24, we launched the Win Now actions, and it helped us, without question, rebuild the foundation of Nike. And we do remain on track to sunset the win now actions by the end of this calendar year. So I'm going to reiterate that. The idea is we wanted to move through the actions in a really thoughtful sequence. We began first around culture, getting the team refocused on sport and growth and really inspiring our teammates around that. And I think we've made tremendous progress there. It was also about reigniting our brand, being more emotional and inspiring with consumer connections. Hopefully, you're seeing and feeling some of that of us through this quarter. Then we started to focus on our product portfolio driving a steady flow of innovative coveted beautiful products. And so next, it's about how we then start to execute out into the countries and the cities that around the world that make a difference for us. So we continue to elevate. And so I think we're making tremendous progress, and we are prepared as we move through this calendar year to sunset. What that then does sets us up to run the sport offense, and we are going to share more of what's to come next at our Investor Day this fall. And I'll just sort of end here is that we're not building this business for the next quarter or the next year. We're building it for the decade to come, and we're sunsetting win now is just sort of the next step on our journey. And so again, we look forward to outlining more in November.

On margins, Aneesha, I would say that our performance this quarter has given us increasing confidence that our margins are stabilizing, and that we're starting to see a pathway back towards gross margin expansion. In the fourth quarter, our margins, if you exclude the tariff benefit were down 10 basis points versus the prior year. And that was better than how we guided. We guided to be down 25 to 75 basis points. And I would say that the biggest driver was discount improvement that we're seeing in North America. We're seeing lower sales-related reserves in North America, lower cancellations and lower discounts. And so that's been giving us confidence that margins are coming back. We also have had -- we had 4 quarters of sequential improvement in our margins overall throughout fiscal '26. And then I do think it's really important to note that we highlighted in the third quarter, and we've talked about this a couple of times now that we see meaningful opportunity to structurally improve our gross margins, really focused on taking out cost of our supply chain and the make of our product. And the actions that we took in Q3 and Q4 were the initial steps to us, reducing the number of facilities we operate to changing the size of our workforce to changing the way we flow product from factory to retail. And we expect that while those were costs largely in fiscal year we expect those to drive margin expansion in fiscal year '27 and contribute to this trajectory to get back to double-digit margins as you referenced. And then obviously, as we continue to take actions on our business, reducing tightening buys, reducing the order book in holiday and thinking about the -- and reducing the order book as we look beyond. We do expect that we're going to have a more full price business and a higher and healthier business, and that should help us pull margins up in the geographies outside the U.S., that are still depressed relative to where they were.

Our final question will come from the line of Ike Boruchow with Wells Fargo.

Matt, congrats on the 17 years. I just want to focus on North America wholesale. I know you guys don't guide by geography or channel. But just in terms of the shaping I guess my highest level question is, are there any quarters next fiscal year, you're expecting North America wholesale to decline just based on the sell-in and some of the comments that you made on POS. So just kind of curious if you could kind of help shape that, at least for the first half that you kind of had walked us through.

So let me just -- North America, here's what I'd say about North America. The continue to lead to come back that team does. Tom Petty and his crew have done. And I think part of it is because the biggest part is they've centered on sport and they're elevating the marketplace, not only our own digital footprint and physical footprint, Nike but also the relationships with the wholesale team as well. And so again, I think what they've been able to do is the model for the rest of the geos to follow. And the only other thing that I would say really quickly is that when we do elevate, we seek best sell-through, stronger sell-through, both in our own doors and our partner doors. The team is doing a great job of managing sell-through every single week, making certain that we're adjusting order books, making certain shipping in the appropriate level of inventory so that we drive not only revenue for our sales, but revenue and profitability for our wholesale partners as well. So I think the team's got -- they found a really good rhythm there. And I'm really -- I remain very bullish on North America and their ability to continue to have sustainable growth moving forward.

Yes. And I would just add, I think when you look at Q4 and you look at the North America wholesale growth reported up 10% I just want to make the point that we didn't sell in up 10%. There was a meaningful amount of that revenue growth that was associated with lower returns or sales-related reserves and returns lower discount and lower insulation. And so it's a healthier business in North America that contributed to that growth in Q4. It isn't just -- that wasn't just a wholesale comp. But when you look forward into '27 specifically to your question, Q2 has a tough compare in North America. And what I would say is that without getting into the specificities of every quarter, Q2 does that tough compare in North America. And we continue to believe North America is leading our progress. We've talked for several quarters about the fact that the geos are operating on different time lines. And while we've seen a little bit of a blip associated with retail sales in North America. It's highly correlated as we can see with gas prices and how those fluctuated in North America. We continue to believe that North America is out front leading us in our turnaround and our comeback. And we're looking forward to the momentum that we continue to build in that geography. I referenced Foot Locker and the fact that this quarter was the first quarter that we grew both Nike revenue plus Nike retail sales in Foot Locker in over 4 years. And so we're encouraged by that relationship. You know they're an important partner to us in North America and outside, but especially in North America. And then we continue to be furthest ahead in the progress we're making in Nike Direct in North America and in Digital. And so we're continuing to take the steps forward there to a more full-price business. and believe that we're on the right path as it relates to that marketplace.

And that will conclude the question-and-answer session and our call today. Thank you all for joining. You may now disconnect.

Good afternoon, everyone, and welcome to NIKE, Inc.'s Third Quarter Fiscal 2026 Conference Call. For those who want to reference today's press release, you'll find it at investors.nike.com.

Leading today's call is Paul Trussell, VP of Corporate Finance and Treasurer. I'd now like to turn the call over to Paul Trussell.

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE, Inc.'s Third Quarter Fiscal 2026 results. Joining us on today's call will be NIKE, Inc. President and CEO, Elliott Hill; and EVP and CFO, Matt Friend.

Before we begin, let me remind you that participants on this call will make forward-looking statements based on current expectations, and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in NIKE's reports filed with the SEC.

In addition, participants may discuss non-GAAP financial measures and nonpublic financial and statistical information. Please refer to NIKE's earnings press release or NIKE's website, investors.nike.com for comparable GAAP measures and quantitative reconciliations. All growth comparisons on the call today are presented on a year-over-year basis and are currency neutral unless otherwise noted.

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

Thank you, Paul. Last quarter, we said we were in the middle innings of our comeback. Since then, we have continued to take meaningful actions to improve the health, quality and foundation of our business. While we are not satisfied I am confident that our progress in the areas we prioritize: first, through our Win Now actions, point to where we are ultimately heading across our portfolio. Because of the scale and breadth of the NIKE portfolio, that progress will not happen all at once.

We have approached this comeback deliberately across brands, sports, geographies and channels, with some parts of the portfolio moving faster than others. One of the most important actions we took this quarter was further removing unhealthy inventory of our classic footwear franchises from the marketplace. That created roughly a 5-point headwind to our reported results. It was intentional. It was necessary. And while it weighed on the quarter, it is improving the health of the marketplace, the quality of our revenue and the foundation for more sustainable growth ahead.

As we were removing unhealthy inventory, we focus first on the areas that create the greatest impact. We focused on our Sport Offense in running our largest performance sport and in football the beautiful global game. We focused on athlete center innovation, building platforms that can scale across multiple sports and price points over time. We focus on our wholesale business, the environment where the majority of our consumers shop and where we needed to prove we could compete and win back market share. And we focused on paying it all off in North America, our largest geography that drives nearly half of our business.

These are the dimensions that are furthest along and each is absolutely essential to turning around this company. At the same time, other parts of the portfolio, including Greater China, Converse and Sportswear, are still earlier in their comebacks. We have new leadership in place, clearer strategies taking shape and structural changes underway designed to strengthen these businesses over the long term.

We are moving with urgency. We're not simply fixing what needs to be fixed. We're building brand by brand, sport by sport, country by country, partner by partner. We're reshaping our marketplace, rewire and how we operate and investing in the technology platforms that we expect will help us serve more consumers better and run our business more effectively. These actions will continue to create near-term pressure, but we believe they are the right actions to strengthen NIKE for the long term and create more durable value for shareholders.

This is complex work, and parts of it are taking longer than I'd like, but the direction is clear. The urgency is real, and the foundation is getting stronger. By the end of the calendar year, we expect to have finished our Win Now actions. Aged inventory across the marketplace will be healthy allowing our sports teams to consistently flow athlete-led, innovative and coveted products in all sports across our 3 brands, including NIKE Sportswear and Jordan Streetwear.

Our marketing teams will be creating even more locally relevant inspiring stories in key countries and cities around the world. Our account teams will be elevating those stories in our brands at point of sale, with consumer-right assortments and presentations, which will all result in more balanced, profitable and sustainable growth across the integrated marketplace, owned and partnered, digital or physical. And because we are now far enough into the work and clear enough on the path ahead, this fall, we will share a more detailed long-term view of the business at an Investor Day at the Philip H. Knight Campus in Beaverton. We look forward to sharing more about the future of NIKE later in the calendar year.

Turning to the quarter. I'll start with the dimensions that I consider to be progressing fastest in the comeback. NIKE Running was the first team to move into the Sport Offense. They created a clear product construct based on athlete insights, segmented and differentiated assortments across an integrated marketplace and elevated our presence in story talent at retail. The consumer is feeling the impact of the full offense with NIKE Running up over 20% for the quarter. NIKE Running has created the road map for other sports to follow.

Global football is the next sport to fully transform into the Sport Offense. For the World Cup '26, it starts with our footwear construct that successfully launched the Tiempo in Q3, and we will unveil the new Mercurial in June. In apparel, we'll deliver Aero-FIT kits for our competing NIKE federations, including a Jordan Away kit for Brazil. We're also utilizing the World Cup as an opportunity to catalyze the football marketplace for quarters to come. By the end of the tournament, we will have elevated our presentation in more than 5,000 football doors around the world with wholesale partners and NIKE Direct because winning in football goes beyond winning the World Cup. We went through the Clásicos, the derbies, in Copa with colleges and youth clubs in every neighborhood, season after season.

In innovative products, we're back to leading big ideas for our industry. In just 1 quarter, we delivered both footwear and apparel platforms with deep insights that leverage years of scientific research from our labs, owned IP and advanced manufacturing. Our new Nike Mind platform with over 150 patents filed globally was the highlight of the quarter, designed to help athletes clear away distractions pre and post competition. The Mind 001 sold out in all geographies. We responded by doubling production of NIKE Mind over the next 2 seasons to meet demand from more than 2 million consumers who signed up for notify me on NIKE.com.

Following NIKE Mind, we introduced several early-stage innovation platforms this quarter. We used Nike Air for the first time ever as a self inflated thermal layer in apparel. Unveiled a new Liquid Air Max platform that is low to the ground and moves naturally with the foot. And we delivered Aero-FIT for football, our new elite apparel cooling platform that increases airflow by 200% over regular Dri-FIT. It will expand into multiple sports, including NIKE Running in the fall. These platforms are scalable foundations for growth that we can extend into multiple sports and price points over time.

Recently, our leadership team reviewed our full innovation agenda for 2027 and 2028 by brand and by sport. That focus is showing up in sharper athlete insights and more complete head-to-toe solutions, and we're excited to share our vision for the future of sport with you this fall. And yes, innovation sparks demand but products alone don't deliver long-term growth. For years, we were running a NIKE Direct first offense. Now, we are rebalancing our offense through an integrated and elevated marketplace and running a key city offense. These moves require us to rewire our supply chain and upgrade our technology platforms.

You saw the early signs of those actions this quarter, and it is a critical step in our return to double-digit EBIT margins. Many of our Win Now actions are being paid off first in North America. One of our strongest execution this quarter was the NBA All-Star Weekend, which connected us to consumers and drove full-price sell-throughs while deepening our wholesale partnerships in Los Angeles with Shoe Palace, DICK'S and Foot Locker. The experience set the tone for how we will show up in LA for the World Cup, Super Bowl and the '28 Olympics.

Across all dimensions in North America, our wholesale momentum is accelerating. It's Sporty Goods, DICK'S and Academy are leaning in with us to tell more sport performance stories. We're building long-term plans with Foot Locker and JD in athletic specialty, and we're fully committed to our partners in running specialty, football specialty and city specialty through our investments in product innovation and presentation. Ultimately, this is about creating a more profitable business model for both sides of the partnership.

In NIKE Direct, we've elevated our own experiences setting a standard for how our brands show up in the marketplace. We've intentionally cleaned the market in all channels. The teams are hyper focused on consumer right assortments and presenting them in environments that tell our best innovation stories, all with the goal of accelerating sell-through. If Running shows what our Sport Offense can do, North America showed the power of our complete portfolio in an elevated integrated marketplace. From here, we expect that to translate into consistent growth in North America.

I'll finish with the areas of our business that are earlier in the journey, starting with our growing portfolio of emerging brands. This quarter, we tapped into the energy of the Winter Olympics in Milan and Cortina to build excitement around ACG. It was a world-class execution that showcase the ACG logo on all Team USA athletes. We executed creative brand marketing including an experiential chain from Milan to the Alps called the All Conditions Express, and we elevated our presentation in more than 600 retail doors around the world, including a stand-alone ACG door in Beijing.

The Nike ACG team is committed to serving the outdoor athlete by creating the world's most innovative footwear, apparel and accessories building our presence authentically over time by supporting world-class racers and events and building long-term partnerships with the retailers who authentically serve outdoor athletes. The outdoors is a tremendous opportunity for NIKE as we bring excitement and a fresh perspective to the consumers and the industry.

In NIKE Sportswear and Jordan Streetwear, our teams are moving from playing defense to playing offense. Matt shared last quarter that by the end of this fiscal year, we will have intentionally reduced over $4 billion of revenue from the peak levels of classic footwear franchises. A cleanup of that scale is significant and has taken several quarters to execute. From here, we're investing in a more sophisticated city offense, one that incubates new styles through different consumers and channels account by account. And as you know, there is both an art and a science to seeding, igniting and scaling new sportswear styles.

A great example this quarter is the strong sell-through we drove around the globe with a more thoughtful approach to the reintroduction of the Air Max 95. That city led approach is especially important in EMEA, where we lack a fully integrated marketplace and it has been one of our biggest hurdles. The team is responding with a more complete street up model working more closely with wholesale partners to improve point-of-sale storytelling and seeding in the community. In EMEA, you'll see us show more -- up more as a local NIKE. Greater China, too, will benefit from a more local approach and closer connection with the consumer on the ground. We have become clearer on the structural challenges in China and the channel dynamics in the marketplace. We are taking action to clean the marketplace, tighten execution across digital and physical retail and rebuild the brand locally through sport. It will take time, but we remain confident that serving 1.4 billion potential athletes in China is one of the most powerful opportunities in sport.

In Converse, the team took some decisive steps this quarter to bring the brand back to a healthy business. Converse is a beloved brand that serves a distinct consumer through their connection to creative culture, music and youth. Converse will remain an important part of the NIKE, Inc. family, and we are excited about its long-term prospects. Overall, the work is not finished, but the direction is clear. Our teams are moving with focus and urgency and our foundation is getting even stronger.

I'm going to pass it over to Matt, and I'll come back on to close out the call.

Thanks, Elliott, and hello to everyone on the call. As Elliott outlined, we are seeing real progress across the business. Our initial focus on sport was important because it sets a strategic repositioning of our brands. Momentum in Running continues to be strong, and we expect football, training and basketball to return to growth over the next few quarters. Yet, sports dimensions currently represent less than half of our total portfolio. And sportswear continues to be a headwind to revenue growth as it declined low double digits in the quarter. In the marketplace, relationships with our wholesale partners are strong, and our ways of working look very different than they did 12 months ago.

Order books are growing, and we are taking back shelf space. However, sell-through trends are not yet where we want them to be. Despite making progress versus a year ago, digital is still too promotional. Markdowns across the marketplace remain elevated. Our teams are pulling levers to manage inventory and protect brand health, but this continues to be a headwind to gross margin profitability. While our comeback is taking longer than we would like, we are confident we are on the right path, and we have a clear set of plans in place to complete our Win Now actions by the end of the calendar year.

Now let me turn to our third quarter results. For this quarter, revenues were flat on a reported basis and down 3% on a currency-neutral basis. NIKE Direct was down 7% with NIKE Digital declining 9% and NIKE stores down 5%. Wholesale grew 1%. Gross margins declined 130 basis points to 40.2% on a reported basis, primarily due to 300 basis points associated with higher tariffs in North America. SG&A was up 2% on a reported basis versus the prior year due to employee severance charges we incurred in the quarter. We also had other income from legal settlements. Our effective tax rate was 20%. Earnings per share was $0.35 and inventory decreased 1% versus the prior year with units down mid-single digits.

Let me provide some additional context on the $230 million charge we incurred this quarter due to employee-related severance costs primarily in supply chain and technology. During the pandemic, we accelerated investments across supply chain and technology to support a larger digital and direct business. Those investments also resulted in a higher fixed cost base that weighed significantly on our EBIT margins as revenue came down. Given the strategic shifts we have made to serve a more balanced and integrated marketplace, we have begun to take meaningful steps to reset our cost base to improve NIKE's long-term profitability. Our specific actions in the supply chain will lower costs, streamline operations and reduce capacity in our distribution network. Over time, we will shift our supply chain network to become more of a variable cost versus the higher fixed cost structure we have today.

In technology, we continue to optimize our workforce, rationalize programs and leverage new advanced capabilities. We also rightsized operating costs at Converse this quarter, which was included in this charge as well. We continue to evaluate opportunities related to supply chain which could result in additional financial impacts in future quarters though we believe the actions taken this quarter will represent the largest financial impact. We expect benefits from these actions to begin in fiscal '27 and continue to build through fiscal '28.

Now I will turn to performance of the geographies, including key highlights and actions we are taking to drive progress against our Win Now actions. In North America, Q3 revenue grew 3%. NIKE Direct declined 5%, while NIKE Digital was down 7%. NIKE stores were down 1%. Wholesale grew 11%. EBIT declined 11% on a reported basis. North America is leading our comeback and is well positioned to sustain the momentum as we move forward.

Running in global football grew double digits, with basketball up high single digits, while sportswear declined double digits. Our Digital business improved sequentially throughout the quarter, driven by strong launch and growth in key sports as well as continued improvement in average retail discounts. Wholesale revenue growth was driven by new distribution and lapping marketplace management actions with existing partners in the prior year. While sell-through has been below plan, sell-through improved in February, and we drove positive growth in all channels in the geography for the first time in 2 years.

Inventory dollars grew low-single digits, while units were down high-single digits, with the spread primarily due to tariffs. Closeout units remain low and the mix is healthy. From a margin recovery perspective, North America gross margins declined 360 basis points versus the prior year, despite nearly 650 basis points of gross impact from new U.S. tariffs. Underlying profitability has now improved over 3 consecutive quarters, giving us confidence that we can recover the transitory headwinds to margin associated with our Win Now actions.

And last, we are increasingly confident we are on track to return to balanced growth in North America across both NIKE Direct and wholesale channels in the near term. In EMEA, Q3 revenue was down 7%. NIKE Direct declined 13%, with NIKE Digital down 6% and NIKE stores down 20%. Wholesale was down 4%. EBIT increased 7% on a reported basis.

EMEA presented both progress and challenges in the quarter, and the team continued to take action in a highly promotional marketplace. Our performance business continued to build momentum, led by double-digit growth in Running. Sportswear was down double digits, and sell-through has not tracked with sell-in expectations. Promotions across the marketplace were up versus the prior year as partners manage inventory. We were also more aggressive with promotions on NIKE Digital at the end of the season, which resulted in higher markdowns and a higher off-price mix. Inventory grew double digits versus the prior year with units up mid-single digits.

Given the softness in Sportswear, traffic patterns and promotions across Europe as well as recent disruption in the Middle East, we anticipate adding the fourth quarter with elevated inventory. In Greater China, Q3 revenue declined 10%. NIKE Direct declined 5% with NIKE Digital down 21% and NIKE stores up 1%. Wholesale declined 13%, EBIT increased 11% on a reported basis. This quarter, we made forward progress in Greater China. Running grew double digits in the quarter, and we also saw growth in tennis, golf and ACG and kids was flat. Sportswear declined double digits as expected. Wholesale sell-in was managed down while seasonal sell-through rates sequentially improved.

We expanded our NIKE store pilot to 100 doors, including our House of Innovation door in Shanghai, obsessing store assortments, storytelling and replenishment. And this resulted in traffic and comp sales improving versus the prior year. We implemented shifts to manage our brand presence differently across all digital platforms, pulling key styles off discount, resulting in higher full price realization for these styles.

Inventory was down mid-teens versus the prior year, with units down more than 20% and partner inventory also declined double digits. With new leadership now in place, we expect to take additional actions to improve our position in the coming quarters. We will continue to reduce near-term sell-in to align with full price demand, clean up the digital channel and reduce the amount of aged inventory in the marketplace. We expect these actions will continue throughout fiscal '27 and remain a headwind to revenue growth, while profitability should bottom sooner as marketplace management makes progress.

In APLA, Q3 revenue was down 2%. NIKE Direct declined 8%, with NIKE Digital down 12% and NIKE stores down 3%. Wholesale was up 3%, EBIT declined 4% on a reported basis. In the quarter, we saw bright spots with Running up double digits and growth in training and football while Sportswear declined double digits. We had a strong launch of NikeSKIMS in Australia and Korea and launched new cricket footwear innovation at the T20 Cricket World Cup. NIKE flagship stores in Tokyo and Seoul drove positive growth for the quarter. While inventory grew high-single digits versus the prior year, units declined low-single digits, as the team made progress in certain countries. Closeout mix remains elevated, and the team is focused on the actions to address excess inventory over the coming quarter. We expect performance across territories in APLA to remain mixed in the near term.

Now I will turn to our outlook. You heard Elliott say that while our comeback is taking longer than we would like, we have a clear set of plans in place, and we expect to complete our Win Now actions by the end of the calendar year. Over these next 9 months, there will continue to be puts and takes across the revenue and gross margin lines of our business. At the same time, we are even more confident in where we are headed. Therefore, we want to provide greater visibility to how we see the business trend from here through the end of this calendar year.

We expect revenues to be down low single digits versus the prior year with gains in North America, offset by declines in Greater China, driven by intentional reduced sell-in and marketplace management actions over that period. While the tariff environment has been uncertain, assuming no significant changes, we expect the first quarter of fiscal '27 to be the final quarter where higher tariffs continue to be a material year-over-year headwind to gross margin. We expect gross margin expansion to begin in the second quarter due to actions to mitigate tariffs and recovery of transitory impacts from Win Now.

We expect earnings to be flattish with gross margins beginning to inflect and disciplined SG&A management, setting the foundation for earnings recovery from there. We also recognize that the environment around us has become increasingly dynamic, and could experience unplanned volatility due to the disruption in the Middle East, rising oil prices and other factors that could impact either input costs or consumer behavior. We are focused on what we can control and these assumptions reflect the macro environment as it stands today.

Now I'll share a specific outlook for the fourth quarter of fiscal '26. We expect revenues in Q4 to be down 2% to 4%, with modest growth in North America despite lapping a value liquidation in the prior year largely offset by declines in Greater China and Converse. We expect Greater China to be down approximately 20% in the fourth quarter, reflecting reduced sell-in that we highlighted last quarter, as well as accelerated actions to clean up the marketplace.

We anticipate a 2-point benefit from foreign exchange. We expect sequential improvement in gross margin with Q4 down approximately 25 to 75 basis points, including 250 basis points due to higher tariffs in North America. We expect Q4 SG&A dollars to be flat to down slightly. We expect other expense net of interest income to be an expense of $15 million to $25 million in the fourth quarter. And we expect our full year tax rate to be in the low 20% range. And last, we will return to providing full year and long-term guidance at our Investor Day in the fall.

With that, I'll pass it back to Elliott.

Thanks, Matt. Before we move to your questions, I want to leave you with an image that stayed with me from this quarter. I was in Barcelona meeting with athletes and leaders from FC Barcelona, a partner of ours since 1998, and I stood on the pitch at Camp Nou. If you've ever been there, you know it is more than a stadium. It is one of the most imposing stages in sport, a place built for pressure, belief, and unforgettable moments. And right now, Camp Nou tells another story, too.

Above the pitch, there is scaffolding, in the corners there are cranes, entire sections are unfinished. The stadium is being rebuilt tier-by-tier, piece by piece to accommodate over 100,000 supporters. The work is still underway. Capacity right now is limited and it requires patience and perseverance. And still, the supporters are in full voice. The players are still stepping on to the pitch focused on competing and winning. And all around them, the work is transforming what their home, their club will become.

What stayed with me was the reality of both things being true at once, competing today while building for tomorrow. FC Barcelona did not choose between performing in the present and preparing for the future. They are doing both at the same time. Standing there, looking up at the half-built stadium, it occurred to me, this is NIKE right now. We are taking deliberate actions that we believe will restore the health and quality of our business even when these actions create pressure in the near term.

We are removing what is not working. We are rebuilding parts of the foundation that needed to be rebuilt. And at the same time, we are continuing to innovate, to compete and to create for the future. That takes conviction. It takes patience, it takes belief and it takes focus. Camp Nou is being rebuilt for the next -- not being rebuilt for the next match, it is being rebuilt for the next era.

That is exactly how I think about the work we are doing at NIKE. I came back to help return this company to greatness and to build it the right way for the long term, to protect what has always made NIKE special and to modernize it for a new generation of athletes and consumers. So while the work is not finished, the direction is clear. Our focus is clear. and our comeback is within reach. And this fall, we look forward to sharing a fuller view of that path ahead at our Investor Day.

With that, let's open it up for questions.

[Operator Instructions]. Our first question will come from the line of Lorraine Hutchinson, Bank of America.

The performance in the EMEA seems to have decoupled from some of the early successes you've seen in North America. How do you diagnose the problems? And what's the strategy to fix it?

Well, Lorraine, as I highlighted, I may have presented both progress and challenges in the quarter. And I think that as we've implemented the Win Now actions across that geography, we are seeing growth in performance. We're seeing running up double digits, and we're really excited about the plans that we've got in place for the World Cup, as well as the way that we're setting up the marketplace for both upcoming product launches in both Running and in Training.

This quarter, we highlighted that we didn't see sell-in where we were hoping sell-in to be specifically on our Sportswear business. And it's really connected to a theme that we've been talking about for several quarters. We've highlighted some of the macro pressures that we've been seeing in EMEA over the last few quarters and specifically that, that marketplace has seen challenges in traffic and also a higher level of promotional activity.

And so this quarter, as we saw sell-through trending below our expectations, we saw our partners start to be more promotional, and we also were more promotional to manage inventory across this large marketplace. And this quarter, we also experienced traffic disruption from the Middle East. And we also are taking that into consideration as we're thinking about where this business stands and also as we look forward. So we've been aggressive, as I mentioned, with our teams pulling levers in order to keep this marketplace clean and healthy. Our closeout mix is at a really good level. And while we expect to exit the fourth quarter with elevated inventory in EMEA, we're confident given the size of the issue and the way that our teams are responding that we will be able to continue to work through the Win Now actions in this geography as well by the end of the calendar year.

And Lorraine, the only thing just to add to that, we do have a new leader in place. I have tremendous confidence in César Garcia. He's a 25-year NIKE veteran, has deep and broad product and marketplace experience and he's a tremendous leader. The team is really focused from a product perspective, and Matt touched on some of this, moving from being so Sportswear reliant to also be really focusing in on performance where we have growth in Running, Training and Football. So I like what they're doing there. They are now getting back to driving a more elevated and integrated marketplace. And then they are focused on making sure we have the right assortments in those doors, elevating the presentation and driving sell-through with our strategic partners. And so overall, I'm really pleased with the actions that the team are taking.

Our next question will come from the line of Adrienne Yih with Barclays.

Thanks for the forward guidance, actually. That's my question, it's going to be -- so you're talking about the end of the calendar year, but your quarters kind of split the calendar year kind of in the middle. So I'm wondering if we should be thinking about revenue, you said down low-single digit for that horizon with North America up and improving, which would suggest that Greater China is meaningfully negative, probably climbing from that negative 20%. So just a little bit of help there with the shaping and what is that, is it February quarter? The earnings being flattish would suggest 15% maybe haircut to where -- I mean significantly more than where the Street is. So again, is that flat for the fourth quarter on EPS through the February quarter? And then should we think about the May quarter of that year sort of having a big inflection? Sorry for all the kind of convoluted questioning, but thank you.

Yes. Adrienne, I'm going to jump in first. I see Matt wrote down all the questions. So I think he's ready. But let me -- here's what I want to make certain that everyone hears on the call. We are even more convinced now that the Win Now actions were and remain the right strategic moves. We've made meaningful progress improving the health, quality and the foundation of our business. We talked about that. And really, the areas that we said we were going to make the most progress, the ones that we knew made the most impact are some proof points that the actions are working. Just at a high level to go through the actions, we first said culture was #1. We have the teams galvanized around sport and growth. Product was the second one. We're driving the Sport Offense. We just moved into the Sport Offense in September. Spring '27, will be the first quarter where we will have product flowing into the marketplace from the Sport Offense. And Running is a proof point this quarter. It's up double digits.

NIKE Football is also getting back to growth. We have innovation coming. We talked about Mind and Aero-FIT. The wholesale business is back to growth, and we're paying it off in North America. So I'm really pleased with those proof points that the Win Now actions are indeed making an impact and know that we are moving quickly against Greater China Converse and Sportswear. We have new leaders in place. We're creating thoughtful long-term strategies, and we're making structural changes. And what I want to leave you with before I hand it over to Matt is that we are -- these are deliberate actions, and we are not just fixing. We're building brand by brand, sport by sport, country by country and partner by partner. And I will acknowledge that parts of it are taking longer than I would like, but we believe the direction -- in the direction and moving with urgency and the foundation is getting stronger. So I'm really good -- feel great about that.

And Adrienne, on the specific guidance question, I guess what I would say is that we've been providing 90 days of guidance for the last 5 quarters since Elliott returned. And we've been consistently asked for greater visibility as we had confidence in the trajectory of the business. And given -- while this comeback has taken longer than we'd like with North America's continued momentum, and a clear plan in place through the remainder of the calendar year. Our approach to providing guidance for the calendar year is really about pulling up at this moment and providing transparency to the financial trajectory of the business over the next 9 months. So I think of it as -- it includes this quarter and then it carries through over the next 9 months. And we're lining that up with the time line that we've set to complete the Win Now actions by the end of the calendar year.

Specifically, your question about some of the elements of shaping, without getting into the specifics of November versus December, what I'd say is that we expect revenue to be down low-single digits over this period. We do expect the momentum to continue in North America. And so we're planning for modest growth in North America even as we continue to lap the value liquidation that we've been doing this year. That's going to be offset by headwinds in Greater China. And that -- it's partly related to what we've been talking about, which is continuing to reduce the sell-in so that we would meet full price demand and also some of the actions that we're continuing to take in the marketplace in order to be able to clean it up. But I think the important point is that we expect margins to inflect in Q2. And that is a big moment, I think, for us, as we've been navigating through the costs associated with the Win Now actions and dealing with the newly implemented tariffs. And I think our confidence in margins inflecting positively in Q2, while we're managing SG&A tightly, really sort of sets the table for inflection in earnings as we go from there.

Our next question will come from the line of Simeon Siegel with Guggenheim Securities.

In the spirit of all this information, which, again, thank you, I know you guys don't normally give this detail, but any color you can share on D2C gross margins or just any way to think about the health of that channel? I know I've gotten a lot of questions around wholesale growth versus D2C declines. It just might be helpful to hear a little bit more about the quality of those D2C sales versus the reported declines, Elliott.

And then, Matt, just could you quantify the severance booked into the operating overhead this quarter, is that the full $230 million? I'm just trying to think through the change in operating overhead on a recurring basis and how you're thinking about operating overhead expense into next year as you further variabilize the P&L.

Yes. Thanks, Simeon. Let me jump in, and then Matt, I'll let you take the specifics around the DTC questions. But here's what I want to make sure that everybody on the call understands. We had been servicing our consumers with a direct-to-consumer model. And now we are moving to serve the consumers wherever, however they choose to shop with us. We want to make certain that we're managing our business across a balanced and integrated marketplace. That is the strength of NIKE is when we're able to have a portfolio of places that we serve consumers. And we're making certain that we segment and differentiate the assortments across multiple channels. NIKE Direct is certainly a part of that, but we are also making certain that we serve consumers in specialty, sporting goods, athletic specialty, department stores, family footwear and digital and physical. That's the power of NIKE.

And I think we're doing a much better job of working directly with our partners, developing long-term plans and making certain that we gain back shelf space and ultimately share. So again, yes, DTC is critically important to our success moving forward. I want to make sure you hear me say that. But also I want to make certain that you guys hear that an integrated and balanced marketplace is also critically important.

And specifically to your question about the quality of the DTC business, what I'd say, Simeon, is that we -- North America is the geography where we saw the most improvement in the quality of the business in direct and specifically -- I'm really specifically talking about digital. We did with our focus on sports see strong results across our NIKE stores around the world, lining up against sport, getting behind key sport moments. But on the Digital side, in North America, we saw continued improvement in the gap between wholesale and direct. And when we look at the quality of that business in North America, we continue to be encouraged.

I mentioned a couple of things on the call, but we saw sequential growth throughout the quarter driven by strong launch. That's across both Nike and Jordan. We saw growth in key sports on Digital, and we saw continued improvement in average retail discounts in North America. We saw demand on the Nike App grow in Q3 in North America. And as I mentioned, we saw sell-through overall in the marketplace in North America and February inflect up and it was the first time in 2 years that we saw positive growth in all channels. So that includes wholesale and across direct. And so we continue to be encouraged that as we're getting deeper into our Win Now actions that we're getting closer to balanced growth between wholesale and direct in the North America marketplace, and that is the playbook that we intend to take to -- that we're taking to Europe, to APLA and to Greater China and what we're focused on executing through the balance of the calendar year.

Our next question will come from the line of Michael Binetti with Evercore ISI.

I guess just to clean up the negative 2% to 4% in fourth quarter reported currency. And then I guess, bigger picture, with revenues down 2% to 4% and America grow -- I guess, North America growing modestly, China down 20%. You didn't guide EMEA in the fourth quarter, but it seems like you're triangulating somewhere close to down mid-singles, down a bit despite the World Cup. Maybe just some shape of the major puts and takes in EMEA in fourth quarter since the revenue rate changed so much in third quarter? And I guess the follow-up there is the margins in EMEA were surprisingly strong in third quarter despite the revenue decline. Could you just comment there on -- maybe any color on whether those positive offsets continue?

Yes. The comments that I made on EMEA in the fourth -- sorry, in the third quarter, definitely impact the way we're thinking about the fourth quarter. We expect to continue to see growth in the performance dimensions. We're incredibly excited about World Cup. I mentioned that we've got strong double-digit growth in Running, and we're excited about upcoming product launches in both Training and Running. And so Training is the second biggest performance category, and it's super important to continue to build momentum as we continue to drive our Training business across all sports. The real change in the quarter was sell-through on the Sportswear side. And so our outlook reflects a modification to -- it takes us into consideration in terms of our expectation of the Sportswear business in Q4 because we're managing the marketplace carefully.

We've also taken into consideration not only what we've seen in the Middle East as it relates to traffic, but also our expectations of the disruption of that in this marketplace based upon what we can see today. And so that's really the other factor that we've taken into consideration in this fourth quarter guidance. But we continue to be encouraged by the momentum in North America. We've got a strong order book for summer. We're seeing positive signs and sell-through. We're not seeing a consumer reaction to what's going on in the Middle East at this point in time in North America. And so our teams are continuing to work hard to connect with consumers and to continue to rebuild back brand momentum across that geography and the rest of the geographies.

Our next question will come from the line of Brooke Roach with Goldman Sachs.

Elliott, I was hoping to get your latest thoughts on the opportunity to stabilize the Sportswear business. How much additional reset activity is needed in the Classics franchise by geography and are you seeing any green shoots in the North America Sportswear portfolio that gives you confidence that the strength and performance can translate to better momentum in Sportswear over time?

Yes. Thanks, Brooke. Here's what I -- here's how I think about Sportswear. And I said it in the prepared remarks, but we're definitely moving from defense to offense in both NIKE Sportswear and Jordan Streetwear. And we got to think about both of those, especially as you think about North America. Let me first start with where we prioritize, and we did prioritize our performance business. And we felt like we had to get performance products right because sport is what drives our authenticity. It's our point of difference and distinction. It drives our best products and storytelling. And ultimately, sport is what creates a halo over the sportswear and streetwear businesses. And so we really got after the sport business through the -- and running a complete offense, making sure that we had innovative products driven by athlete insights.

And now as you're hearing from Matt and me, we're paying it off across the integrated marketplace. So it's working on Sportswear -- on the sport side. In terms of how we're doing on the Sportswear and the Streetwear side, here's what I would say. And I did use the specific where we intentionally pulled back, which created about a 5-point headwind this quarter of removing unhealthy inventory from those Classics. And what I would say is that the Air Force 1 and the AJ1, they stabilized this quarter. And so we're seeing month-to-month improvement in full price realization in those 2 franchises. And I also want to make sure that you hear me say that we see that as a positive because we believe these icons will always be staples for the consumer. We're still stabilizing the Dunks. We have a little bit of work to do there.

But at the same time, the green shoots, as you call them, we're starting to see the team create some buzz around our business. This quarter, we had some really good and tremendous launches, AJ 11 Gamma, the AJ5 Wolf Grey, the Nike Air Max 95 and all of them had a high full price realization and really strong sell-through. So the Sportswear team is moving to playing offense. And what you'll see from us is that team taking insights from the consumers that they serve and focusing on creation around comfort, innovation. And yes, we will continue to leverage our unmatched vault. And so I'm really pleased with the progress that the Sportswear and the Streetwear teams are making, but we still have work to do. And I called that out that we still have work to do, but -- and confident in the actions that we're taking and pleased with the way the consumer is responding.

Our next question will come from the line of Brian Nagel with Oppenheimer & Company.

So Elliott, the question I want to ask, you've mentioned several times in your comments that you're heading in the right direction, but the process is taking longer than you initially expected. So the question is it -- as you look at the reasons for that, is it more internal? Or is it more external, the environment in the different geographies or whatever has proven more challenging for the turnaround efforts here?

Brian, I think it's the easy answer for me to say it's a little bit of both, right? But here's what I would say, the starting point for each geo or each country was at a different place. And by the way, each marketplace has a different structure as well. And so we had to make certain that we truly understood where each country and each marketplace was in terms of their performance across the entire integrated marketplace, again, from NIKE Direct all the way through the different channels. And so I think the easiest way to think about it is the comeback, it is substantial. And at our size and scale, building for the future, it just -- it takes time, and it's taken longer than I would like.

But what I would tell you is we got our teams reorganized from a product perspective as well in September and spring '27 will be the first time we see the fruits of those teams working together. But in the end, I'm pleased with where we're headed. And I think everybody, when I came into this role, said, "Hey, it's going to take 2 years, and that's where we're tracking right now." So a little bit of both, Brian. We do have some external factors that we're having to deal with while we're in a major comeback, but that's no excuse. We're controlling what we can control. We're getting our teams lined up internally around product and the consumer and storytelling. And then we're getting our country teams lined up around driving a more integrated and elevated marketplace. And ultimately, that's what's going to pay dividends for us and build the foundation for future growth.

Our final question will come from the line of Matthew Boss with JPMorgan.

So Elliott, could you -- if we take a step back, just update us on health of the global sportswear backdrop? Or where does your outlook for the industry stand today relative to when you took the helm? And then, Matt, on low to mid-single digit constant currency revenue declines for the back half of the year. Is there a way to parse out self-inflicted headwinds or maybe where you see underlying demand exiting this fiscal year? And what have you embedded for overall sell-through rates through the balance of the calendar year just relative to the pressure that you cited that you've experienced to date?

Matthew, let me take -- so I think the easiest answer on sportswear is that it will remain a very large part of the overall industry and it will be critical to our success moving forward. So we're taking a streets-up approach to this and making certain that we help this big giant business feel more local. And again, it takes time to seed and ignite and scale product over time. But returning to a healthy sportswear business is essential and vital to our comeback because it will continue to be a critically important part of the overall market and overall part of our growth. So with that said, I'm incredibly positive on the athletic industry overall, not just in sportswear, and we see it as a tremendous opportunity for us to continue to drive growth in an expanding market.

And then, Matt, to your question on sell-through assumptions, maybe let me hit revenue first. For the first half of next year, I think it's safe to look to the range we provided for Q4 as a guide for what we're expecting for revenue for those last 2 quarters. And I think it's really highlighted by the trends that we've talked about. It's North America continuing to sustain momentum. We expect to see more balanced growth across channels. Given where inventory is in the marketplace, we expect to continue to see improvement in underlying profitability in that geography. And the top line will be tampered a little bit like we've been talking about because we are anniversarying quite a bit of off-price liquidation in the prior year, but it's a healthier business. It's a more profitable business, and it's a sustainable growing business across all channels of the marketplace.

As you go outside the U.S. I think that we've been clear that we believe that we can complete the Win Now actions in EMEA and APLA by the end of this calendar year. That's how you should read what we've -- what we're communicating. I think that will continue to be us going deeper on cleaning up the marketplace, especially digital. And quarter-by-quarter, we're planning for improvements in sell-through. As it relates to Greater China, we're managing sell-in. And by managing sell-in, we expect to continue the trend like we saw this quarter of sequential improvement of sell-through rates. And so we're managing supply in order to be able to continue to shift the mix of inventory in that marketplace to be more full price and more healthy. And that's why I gave the commentary around while the actions we're taking will create a headwind to revenue in Greater China, we do expect to see profitability bottom faster because it's going to be a healthier, more profitable business as we set that foundation for much more balanced growth as we go forward in China.

That will conclude the question-and-answer session and our call today. Thank you all for joining. You may now disconnect.

Good afternoon, everyone, and welcome to NIKE, Inc.'s Second Quarter Fiscal 2026 Conference Call. For those who want to reference today's press release, you'll find it at investors.nike.com. Leading today's call is Paul Trussell, VP of Corporate Finance and Treasurer.

I'd now like to turn the call over to Paul Trussell.

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE, Inc.'s second quarter fiscal 2026 results. Joining us on today's call will be NIKE, Inc. President and CEO, Elliott Hill; and EVP and CFO, Matt Friend.

Before we begin, let me remind you that participants on this call will make forward-looking statements based on current expectations, and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in NIKE's reports filed with the SEC.

In addition, participants may discuss non-GAAP financial measures and nonpublic financial and statistical information. Please refer to NIKE's earnings press release or NIKE's website, investors.nike.com, for comparable GAAP measures and quantitative reconciliations. All growth comparisons on the call today are presented on a year-over-year basis and are currency neutral unless otherwise noted.

We will start with prepared remarks and then open the call for questions. We would like to allow as many of you to ask questions as possible in our allotted time, so we'd appreciate you limiting your initial question to one. Thank you for your cooperation on this.

I'll now turn the call over to NIKE, Inc. President and CEO, Elliott Hill.

Thank you, Paul. Let me start by thanking all of you for joining on the eve of a holiday week here in the United States and many parts of the world. And with that, let me also recognize a NIKE team that's leaving nothing on the table right now.

When you work in retail, the holidays don't mean a break. When you work in sport, you often say that sport never sleeps. So when you work at NIKE, you're in the thick of an incredibly busy time. With that in mind, I want to extend a special and heartfelt thanks to my NIKE teammates. Thank you for your continued commitment, passion and determination, and thank you for delivering another quarter of steady progress and building momentum.

Fiscal year '26 continues to be a year of taking action to rightsize our Classics business, return NIKE Digital to a premium experience, diversify our product portfolio, deepen our consumer connections, strengthen our partner relationships and realign our teams and leadership. And I'd say we're in the middle innings of our comeback. We started with the Win Now actions, which was our immediate response to our biggest challenges and opportunities in our culture, product, storytelling, marketplace and winning on the ground.

And now our sport offense is the accelerator of our Win Now actions. It's how athlete-centered innovation travels across and through every country and channel to drive growth. Our focus on sport by brand is the engine of our growth. Our global marketplace is the amplifier, and it is our sport offense that connects the 2. Said another way, our growth will come from sport, athletes, product innovation, sport moments and will be scaled through countries, channels and accounts.

Turning to the quarter. I'd frame up the results as slightly better than we had anticipated 90 days ago. And while we're driving progress through Win Now, we're nowhere near our potential. I see 3 themes that give a better picture of where we stand right now. The first theme is that our sports teams are quickly finding their rhythm in the new sport offense. While rightsizing our Classics, we're building a more diverse product portfolio, gaining the most traction in our performance business, which validates that we've got the right structure to drive a relentless flow of innovative product across our unmatched opportunities.

The second theme is that we're building a healthier base for top line growth. The NIKE brand grew this quarter, and the mix was strong. We delivered 8% wholesale growth, elevated the experience in key NIKE stores and NIKE.com and had fewer days of promotion. These are all positive signs. The third theme is that our comeback continues to move at different speeds. It won't be a straight line, but we're acting decisively to accelerate the lagging areas with China at the top of that list.

A year in, it's clear how important it is to stay closely connected to what's happening on the ground. From intern to CEO and every role I've held in between, I've felt that way, which is why, as you likely saw this quarter, I announced a change in my leadership team, all geographies will now report directly to me. I'm confident this change will result in us accelerating our Win Now actions by allowing our geography GMs to more closely shape our strategy, drive faster decisions and influence investments.

The geography that is leading the way for NIKE right now is North America. As our largest business, that's where much of our focus has been. With North America, we're working with the most diverse wholesale landscape, which gives us several strategic partners to segment and differentiate our multi-brand, multisport and multi-price point portfolio. The team has done an excellent job of reconnecting with partners and getting sharper on the consumers we serve and those that we seek to serve.

This quarter, that approach led to over 20% wholesale growth in North America with meaningful growth coming from existing partners. Our North America marketing team is also finding the right balance of inspiring through big team moments like the Dodgers World Series campaign after their win or at the Chicago Marathon, where we supported everyone from everyday runners chasing personal bests to Conner Mantz shattering an American marathon record that stood for 23 years.

North America is driving a healthy, repeatable offense and showing us what winning looks like. It's a great signal for our future success in other geographies. In Greater China, we highlighted last quarter that we were facing a longer road to a healthier business. We've been implementing the Win Now actions in our key cities of Beijing and Shanghai, leading with more storytelling of our product innovations, editing our assortments and elevating the presentation of those assortments in targeted doors.

What we've done is a start, but it's not happening at the level or the pace we need to drive wider change. The next step is to further adapt our approach to fit China's unique monobrand footprint and digital-first marketplace. The reset requires a fresh way of thinking from our NIKE teammates and our NIKE store partners, and it will take time.

Over the years, we established our premium position and market share there because the Chinese consumer believes in our ability to innovate and inspire them through sport. I'm confident we'll get back to fulfilling that promise. China continues to stand out as one of the most powerful long-term opportunities in sport. That has not changed. Expect to hear, see and feel much more about how we'll manage the China marketplace differently this fiscal year and beyond.

Both EMEA and APLA are geographies that are led through distinct, influential countries and key cities, so we're moving quickly to resourcing our teams on the ground, including sales. They're the ones who deliver locally relevant assortments, elevate the presentation of those assortments, fuel product seeding and build local relationships, create meaningful stories and consumer connections and ultimately drive profitable and sustainable revenue in both wholesale and direct.

EMEA activated their sport offense on December 1, so they've just started rehiring these critically important revenue-generating roles in key countries. I'm locking arms with the leaders of our geographies and with Matt, who now leads Sales and NIKE Direct, to elevate the way consumers experience our brands. I know what it looks like when it's successful. I can see the upside. It's a brand-by-brand, sport-by-sport approach paid off in a partner-by-partner, city by city, high street by high street, mall-by-mall approach and every detail matters.

Next, I'll share some color on how the sport offense is fueling a more diversified product portfolio through footwear, apparel and equipment and up and down price points. Our teams are determined to deliver a consistent product innovation pipeline. In January, NIKE Running will build off of the strong start of our new stability shoe, the Structure 26, with the introduction of the Structure Plus. In Q2, Running grew by over 20% for the second quarter in a row, it's up double digits in every channel, including NIKE Direct.

Also in January, we'll debut Nike Mind, a new footwear platform that will help athletes prepare for performance and competition, which we see as a new dimension to the NIKE Training's offense. We introduced Nike Mind along with 3 other new innovation platforms in October. One of them is the new platform that traps air for warmth in an ACG jacket. The jacket inflates from a shell to a puffer based on the warmth needed. The Therma-FIT Air Milano jacket will debut at the Winter Olympics in February.

Also in February, at the NBA All-Star Game in L.A., you'll see an example of how our 3 basketball brands and their product lineups will come together under the sport offense. The Swoosh, the Jumpman and the Star Chevron have a unified creative feel and merchandising approach with Foot Locker in L.A., and we believe it has great potential to be scaled.

Our NikeSKIMS collection will launch internationally in EMEA and APLA in the same time frame, following a successful rollout in North America. In NIKE Football, the deeper investment in World Cup starts now. This quarter, we brought a fresh perspective to the culture of the game in a T90 collaboration with Palace and with our Hollywood Keepers sportswear collection.

And in March, our athletes will begin wearing our new apparel platform, Aero-FIT in their national team kits. Aero-FIT is like air conditioning for the body, flowing air through the garment unlike any previous performance apparel. The innovation platform will scale across several sport dimensions in coming seasons.

Overall, wholesale partners are very confident in our NIKE Football product. Booking units are nearly 40% higher than World Cup '22. To help sell through the commitment, we'll refresh over 100 NIKE Direct and 1,400 partner doors around the world, and our marketing team is making significant investments to inspire football fans everywhere. All of these new concepts will come to the consumer in the back half of the year. As a result, our order book is improving season on season.

Through to sport offense, we're on our way in product. But as I've said, near-term investments to clean up and elevate the marketplace have put real pressures on margins. Tariffs have also obviously added a significant headwind to overcome. I want to state it very clearly. Margin expansion is a top priority for me and my leadership team. While it will take time, we see the path back to double-digit EBIT margins for NIKE, Inc. That formula includes a multi-branded and diverse product portfolio that is constantly refreshing and bringing in newness and seeking to drive value out of every relationship we have in the marketplace. It also requires us to be bolder and more creative in how we operate.

I made another change within my leadership team this quarter, asking Venkatesh Alagirisamy to be in the role of our Chief Operating Officer. He and his team will look end-to-end to ensure technology is fully integrated across the company in how we create, plan, make, deliver and sell our world-class innovations. We see significant opportunity to get our core operations running more efficiently and more profitably. I look forward to sharing more in the coming quarters.

With that, I'll turn it over to Matt to go deeper into the quarter and then offer some closing thoughts before we take your questions.

Thanks, Elliott, and happy holidays to everyone on the call. Our second quarter results demonstrated the resilience of our portfolio with modest year-over-year reported top line growth, despite managing headwinds from the actions we have taken to reposition our business. As I look back on where we are, 1 year from Elliott joining the company and moving forward with our Win Now actions, our business is in a better position.

Sport dimensions represent a larger mix of the portfolio, led by Running, and we are seeing momentum build in other sports. The Classics footwear franchises are on track to decline from peak levels by more than $4 billion by fiscal year-end. Wholesale has returned to growth, with a growing order book globally in both spring and summer. NIKE Digital has reduced promotional activity and is operating more strategically in sync with our partners. And inventory is in a healthy and clean position in North America and EMEA.

While we are encouraged by all of this, as we have said, our progress will not be linear as each brand, sport and geography is recovering on a different time line, and we continue to read and react every day in service of the long-term health of our brands. We highlighted last quarter that it will take more time to return to healthy growth in Greater China and Converse, and we expect headwinds to continue for the balance of the fiscal year. There are also puts and takes across EMEA and APLA. Meanwhile, North America and Running stand out again this quarter, and we are growing more confident in our ability to sustain the momentum as we look forward.

Being in the middle innings, as Elliott referenced, also means it will take time for the actions we have put into place to change the trajectory on EBIT margins. We have been navigating transitory headwinds to margin due to our Win Now actions and shifts in the business, including product and channel mix and continued inventory liquidation. As we highlighted last quarter, we are also navigating new structural headwinds from the $1.5 billion of annualized incremental product costs due to higher U.S. tariffs.

This represents a gross headwind of approximately 320 basis points to gross margin in fiscal '26. And while we have begun to take actions to reduce this to a net impact of approximately 120 basis points, it is still a significant factor impacting our near-term EBIT margins amidst a turnaround in a very dynamic operating environment. All in all, we have made meaningful progress through our 5 Win Now actions, yet there is more work to do, and our teams are hustling.

For this quarter, revenues were up 1% on a reported basis, and flat on a currency-neutral basis. NIKE Direct was down 9%, with NIKE Digital declining 14% and NIKE stores down 3%. Wholesale grew 8%. This included a top line headwind of approximately $550 million from the reduction of our Classics franchises, down over 20% versus the prior year. This means our currency-neutral revenue grew 6% excluding the impact of this headwind.

Gross margins declined 300 basis points to 40.6% on a reported basis, primarily due to increased product costs due to higher tariffs in North America as well as inventory obsolescence in Greater China that was not contemplated 90 days ago. SG&A was up 1% on a reported basis year-over-year, driven by higher brand marketing expense, partially offset by lower operating overhead. Relative to expectations, SG&A was lower due to operating overhead savings, reflecting the team's continued focus on disciplined cost management.

Our effective tax rate was 20.7% compared to 17.9% for the same period last year, primarily due to changes in earnings mix. Earnings per share was $0.53. Inventory decreased 3% versus the prior year, with units down high single digits. In North America and EMEA, which represent almost 3/4 of our business, we have returned to a healthy marketplace. We still have work to do in Greater China, parts of APLA and Converse.

Now I will turn to the geographies, and once again focus my remarks on specific context and insights of our Win Now progress. In North America, Q2 revenue grew 9%. NIKE Direct declined 10%, with NIKE Digital down 16%. NIKE stores were down 2%, wholesale grew 24% and EBIT declined 8% on a reported basis. As Elliott said, North America is our best example of executing our Win Now actions, and we are taking the learnings from their playbook to execute across all other geos. Momentum is extending beyond Running into additional sports including basketball and training.

As it relates to the North America marketplace, wholesale delivered strong growth in the quarter. While the quarter certainly benefited from liquidation to value channels as we cleaned up the marketplace, we also saw a balanced contribution of growth from both new and existing partners. North America also made additional progress on repositioning NIKE Digital to a more premium representation of the NIKE brand, with fewer days of promotion, lower markdown rates and increased demand at full price.

NIKE.com posted its best Black Friday ever this year, partially driven by strong sell-through of the Jordan Black Cat launch. Growth in the quarter was driven by Running, kids, basketball and training, with running delivering high double-digit growth in NIKE-owned stores, NIKE Digital and wholesale. Sportswear saw sequential improvement, up low single digits in the quarter, with Classic footwear franchises declining approximately 20% year-over-year. Inventory declined mid-single digits versus the prior year, with units down double digits. Closeout units declined double digits, and the mix is very healthy.

Last, I want to point out that North America gross margins only declined 330 basis points versus the prior year, despite 520 basis points of impact from new U.S. tariffs. This gives us confidence that our Win Now actions are working, profitability is recovering, and we are on the path back to sustainable, profitable growth.

In EMEA, Q2 revenue was down 1%. NIKE Direct declined 3%, with NIKE Digital down 2% and NIKE stores down 5%. Wholesale was flat. EBIT declined 12% on a reported basis. EMEA has maintained a healthy marketplace, although promotional activity has been heavier than expected. We saw growth in Central and Eastern Europe and the Middle East, offset by slight declines in Western Europe.

In Q2, our performance business continued to build momentum, driven by double-digit growth in Running. We also saw growth in Training and Sportswear. Sportswear growth was driven by apparel, with footwear flat, as a mid-20s percent decline in Classic footwear franchises was offset by growth in Air Max and the look of Running styles. Inventory grew double digits versus the prior year with units flat and the spread primarily due to foreign exchange rates. Closeout mix in the geography is healthy.

In Greater China, Q2 revenue declined 16%. NIKE Direct declined 18%, with NIKE Digital down 36% and NIKE stores down 5%. Wholesale declined 15%. EBIT declined 49% on a reported basis. Our priority in Greater China is to create greater brand distinction through sport and innovation, leveraging deep local insights in a premium and more consistently managed integrated marketplace across both physical and digital channels.

Over the past several seasons, we have faced consistent challenges with declining store traffic, softer in-season sell-through rates and higher levels of aged inventory across the marketplace. Our brands have consistently been off-price for consumers, especially in digital, affecting our premium positioning across the entire integrated marketplace. These challenges resulted in a higher mix of off-price sales with higher markdowns, higher sales-related returns, higher wholesale discounts and higher obsolescence charges to clean marketplace inventory levels. This cycle has had a significant effect on the profitability of Greater China.

This quarter, we took the following actions in China. We continued to obsess our initial NIKE store pilot, which delivered encouraging results this quarter with better traffic and comp sales growth relative to trends across the broader fleet. We focused on sport, combining new product innovation with elevated retail presentation, and we saw Running continue to grow in the quarter. We were less promotional during 11.11, resulting in an approximate 35% decline versus the prior year, in line with our plans. We accelerated returns of aged inventory owned by partners and wrote-off both partner and NIKE inventory in the quarter.

We reduced NIKE inventory by mid-teens versus the prior year and by 20% in units. And we reduced our sell-in plans for spring, and we cut our buys for summer to improve sell-through and full price realization. We will need to make further shifts in the integrated marketplace to break the cycle that we've been managing through. There is more work ahead to scale the momentum of the initial store pilot to more doors, to elevate our brands across all digital platforms and to clean up excess product in the marketplace. We expect headwinds to continue, but we are working to set the foundation for a return to growth in this important geography.

In APLA, Q2 revenue was down 4%. NIKE Direct declined 5% with NIKE Digital down 10% and NIKE stores up 1%. Wholesale was down 3%. EBIT declined 15% on a reported basis. APLA continues to deliver mixed results across countries, with positive results in Latin America, more than offset by headwinds in Asia Pacific countries. During the quarter, the team leveraged promotions to make progress on pockets of excess inventory in the marketplace. In the quarter, Running grew double digits, and apparel grew mid-single digits overall. Inventory grew double digits versus the prior year, with units up mid-single digits, though we saw pockets of improvement year-over-year.

Now I will turn to our third quarter guidance. We continue to operate in a dynamic environment, both for consumers and our global business, and we remain focused on what we can control to make forward progress for the long-term health of our brands. Our outlook reflects our best assessment of these factors based on the data we have available to us today. We expect Q3 revenues to be down low single digits, with modest growth in North America as we see reduced liquidation activity versus prior quarters, performance in Greater China and Converse similar to Q2 as well as a 3-point benefit from foreign exchange.

We expect Q3 gross margins to be down approximately 175 to 225 basis points. However, excluding the 315 basis point impact of higher gross product costs related to new tariffs, gross margin expansion would be positive in the third quarter. We expect Q3 SG&A dollars to be up low single digits due to higher demand creation and investments in our sport offense. We expect other expense, net of interest income, to be an income of $0 to $10 million in the third quarter.

Now I'll close with a few final thoughts. We are making progress in the areas we focused on first, and we are increasingly confident in our path forward, led by momentum in North America. We are making the investments required to position our full portfolio for a recovery and making decisions in service of the long-term health of our brands. Operationalizing the sport offense, elevating the marketplace and rebuilding our key city teams are critical priorities to return to sustainable, profitable growth across all brands, all sports and all geographies.

Finally, as you heard from Elliott, we are focused on improving the profitability and operating efficiency of our business and realigning costs while also investing to reignite growth. We look forward to sharing more in upcoming quarters.

With that, I'll pass it back to Elliott.

Thank you, Matt. This quarter, the Los Angeles Dodgers reminded us what it takes to win at the highest level, back-to-back World Series titles, something no team had done in 25 years. They gave us a Game 7 for the ages. They didn't take the lead until the 11th inning. Down 3-0 early, every outside voice said, it's over, but they kept chipping away. Every setback became a lesson. They leaned on each other. They believed when belief was hard.

Manager Dave Roberts shared those insights with us at the opening of our new NIKE store in Portland just days after that win. He talked about what guided his decisions, not just analytics, but trust, feel and sacrifice. That included putting in bench player Miggy Rojas who hit an improbable home run in the ninth, followed by a bases-loaded throw to the plate in the bottom of the inning. With one more out to go, Roberts swapped in Pages, who immediately made a leaping, game-saving catch.

Every decision mattered and every player was ready when called upon. But the boldest move he made was managing Yoshinobu Yamamoto's innings, our Nike guy and World Series MVP, who won a historic 3 games in the series. The day after throwing nearly 100 pitches, he surprised everyone to close out Game 7. That wasn't just effort. That was a statement, I'm leaving nothing on the table. It inspired the entire team. That's what greatness looks like. It's not about perfection. It's about perseverance. It's about sticking to the plan and performing when the pressure is highest.

NIKE is in a similar moment. We're the industry leader. Expectations are high. And yes, we face pressure and setbacks. But like the Dodgers, we're leaning on each other, focused on the fundamentals, making the hard calls and building for the long game. Because in the end, greatness isn't promised, it's earned. And we're ready to earn it again and again. Thank you.

And now Matt and I will take your questions.

[Operator Instructions] Our first question will come from the line of Matthew Boss with JPMorgan.

So Elliott, you led both in the release and on the call by citing the turnaround is in middle innings. Could you elaborate maybe where you've scored runs so far versus where you have opportunity remaining and just your overall confidence today that you can win the game? And then, Matt, if you could just elaborate on the components of gross margin that you cited. I think you cited underlying expansion, excluding tariffs for the third quarter and just the progression that we should think about moving forward.

Thank you, Matthew, and appreciate the question. And let me start by saying the path back to sustainable, profitable growth is going to go through our Win Now actions, and that will be -- and they will be accelerated by our sport offense. And I would also say that I'm incredibly inspired by the way our teammates have responded to the actions in the new offense.

The drivers of our growth right now for NIKE, they came through the Win Now actions which were our near-term actions around culture, product, storytelling, the marketplace and winning on the ground with consumers. But it's our sport offense is the accelerator of those actions. It's how we take athlete-centered innovation, and it travels through every country, channel and account to drive growth. And the sport offense is what's bringing the balance to our portfolio. We have a relentless flow of innovative product now coming across our 3 brands through multiple sports, performance and sportswear, men's, women's and kids, and it's -- and we pay it off across 190 countries.

So we've had some meaningful progress, Matthew, over the last 90 days. NIKE brand is growing. Sport is growing with Running leading the effort there at up over 20% and taking market share. We're beginning to diversify the portfolio, rightsizing our classics. As Matt said, we declined roughly $4 billion from its peak. North America grew 9%. Wholesale grew. Our order book for the spring and summer is up. So we have a healthier base from which to grow profitable, sustainable growth.

So in terms of middle innings specifically, I think the best way to think about it is that we have our businesses -- the dimensions of our businesses moving at different speeds and the time lines are going to vary by geo, channel and sport dimension. So by brand, as an example, Nike is off to a strong start. We had growth this quarter. Jordan, I think, still has some room to dimensionalize beyond Streetwear into things like Jordan Basketball, Jordan Training, et cetera, but we've seen some real good progress around Streetwear there. We're resetting the marketplace for Converse under new leadership.

In terms of product, performance is growing, but sportswear is still in the early stages of diversification. We've done a great job of rightsizing the franchises, but we still need to diversify that portfolio, middle innings. And then from a geography, North America is leading, EMEA just transitioned to the sport offense, followed by APLA, which, as Matt pointed out, had some mixed results. And then China has our longest road ahead.

And that's why we're sitting there saying we're in middle innings, great success in North America, work to do in China. And -- but all I would say here, just to sort of close it out, Matthew, is the middle innings, while we keep saying we're in the middle innings, I will say this, the Win Now actions and the sport offense is working, and it will lead us back to profitable, sustainable growth.

And Matt, as it relates to margins, I would just say that our business is still in a transition in the middle innings, and we are navigating through both transitory and structural headwinds across the portfolio. But as Elliott said, we've made meaningful progress through the Win Now actions, and you can really see that in the progress that we made in North America in Q2.

North America's gross margins were down 330 basis points, despite more than 500 basis points of a headwind to product costs due to the gross impact from the new tariffs. And so that's a marketplace where we're furthest along in repositioning digital. We're back to growth in wholesale, and we've made the most progress in cleaning up the marketplace. And so as I look ahead to Q3, we guided our margins to be down 175 to 225 basis points. That includes 315 basis points of higher product costs related to new tariffs. And so we expect -- so expansion, excluding the impact of new tariffs, really reflecting the beginning of recovery of the transitory headwinds at the corporate level.

And we continue to expect to see momentum building in North America given where the state of the marketplace is. We're watching promotional activity in Europe, but inventory in Europe is in a healthy place. And then as I mentioned, there's puts and takes across APLA. And we expect the trends in Greater China and Converse for Q3 to be relatively in line with what we saw in Q2 as we continue to take actions on both of those resets. And so I would say that overall, we're encouraged by the momentum and the progress that we're seeing, but we've still got some work to do.

Our next question will come from the line of Ike Boruchow with Wells Fargo.

I guess maybe for Elliott, it may be a similar type of question as Matt's, but you've mentioned the recovery won't be linear several times over the past year or in transition, and it totally makes sense. I guess I'd like to know if you're able to share when you believe that maybe that caveat won't be needed anymore and you'll be able to better kind of hold momentum, create better visibility for investors on what's clearly becoming a reset base of revenue and earnings.

Yes. Thanks, Ike. Here's the best way that I would think about it is each geo -- let's first start with the brands. Each of the brands are at different stages in terms of diversifying their product portfolio. We just got into the sport offense in September, so we got these small cross-functional teams. We're getting them up and running as fast as we can.

Same thing is happening in the countries and key cities around the world. That's happening at different stages. And so that's -- we believe in the strategy, and we know that the path back to profitable sustainable growth is through the Win Now action. We also believe in the sport offense and our ability to create beautiful products and then pay it off in an integrated marketplace.

We just have 3 brands in multiple sports and 4 geos and 190 countries, and they're all operating at different time lines. And so that's the reason why we keep saying that we have different time lines, and it's just going to take time. So I will just sort of point to the place we focus first, which is North America, and we're having great success there. So we're confident in our path forward.

Yes. And I just would add, Ike, that we said on North America that we're growing increasingly confident that we can sustain that momentum. I would also say that we've said that we believe we're going to drive modest growth in wholesale this year, starting to have more confidence in that dimensionality of the business.

But what you also heard on the call today was that we took some unplanned actions in Greater China as we're navigating real time through some of the challenges that we see in some of the businesses that are under reset. And so we're going to continue to take it 90 days at a time for now to give ourselves the flexibility to make the right decisions for the long-term health of our brands. And much of what we said today is consistent with what we've been talking about for the past couple quarters.

Our next question will come from the line of Bob Drbul with BTIG.

Just if I could ask 2 questions. I think the first one is on the commitment, sort of the focus on the return to double-digit EBIT margin, it's a big priority for you guys. Is there a time line at which you could talk to when you think you'll get there? And I think the second question, just like part of that, I think, is on China. Long road ahead, Q2 revenues similar, Q3 similar to Q2. How deep a reset do you think is necessary in China? And are we near a bottom in revenue or EBIT declines in China?

Okay. So Bob, let me do this. You snuck in 2 questions on me, but here's what I'm going to do. Let's take EBIT first, and then we'll take China because I don't want to confuse the 2. But let me first just say that improving margins continues to be a top priority. And I said it before and I'll continue to say it, we do see a path back to double-digit EBIT margins. Margins are under pressure for 2 reasons. First, the driver of our -- is our Win Now actions and that we've intentionally taken to clean up the marketplaces around the world.

The second is the impact of tariffs where we implement -- which were implemented after we activated the Win Now actions. And we're seeing the benefits of us taking those actions. We've said it North America back to growth, running back to growth, wholesale up, the order book and we have a healthier base for top line growth moving forward. In addition to the top line growth, we also have opportunity to improve the efficiency and productivity in how we operate the business, and we're going to share more in the coming quarters. Matt, I don't know if you want to add anything to that.

I would just say something that will sound familiar. We're clear on what the path back looks like. It starts with growth, and I think that the investments that we've made to drive the Win Now actions are paying fruit. You see it with a second quarter of top line growth and specifically the growth that North America was able to deliver in the quarter, which is where we'd focused our demand creation investments and where we'd focused our investments in our commercial teams in order to be able to get back on the offense in the marketplace.

Part of what's going to drive expansion is recovery of our full-price mix as we continue to manage the off-price, full-price mix in the marketplace. And again, I point to North America where we've now cleaned the inventory in the marketplace, and we're starting to see margin expansion excluding the headwind of tariffs. Another big opportunity for us is to leverage the supply chain costs as we grow. And that's been a meaningful headwind over the last year as our business has reduced in size and growth will help us with that, but there's also a lot of focus and attention on that as well.

And then the last piece of it, I would say, is the work that we're doing to be disciplined in the way we're managing costs across the business. We've been investing in marketing, and we feel good about where we've leveled our brand marketing investment. We've locked in some of our most important team franchises for the long term, which strategically puts us at a great position in the world of sport. But we've been very focused on managing operating overhead, and we will continue to do that, and we look forward to sharing more about that in the upcoming quarters.

Okay. I'll jump back now, and I'll take -- let me take China. China continues to be one of the most powerful opportunities in sport. We're confident that the Win Now actions and the sport offense will allow us to continue to invite 1.4 billion consumers into the world of sport, fitness and the lifestyle sport. So we see China as a big opportunity. With that said, it's clear that we need to reset our approach to the China marketplace and it's going to start with structure. The geos are now reporting to me. Angela, who is our GM in Greater China, is now part of my SLT, Senior Leadership Team, and I look forward to working with her and the rest of our team more closely.

Let me share a little bit of diagnosis of where we are. And we believe and firmly believe and will always believe that our growth will come through sport, but the reality is we've become a lifestyle brand competing on price in China. We also reduced the feet on the ground, people on the ground. As you know, it's a mono-brand marketplace with thousands of -- 5,000 doors with the teams working the presentation of our product at retail and we weren't making the investment in our store fleet, so our stores aren't compelling.

And as Matt mentioned, the cycle that it started to feed itself, soft demand leading to consistent promotions and then impacting profitability. And we did signal last quarter because of these structural differences that China would be on a different time line. So we're taking action. We're cleaning up the marketplace of aged product. We're getting back to the basics of retail, consumer right assortments, better storytelling and elevated visual presentation.

We're increasing investments in Shanghai and Beijing, resetting key doors. Matt referenced those in his prepared remarks. We're seeing early success. But I'll say this, it's not happening at the pace we like. So we have more to do. It's going to take a fresh perspective, a new approach, and we will have to come through this with new capabilities as well. And we're working closely with our partners, Pou Sheng and Topsports, to adapt our approach. But I'll just sort of end here. I've done this before, have a deep history in the market. We've diagnosed the problem, and we will return NIKE to a beloved premium and innovative brand in China.

Our next question comes from the line of Aneesha Sherman with Bernstein.

Elliott, at the start of 2025, you expressed your strong confidence in the pipeline for Running and you laid out this 3x3 framework that you discussed with partners and we're now seeing strong acceptance in the market and the business is growing over 20%. As you look across the other verticals, I know you talked about new innovation across all of them, but how do you see the phasing of the growth? And are there particular areas where you have that same level of conviction that you had in Running a year ago and where you expect the business to ramp very quickly versus some that are a little slower?

And then a follow-up on North America. Matt and Elliott, you both talked about the contribution of new distribution and same-store sales on the wholesale growth. Are you happy with the mix of partners you have now? Or is the goal to continue to ramp up new distribution points into next fiscal year as well?

Aneesha, thanks for the questions. I'll start, let me take the product portfolio piece first. Here's what I'd say. The teams are doing a really nice job of building a more diverse portfolio. You can start to see it in our numbers. We do have an unmatched portfolio with depth and dimension across performance and sportswear, men's, women's kids, footwear, apparel, accessories and up and down price points.

And we believe that moving into this sport-obsessed teams through our sport offense, we're already starting to see the pipeline and the flow of innovation coming through across the 3 brands: Nike, Jordan and Converse. So we know when we focus on sport, we win. You called out Running already. I will hit very quickly that we launched Vomero Premium as part of that 9-box construct that you referenced this quarter and had very good sell-through. And we also launched Structure 26 in our stability silo, and we're launching Structure Plus next month. So we're continuing to fill that out. But it's not just about footwear, it's also about apparel. We have some really strong apparel coming through in Running as well. So we will continue to grow and dimensionalize Running as -- Nike Running as an opportunity.

In terms of other business opportunities, global football, it's probably the furthest along in terms of their construct. We have 3 silos there: footwear silos, the Mercurial, Tiempo which will launch in Q3 and then our Phantom which had a really strong launch in Q1. So 3 silos also connecting deeply with each of the consumers that play a different style of football.

Apparel and footwear also dimensionalizes that opportunity, national team kits, World Cup, really strong read there, 40% up on the order book versus World Cup '22. Training, 24/7 apparel, continuing to diversify the footwear. I see that coming. That's not yet hit, but we feel good about what's coming from training and footwear.

SKIMS had a successful launch. We launched in EMEA and APLA next quarter in basketball. We're dimensionalizing through women's, Sabrina, Asia and now we have Caitlin coming and our men's business continues to do well. Ja sold through extremely well. And then we just launched the G.T. Future, and we had kids lining up for that shoe. So starting to dimensionalize beyond or dimensionalize the portfolio.

And then I could dive into innovation a bit more further out. I think it's getting stronger every season. We're investing significantly in our Nike Sports Research lab, and we're being intentional about connecting that R&D to our sport offense. And we announced a few big. which I talked about product innovations, Nike Mind and then Aero-FIT. So I feel good about the pipeline, and we see the response in our order book which is up for the back half of the year.

Maybe I'll jump in on marketplace, Elliott, and then you can add to it. Aneesha, we feel good about the North America marketplace and our partners. We've got great partnerships. We've been working incredibly close with our partners as we're working to elevate the marketplace and reposition the NIKE brand in a segmented and differentiated way across accounts and across the marketplace.

Tom Petty and the team have just been crushing it in terms of leading us through our Win Now actions. And when I look at the order book for the back half of the year, the order book is very balanced in terms of growth between new partners and existing partners. And so we feel great about the quality of the growth that we see in the back half across a balanced integrated marketplace.

Our teams are always looking for opportunities because our marketplace strategy is a consumer-based strategy. We want to be in the path of the consumer, leveraging our partners across digital and physical owned and partnered. And so I wouldn't rule out the possibility of it, but I wouldn't say that that's what's needed in order for us to be able to sustain the momentum that we see in North America.

I was going to add to it, but you've already embraced your new job, right? I think the only thing that I would add to it, Aneesha, because I think Matt did such a nice job is that, again, that Tom and the leadership team have done a really great job of just rightsizing the product, getting the marketing going. And then I would say the thing that's the big difference is setting 3-year visions with each of -- and this is into the details but it matters, setting 3-year visions by account on the consumers that we want to serve by sport and then bringing that back to 1-year plans and then to seasonal plans. And that's how you get back to driving profitable, sustainable growth between -- with the partners. And again, the team's done a really nice job. So leading the way and therein lies the opportunity in the other geos for us. We've got to get the other geos keeping pace, and we're working hard to do just that.

Our next question will come from the line of Jonathan Komp with Baird.

Maybe one more on China. Do you think the North America experience where, Elliott, we saw maybe 2 or 3 quarters of severe pressures after you came in and accelerated the Win Now actions followed by now a return to growth and healthier conditions. Is that a reasonable time line or playbook to think about China? And then just maybe bigger picture, if you are viewing some of these headwinds currently and resets more as temporary, maybe just expand on why not providing maybe 2- or 3-year out targets or a little bit more specificity around the time line to get back to double-digit margins.

Yes. In terms of China, what I said earlier is we've taken actions. We're cleaning up. We feel good about having a handle on what has happened in China and more importantly, what we must go do. And it's going to take a fresh perspective and a new approach and ultimately some new capabilities. And so -- and we're working with and through partners which, again, that's where it gets tough to put an exact date on it, but we're confident in the path forward and the team that we have in place, and we're ready to get that business moved and turned as quickly as we possibly can.

Jon, I'd just say on your timing question, we're operating in a dynamic environment for both consumers and for a global business. And we're trying to turn around our business across 3 brands, multiple sports in 4 geographies. And as a result of that, it's complicated what we're trying to do. We're encouraged by what we've been able to do in North America.

And I think we've got a clear path of what we need to do across the other dimensions of our business. But we're reading and reacting every day. And it's important right now that we've got the flexibility to be able to make the right decisions every week as we're trading the business in order to be able to establish the long-term health of our brands. And so for the near term, we're going to continue with this consistent practice that we've been doing. And as our confidence grows, we will certainly share greater insight into how we're thinking about the longer term.

Our final question will come from the line of Simeon Siegel with Guggenheim Securities.

So Elliott, just to follow-up a little bit, the North America revenue growth, it was just such a big number even before accounting for just the large Classics reset. So can you just speak to what product is growing domestically so much that is enough to accelerate that revenue growth this much and just way more than offset the ongoing reset?

And then, Matt, it feels like the growing wholesale penetration should help that operating overhead maybe structurally. So just curious if you can give us any thoughts where operating overhead goes. And then as you think about that opportunity, is the idea that you can take a portion of that and fund it back into demand creation, which has always been one of your key competitive advantage?

Yes. Simeon, thanks and also wishing you and your family a happy holidays as well. In terms of North America growth, Running, obviously, is a big piece, and it's not just growth, sell-in, what we're encouraged by sell-through. We're actually having -- taken market share. So we're feeling good about that.

Global football, soccer, we're seeing growth there. We're seeing growth in training. SKIMS as well would be another one I'd call out. And then basketball. The team is doing a really good job with basketball right now. And again, I touched on a few, but like the G.T. Future this weekend was phenomenal. And while sportswear is not growing, they've done a really nice job of rightsizing sportswear and starting to diversify the portfolio across the look of Running, which is primarily driving it. But we also have some footwear on the women's side in sportswear, Air Max Muse and the Superfly, that's doing well.

And then, of course, Jordan. I've got to call Jordan out when we speak about North America. They've done a really nice job, and we had a great sell-through of the AJ4 Black Cat. We're getting back to telling stories. By the way, that was our largest Black Friday ever. That Black Cat was launch ever. And then just recently it's not in this quarter, but the AJ11 Gamma, we had people lining up for that shoe again, which is fun to see, see kids lining up for sneakers again. So I think the team has done a really nice job of making certain that they're running a complete and balanced portfolio across the brands in sports.

Simeon, I'd just add that the growth that we delivered in North America in Q2 was certainly strong. And if you look at what our guidance for Q3, we said that we expect modest growth in North America, and you can really sort of connect the dots between the amount -- how much liquidation fueled the growth in Q3 versus what's going to be great comp full price growth as we get into the third quarter. And so hopefully, that helps you connect the dots a little bit between the second quarter and the guidance for Q3.

In terms of your question on cost leverage, absolutely correct. Growth creates leverage on the cost structure. Wholesale growth, in particular, creates meaningful growth on the cost structure led by unit growth. And you see it not only in the supply chain costs where you're shipping pallets of product to partners versus shipping 101 units to consumers, but you also will see it more broadly across our operating overhead.

We're certainly focused on continuing to prioritize our investment in demand creation. I wouldn't lead that to believe that we've necessarily decided we're going to go much higher than the 10% of revenue at this point in time because we feel like that gives us a good amount of investment to be able to continue to drive our brand forward. But if I'm prioritizing between the 2, we certainly want to have more flexible liquid demand creation to create big moments that impact consumers and to be able to activate that on the ground in key cities. And so we're going to continue to tightly manage costs on the operating overhead side. As Elliott said, we've got a number of things that we're looking at here, and we look forward to sharing more in the coming quarters.

And that will conclude our question-and-answer session and our call today. Thank you all for joining. You may now disconnect.

Good afternoon, everyone. Welcome to NIKE, Inc.'s First Quarter Fiscal 2026 Conference Call. For those who want to reference today's press release, you'll find it at investors.nike.com. Leading today's call is Paul Trussell, VP of Corporate Finance and Treasurer. Now I would like to turn the call over to Paul Trussell.

Thank you, operator. Hello, everyone, and thank you for joining today to discuss NIKE, Inc.'s First Quarter Fiscal 2026 results. Joining us on today's call will be NIKE, Inc. President and CEO, Elliott Hill; and EVP and CFO, Matt Friend.

Before we begin, let me remind you that participants on this call will make forward-looking statements based on current expectations, and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in NIKE's reports filed with the SEC.

In addition, participants may discuss non-GAAP financial measures in nonpublic financial and statistical information. Please refer to NIKE's earnings press release or NIKE's website, investors.nike.com for comparable GAAP measures and quantitative reconciliations. All growth comparisons on the call today are presented on a year-over-year basis and are currency neutral unless otherwise noted. We will start with prepared remarks and then open the call for questions.

We would like to allow as many of you to ask questions as possible in our allotted time, so we would appreciate you limiting your initial question to one. Thank you for your cooperation on this.

And I'll now turn the call over to NIKE Inc. President and CEO, Elliott Hill.

Thank you, Paul. It's great to be here with everyone today. Before we begin, I want to start with a thank you. I want to thank my NIKE Inc. teammates around the world. Because of their passion, commitment and determination, we made tangible progress from where we were 11 months ago, driven by our win now actions that focused our team on our culture, product, brand marketing, marketplace and our ground game. This quarter, our win now actions drove momentum in the areas we prioritized first, running, North America and wholesale partners. It showed that we're making the right choices. Consumers are responding. We're getting some wins under our belt.

What you can't see in the results is the effort that I've seen in our stores, distribution centers and offices around the world. Since my return, not a day has gone by that I haven't asked each of my teammates to commit themselves fully to building a better NIKE. That takes a lot of work. And this quarter, in particular, we ask even more from our teams as we realigned approximately 8,000 teammates to our sport offense, which I will explain shortly. It's a massive achievement for everyone involved. What I want this audience to know is that our teams also understand how much we still must do to meet our full potential.

Because the truth is, NIKE's journey back to greatness has only just begun. There is significant work ahead, especially in the areas of sportswear, Greater China and NIKE Direct. And as I've said to the team, progress won't be perfectly linear, but the direction is. On our last call, I said it was time to turn the page, and I believe this quarter reflects the many ways we're doing just that.

As you've heard me say, it's imperative to bring our entire organization closer to the athletes we serve. That's why the sport offense is going to be so critical to our success. This new formation and ways of working will align our 3 brands, NIKE, Jordan and Converse, into more nimble, focused teams by sport. We'll gain sharper insights to fuel innovation and storytelling and connect with the communities of each port in more meaningful ways. Collectively, we'll have a better coordinated attack with each brand forming a distinct identity and delivering a clear attention to serve different consumers. In the marketplace, organizing by sport gives us a much clearer point of view. The house of innovation in New York is a great example where we redesigned a retail experience by Sport.

I walked the floors in early September and we're now able to take a consumer into a world of Jordan, a world of NIKE running or a world of NIKE Global Football. It's an immersive sport experience and the refresh has already led to double-digit revenue increases. That clarity works in small format doors as well. We recently redesigned our South Congress store in Austin to focus only on running and training and sales have significantly increased. Ultimately, the Sport offense will maximize NIKE Inc.'s complete portfolio. It is just designed to drive growth across all our dimensions. We believe the opportunity to serve so many athletes across sports with 3 distinct brands in retail channels at every price point is an advantage that no one else has in our industry.

Now let's take a deeper look into where we're driving progress. Our running business gives us an early window into the kind of impact we expect out of the sport offense. Our running team moved fastest into our new formation and was the first to get sharper on the insights of their athletes. It turns out, runners mostly want 3 things from the running shoes, big cushioning, stability or an everyday shoe that returns energy. In response, we've moved with a sense of urgency and completely redesigned the Vomero, the structure and the Pegasus to solve for these 3 insights. Integrating our industry-leading innovation platforms like Nike Air, Flyknit, ZoomX and React X. Having a consistent structure of silos and price points allows us to introduce at least one new major running footwear style each season.

Our running business continues to be a strong proof point of progress. We're getting back to delivering a relentless flow of innovation that serves real athlete needs and we're pulling it all the way through the marketplace in consumer-friendly ways. The early results have been positive, with Nike running growing over 20% this quarter. Our opportunity is to quickly seize the benefits of a sport offense and apply them to more sports and sport culture, including global football, basketball, training and sportswear. I will remind you that each sport is in a different stage of development.

Our global football team is preparing for the energy of the 2026 World Cup and is ready to move forward. We will utilize the world's biggest sports stage to debut an exciting new apparel innovation platform that will later be leveraged across other sports and we will connect with a younger consumer by launching several football streetwear collections. As we're doing in running, football boots are also fueled by 3 silos at multiple price points addressing the needs of 3 different styles of play. This quarter, we launched the revamped Phantom 6 with great sell-through and we'll follow that up with a new [indiscernible] in Q3 and a new material in Q4.

And finally, we reset the football brand identity this quarter with our scary good campaign. From a football innovation and brand standpoint, we're ready to go. In the marketplace, we're moving quickly to improve our position to tell football innovation stories in more inspiring ways at point of sale. The longer-term vision is for the impact of the sport offense to be felt far beyond the traditional sports where we currently compete. We now have dedicated teams to bring our creativity to additional market opportunities. These are spaces for us to take design risk, to be innovative and to be irreverent, which is so important to our brand's DNA.

NIKE ACG, for example, has brought an athletic youthful approach to outdoor product for nearly 30 years. As more people stay active outdoors, we will invest in NIKE ACG to address the opportunity. This quarter, we launched an Elite ACG race team who have helped us make high-performance outdoor products. Together, we just revealed some exciting innovation, a breathable apparel innovation platform called Radical Air and a trail tuned super shoe with the ACG Ultra flyer. ACG professional racer, Palo Olsen were both innovations in his victory at the Western States 100 race, finishing with the second fastest time in the history of the race.

Our new partnership with [indiscernible] is another opportunity to bring something unexpected to a new consumer, NIKE's innovation expertise and [indiscernible] dedication to inclusive apparel has the potential to create performance training product with a very different look. We debuted the product line last week with 58 silhouettes and early consumer response was very strong. The opportunity exists to create more dimension around the most established sports as well. Look at this year's U.S. open attendance as an example. Over the course of the 3-week tournament, we celebrated the wins in on-court looks of Afores and Sabalanca, we designed custom dresses for Naomi's incredible comeback and for Sharapovas induction into the Tennis Hall of Fame.

We excited sneaker fans with a retro launch of AGC's tech challenge sneakers, and we brought it all together in New York's House of Innovation in an immersive tennis experience. In the past 10 months alone, as part of our Win now actions, we've activated 12 sport takeover moments that connected the inspiring performances of our athletes and teams to commercial assortments in the marketplace. This quarter, that included the England women's national team winning the European Championship, [indiscernible] Wimbledon title, Scotty's Open Championship title and Chelsea went in the Club World Cup. Sport and the world's greatest moments will always be NIKE's runway. And only we can bring it all together across 3 brands, so many sports, performance and lifestyle. This is Nike maximizing the full power of our portfolio.

While the sports performance teams are finding a higher gear, our sportswear teams have work to do to get sharper on the consumers we're serving, and we see it in our results. Our business continues to decline. Continuing to build a clear product construct in sportswear as we're doing and our performance [indiscernible] remains a priority. We do have pockets of strength, especially our deep vault of look of running footwear, but we are still in the process of putting our largest classic franchises into a healthier position for the NIKE Jordan and Converse brands. Air Force One is stabilizing. Air Jordan one inventory levels are returning to health. The Dunk continues to be managed aggressively down in all geos. And the Chuck Taylor is in the early stages of a global market reset.

With Converse, we just put new leadership in place and we're going to take aggressive actions to better position the brand for profitable growth in the future. Of the priority win now actions, elevating the full marketplace is in the early innings. The positive is that North America, where we invested first took some big steps forward this quarter. The team continues to give more consumers access to the brand and more premium environments. We reset over 1,300 running spaces in the quarter from DICK'S to Nordstrom's to Heartbreak Hill. And we are also pleased with the launch of the NIKE Brand store on Amazon, where we are driving stronger engagement and sales than anticipated.

While our North America teams are setting the tone, we're still far from our ultimate goal of elevating an integrated marketplace, digital and physical, wholesale and NIKE Direct in all geographies. Greater China, as I mentioned on the last call, is facing structural challenges in the marketplace. Our business was down 10% for the quarter. Seasonal sell-through continues to underperform our plans requiring larger investments to keep the marketplace clean. My leadership team and I were in China a few weeks ago. We traveled to 3 cities, spending time with our Greater China leadership team, consumers and our partners. We are even more committed to the opportunity for growth in China. They are a nation that's passionate for the games of basketball and global football, and a nation that is embracing a healthy lifestyle through running and training.

When we lead with exciting innovations like the Vomero 18 or the Jordan game shoe, or have athletes like [indiscernible] and LeBron visit key markets, we drive traffic and demand. It is even more clear that our path to winning in China is through sport. Our team is moving with urgency to develop consistent plans across all sports and refresh some of our retail environments into distinct sport experiences. With over 5,000 mono-brand stores in China, this will take investment, and it will take time. Globally, NIKE Digital is still working to find solid ground. We made the strategic decision to become less reliant on classic franchises and pull back on our promotions for the long-term health of our brands and marketplaces in all geographies.

Organic traffic has slowed. We are working to find the right assortment and marketing mix to consistently bring consumers back to our digital ecosystem. For our company our size, with 3 brands that serves consumers in nearly 190 countries, not all sports, channels or countries will recover on the same time lines. I spent a lot of time reflecting on the last several months. What keeps me grounded is every time I return from a major sporting event, meeting with athletes, or being in the marketplace. I'm even more convinced that the win now actions are absolutely the right focus for our teams.

With that said, we're also realistic that we are turning our business around in the face of a cautious consumer, tariff uncertainty and teams that are still settling into the sport offense. We know we have a lot left to prove. What gives me confidence is that through the sport offense, we're hyper focused on the athlete. The creative ideas keep coming, and we're covering a lot of ground in the marketplace. Like I said at the start, the NIKE team. This team, we have a lot of fight in us. I look forward to what we're about to do together.

Thank you, and I'll pass it to Matt.

Thanks, Elliott, and hello to everyone on the call. days ago, I said the fourth quarter of fiscal '25 would reflect the largest financial impact from our win now actions and that we expected the headwinds to revenue and gross margin to begin to moderate from there. At the end of our first quarter, we are encouraged by the progress that we have made as reflected in our results, and yet we still have much work to do. Today, I will review our financial results. Then I will highlight the progress we have made with our win now actions across the geographies. Last, I will provide guidance for Q2 as well as some additional insights to bring shape to our near-term financial performance. .

I'll begin with our financial results. This quarter, revenues were up 1% on a reported basis and down 1% on a currency-neutral basis. NIKE Direct was down 5% with NIKE Digital declining 12% and NIKE stores down 1%. Wholesale grew 5%. Gross margins declined 320 basis points to 42.2% on a reported basis. Due to higher wholesale discounts, higher discounts in our NIKE factory stores, increased product costs, including new tariffs and channel mix headwinds. SG&A was down 1% on a reported basis. This was driven by lower brand marketing expense, reflecting prior year investment around key sports moments, partially offset by higher sports marketing expense. Operating overhead was flat compared to the prior year. Our effective tax rate was 21.1% compared to 19.6% for the same period last year, primarily due to decreased benefit from stock-based compensation. Earnings per share was $0.49. Inventory decreased 2% versus the prior year as we have made steady progress on our plans for a healthy marketplace by the end of the first half of fiscal '26.

As I shared last quarter, and as you just heard from Elliott, our geographies are at different stages of progress against our win now actions and business recovery is trending on different time lines. Therefore, I will focus my geography remarks on the specific context and insights of our win now progress. In North America, Q1 revenue grew 4%, NIKE Direct declined 3%, with NIKE Digital down 10% and NIKE stores flat. Wholesale grew 11%, EBIT declined 7% on a reported basis. North America is building momentum through sustained brand activity across sports, leveraging our leading portfolio of sports marketing assets. North America is furthest ahead in taking steps to elevate and transform the marketplace for future growth. Running, training and basketball each delivered double-digit growth. Sportswear grew in the quarter, but there is still work to do with momentum in apparel and looks of running footwear, while managing a 30% decline in our classic footwear franchises.

As it relates to the North America marketplace, wholesale returned to growth in the quarter, partially due to shipment timing in the prior year as well as higher liquidation volume to value channels. Additionally, the strategic actions taken to expand distribution and reach new consumer segments contributed to growth and are showing initial promise. Headway was also made in repositioning NIKE Digital, reducing the number of days of site-wide promotion by more than 50 and lowering markdown rates as well as increasing share of demand at full price. On inventory, North America drove continued progress through the first quarter. Units declined versus the prior year, while dollars were flat primarily due to the U.S. tariffs. Closeout mix is approaching normalized levels.

In EMEA, Q1 revenue grew 1%. NIKE Direct declined 6% with NIKE Digital down 13% and NIKE stores up 1%. Wholesale grew 4%. EBIT declined 7% on a reported basis. EMEA has largely cleaned the marketplace even as promotional activity has increased across the industry. NIKE's momentum is building in sport and with our wholesale partners. EMEA is furthest ahead in repositioning NIKE Digital to a full-price business. However, traffic and demand remains soft. In Q1, our performance business continued to build momentum, driven by double-digit growth in running and low single-digit growth in Global Football and training footwear. Sportswear declined to low single digits as headwinds in our classic footwear franchises more than offset growth in apparel and new dimensions of footwear.

Over the last 90 days, we've seen promotional activity increase in key countries across EMEA. In order to stay aligned with our partners and manage marketplace inventory, we selectively leveraged additional discounts on NIKE Direct. With respect to inventory, EMEA closed the quarter with units down mid-single digits versus the prior year and a normalized level of closeout mix. In Greater China, Q1 revenue declined 10%. The NIKE Direct declined 12%, with Nike Digital down 27% and NIKE stores down 4%. Wholesale declined 9%. EBIT declined 25% on a reported basis. Greater China created energy with consumers in the quarter through new product innovation and Nike athlete activations on the ground with Jaw, Sabrina and LeBron. Aggressive marketplace actions have reduced owned and partner inventory. However, store traffic and in-season sell-through continues to be a headwind. Running is a bright spot in China, growing high single digits in the quarter, with strong consumer response to new innovations, such as the peg premium and the [indiscernible]. In the marketplace, traffic declined versus the prior year in both NIKE owned and partner stores, resulting in lower in-season sell-through rates. Digital remains a highly promotional marketplace in Greater China with consumer shopping moments extending longer on local platforms with deeper discounts.

Inventory was down 11% versus the prior year. However, closeout mix remains elevated. Our priority in Greater China is to improve seasonal sell-through trends by refreshing store concepts around sport, creating greater brand distinction at retail with more productive merchandising assortments and reducing the mix of aged inventory with our partners. In APLA, Q1 revenue grew 1%. NIKE Direct declined 6%, with NIKE Digital down 8% and NIKE stores down 5%. Wholesale grew 6%, EBIT declined 13% on a reported basis. APLA continues to deliver mixed results across countries with pockets of elevated inventory requiring higher levels of promotional activity, and proactive management of supply in the marketplace. In the quarter, Performance Dimensions delivered strong growth, led by double-digit growth in running and high single-digit growth in training. This momentum was offset by low single-digit declines in our Sportswear business.

In the marketplace, NIKE Digital delivered sequential improvement in markdown rates across all territories. Inventory across APLA grew high single digits this quarter, and so we are taking additional actions to rebalance inventory levels with retail sales trends in certain countries and tightened buys on NIKE Direct. Next, I will spend a moment to provide an update on tariffs. Last quarter, I shared that the newly issued tariffs represented a meaningful cost headwind for NIKE. Since the new reciprocal tariffs are stacked on top of the mid-teens rate NIKE already paid on imports. And I also outlined the actions we are taking in response, balancing impact on the consumer, our partners, our win now actions as well as the long-term positioning of our brands in the marketplace.

Since our last earnings call, new reciprocal tariff rates have been increased for certain countries. And so with the new rates in effect today, we now estimate the gross incremental cost to NIKE on an annualized basis to be approximately $1.5 billion, up from the $1 billion we shared 90 days ago. Given the magnitude and timing of the most recent rate increases, we now expect the net headwind in fiscal '26 to increase from approximately 75 basis points to 120 basis points to gross margin. We continue to evaluate and implement the actions I described last quarter to mitigate these new costs over time. We are monitoring developments closely and I remain confident in our ability to leverage our strengths, our scale and the deep experience of our leadership team to navigate through this disruption.

Now, I will turn to our second quarter guidance. As Elliott said, we are operating in a dynamic environment, both for consumers and our global business. We remain focused on what we can control, principally to make forward progress on our win now actions and to activate our sport offense for the long-term health of our brands. Our outlook reflects our best assessment of these factors based on the data that we have available today. We expect Q2 revenues to be down low single digits, including 1 point of benefit from foreign exchange. We expect Q2 gross margins to be down approximately 300 to 375 basis points including a net headwind of 175 basis points from the new incremental tariffs.

We expect Q2 SG&A dollars to be up high single digits with an acceleration of demand creation investment and low single-digit increase in operating overhead. We expect other expense, net of interest income, to be an expense of $10 million to $20 million in the second quarter. We expect the tax rate for the second quarter and the full year to be in the low 20% range due to anticipated changes in earnings mix. Finally, with an additional 90 days of execution against our win now actions, I'll close with some insights that should bring shape to NIKE's financial performance for the balance of fiscal '26. We see momentum building with our wholesale partners. Our spring order book is up versus the prior year, with growth led by sport. And as a result, we expect wholesale revenue to return to modest growth for fiscal '26.

At the same time, we continue taking steps to reposition NIKE Digital as a full-price business. Organic traffic continues to decline double digits. With the business in the prior year, that was more concentrated on classic footwear franchises and sneaker launch as well as a higher mix of off-price sales Traffic comps will remain under pressure, and so we do not expect NIKE Direct to return to growth for fiscal 2016. As it relates to our operating segments, we expect North America will continue to lead our global recovery. While Greater China will require more time due to the unique marketplace dynamics Elliott and I have outlined. Converse is under new leadership and resetting its marketplace and brand. Therefore, we expect revenue and gross margin headwinds from Greater China and Converse to continue throughout fiscal '26.

We have made steady progress on our plans for a healthy marketplace by the end of the first half. And so we expect to begin to see a modest headwind on revenue across both wholesale and NIKE Direct as we lap aggressive clearance activity in the prior year. Foreign exchange has become a tailwind to reported revenue, but we expect minimal benefit to gross margin in fiscal '26 due to our hedge positions entering the year. We continue to expect SG&A to grow low single digits in fiscal '26. Our win now actions contain investment to reignite growth in the business, particularly in demand creation as well as rebuilding both our sport and commercial offense.

Overall, there are several puts and takes across different dimensions of our portfolio. We are encouraged with how we have started the year, but progress won't be linear, and there is still work to do to return to driving consistent, sustainable and profitable long-term growth. With that, I'll pass the call back to Elliot.

Thanks, Matt. I'm going to close it out with some perspective on a special sport moment from the quarter that I believe represents the power of a unified team with a singular mission. In late July, I was at the final of the UEFA Women's European Championships in Basel, Switzerland. Defending Champion England had already lived through an emotional roller coaster throughout the tournament. They lost their opener to France. They came back from a 2 gold deficit to beat Sweden and scored in the final minute of extra time to be Italy in the semi final. And now, they face Spain in the final who beat them in the last World Cup final.

I was sitting with the FA, the governing body of football in England. For the third straight knockout match the [indiscernible] started slow. They were on their heels instead of attacking. They went into halftime down 1-0. We began to question if they had anything left in the tank.

But coming out of the half, something clicked. Coach Serena, Vikan made the right substitutions and she had all tournament. Cloyelly, came off the bench and pace picked up instantly. Hanna Hampton made several key saves. Lauren Hemp was flying all over the pitch and everyone contributed. England's pressure led to the equalizer in regulation and after a draw and extra time, [indiscernible] proved to be clutch one more time to score the winning penalty kick in the shootout. The crowd interrupted, her country erupted and there they were, Champions of Europe, once again, delivering England's first major football trophy on foreign soil. The Nike London team took that insight and built a campaign around the importance of home that stretch from billboards T-shirts to the airplane that brought them back to their awaiting fans.

The national pride for the Lynases was everywhere. Nike was right there with them. When I talk to my team about passion, commitment and determination, we don't have to look much further than England. It's a group that embraces their roles and experience coaching staff who adapt in the moment, players who refused to give up. I mean I found out later that Lucy Bronze played the entire tournament with a fractured tibia, a fracture tibia. That's resilience. That is a team that knows what it takes to make it come back. We were all inspired here at Nike and you could be assured we're taking their lessons to heart. We're unified under the sport offense, and we're clear on what it will take to win and on the size of the prize ahead.

With that, I'll open it up to questions.

[Operator Instructions] Your first question comes from Michael Binetti with Evercore ISI.

Congrats on the next quarter, nice to see the progress. Elliott, as you look at the spring order book and that said it's positive, can you help us think about that within the context of the holiday book that you said was positive last quarter, maybe just qualitatively and what's incremental on the build and composition of Spring so we can track the progress out of the season? And then last quarter, Matt, you said there was a commitment to returning to double-digit margins over time. Obviously, I'm sure you're looking at historical levels as a goal. It was a helpful backstop. How are you thinking about the medium-term margin levels you can target and maybe some of the phases of recovery and the inputs we should look at as you start that journey.

Michael, thanks for the question. Here's what I'd start with -- let me start first with product. I think what we're doing a great job is we're getting back to leading with a sharp focus on sport. We're making certain we leverage the entire portfolio. And you can see that whether how we're approaching performance and sportswear. Nike running, I think, gives us our best example of where we're having some success, and we did just announce that we grew over 20% in the quarter. So great success in running, and our teams are taking that offense and how we -- the learnings that we have in running and we're applying it to other parts of our business, and we're running that playbook against global football, training, basketball, et cetera. We do have work still to do in sportswear, but I think the team is getting much sharper on the consumers that we're serving there. And so I'm really excited and encouraged by the work that we've done around the product. We've continued to work really hard from a brand marketing perspective. And then ultimately, clearly, we got to pay it off like you're asking in the marketplace. And I think the team is doing a really nice job of elevating and growing the entire marketplace.

And so our goal is to serve consumers wherever and however they choose to shop across multiple channels, specialty sporting goods, athletic specialty, department store, family footwear and NIKE Direct and I think, again, the teams are seeing the power of running the complete offense across the entire marketplace and North America, again, is our best example where we're seeing growth there. Overall, our partners are gaining trust in us, and it shows our spring order book is up year-over-year. So excited with the progress that we're making from a product perspective, from marketing and positioning perspective and then how we're paying it off in a more thoughtful and integrated marketplace.

Michael, I would just add that the other dimension we provided last quarter is that North America, EMEA and APLA order book is offsetting the headwinds that we have in Greater China, and we continue to see that trend carry through into the spring order book as well. As it relates to our margins, the way I think about it is that fiscal year, our margins and the pressure on our margins are really reflective of 3 dynamics. We've got short-term product and channel mix headwinds. We've got the transitory impact from our win now actions, and we've got the newly implemented tariffs and the impact that that's having on our business in fiscal year '26.

Given the progress that we're making, the steady progress on exiting the first half with a healthy marketplace, we do expect the benefit from less inventory clearance to start to take shape in our margins in the second half of this year. But I would say that our outlook for margins for '26 overall have moderated. And that's because of the new tariff rates and the impact that, that has on our business this fiscal '26 before all of the actions that we're taking are able to annualize as well as some of the headwinds that I referenced related to the time line to return to profitable growth in Greater China and Converse. As I look longer term, I think that we continue to believe that double-digit margins are something that are achievable. And we look no further than our history, different size of business, different mix of business, a different shape of business, different geography mix, different product mix. And I think we're getting clear on what the path to getting back to double-digit margins looks like. And it starts with reigniting organic growth. It requires us to see significant improvement in the full price mix of our business, which the win now actions that we're putting into place are setting us on stronger footing to do.

And then lastly, as we return to organic growth, we will drive operating leverage on our supply chain costs, on our retail overhead and on our general operating overhead. And while the new tariffs are creating near-term pressure on our margins, we have outlined the actions that we're taking there to address it over time. And while it's going to take us a little bit of time, we're confident that the win now actions are the right things to move us in this direction.

The next question comes from Piral Dadhania with RBC.

Apologies if there's any background noise. I was just wondering if you could give any update as to how September has progressed because we're seeing indicators out there in the marketplace and potentially some evidence that there was a bit of pull forward in terms of consumer demand into the back-to-school period in August, which should have benefited your Q1. So just curious about how you're seeing the current marketplace in September trading, if possible?

Yes. Thanks for the question. Yes, here's what I'd say. There's no question that the environment in which we're working in and operating in is dynamic. And my message to our team is to continue to control what we can control. I'm confident that our teams in product and brand marketing in the marketplace are. We're closely monitoring our consumers around the world. We're watching for signals. We're staying close with our partners and -- we're looking at it even -- of course, our own door and diesel performance across geos and countries and cities. And it is dynamic, and I just keep telling the team remain focused on inspiring through sport because when we do line up innovative product and emotional storytelling across the integrated marketplace, consumers respond. I mean there are some great examples this quarter even into September. When we did the loss around running amaro and the VimeroPlus, we had good sell-throughs, the work we did around the U.S. open and on the ground and motion story talent. We had good sell-through John LeBron in China, when we do that, the consumer shows up. So yes, it's a dynamic environment. We're keeping our teams focused on the win now actions and really that's our fastest path back to growth.

And to hit on the timing element, you mentioned pull forward. I guess what I'd say is that our performance in the first quarter didn't have anything to do with pull forwards. I referenced wholesale growth in North America wholesale was up 11%. And 1 of the factors in the quarter was the amount of the fall season that we shipped in Q1 versus what we shipped in Q1 of the prior year. And so that did create a timing benefit year-on-year. As we look ahead to Q2, we guided revenue down low single digits. And I'd say that there are probably 2 drivers to that that are most significant. One is NIKE Digital is facing a more significant headwind in Q2. And because we started the wind now actions following the holiday season last year, and we significantly cut back on the amount of promotional activity that we were doing in the channel. .

As we're lapping that this year, there's going to be a bigger headwind in Q2 than we had in Q1. And then secondarily, we're only planning for one point of FX benefit in in Q2, whereas we saw 2 points of FX benefit in Q1. So hopefully, that helps provide a little bit of dimension on some of the seasonality. The last thing I would say related to the seasonality or the comparisons is that the actions that we're taking on the duck that Elliott and I both referenced are more significant in Q2. And so that's also creating a quarter-over-quarter comparison, if you will, as you compare Q1 to Q2, there was a lot of dunk business in Q2 of last year, and we're managing that franchise back, as Elliot mentioned, and feel great about our plans.

The next question comes from Matthew Boss of JPMorgan.

Congrats on the progress. Elliot, maybe could you help elaborate on some of the early wins under your belt that you cited notably the return to growth in North America and the material acceleration in running -- and with that, I guess, could you speak to the structural foundation that you've now built that you believe is the key to expanding the strategy to other parts of the portfolio? .

Yes. Matthew, let me SP999 Let me start -- you really have to think about it at a high level in 2 parts. First part is the win now, those are the actions that we put in place, the focus that we gave our team within the first 60 days. And then the second part is what we've just activated in early September, which is what we're calling the sport offense. And I'm going to try to outline the 2, but you got to think about them both together. Let me start first with win now, you know the priorities there, but we put 5 priorities out there, putting the athlete at the center of everything we do. It came down, it's about innovative coveted product. It's about telling emotional inspiring stories. It's about paying it off in an integrated marketplace and then activating our ground game.

And we're seeing signals that it's working. First and foremost, it's where we focus running, which we talked about in the prepared remarks, up 20%. Our wholesale partners. We have growth there. spring order book is up and then North America. So that's where we're seeing some great success. We feel good about the brand impact our team is doing around sport moments, brand launches, brand campaigns, some of our key product launches, et cetera. So good success against the Win now actions. With that said, we still have work to do in some parts of our business that we've touched on. And we've got plans in place against China. Our NIKE Direct digital commerce business and our Sportswear business. So that's what the teams are working on from a win now perspective. When you think about the Sport office, and this is rather than us being organized by men's women kids. We flipped the entire organization in early September to be aligned on the product creation side and the brand marketing side by brand and by sport, and by country and account, wholesale and direct, digital and physical. And the whole idea is that those small cross-functional teams gain the insights from the athletes to the consumers that they serve in each segment. And then that will help us drive a -- make us more competitive and more -- and have stronger consumer connectivity -- and again, there's no question in my mind that putting sport and the athlete back at the center of everything that we do, puts us back on offense.

And again, while we have some great things underway, through our priority sports and the efforts to elevate the marketplace. We still have a lot of work to do, but what inspires me most is our teams. They're embracing the change, and we're ready for the challenge.

The next question comes from Brooke Roach with Goldman Sachs.

Elliott, as you contemplate the traffic headwinds you're seeing today in NIKE Digital, how much of the pressure is attributable to the strategic reduction in promotion versus other factors? And as you look ahead, what are the most important milestones we should be watching for to return that business to profitable growth?

Brook, thanks for the question. I'm going to step up above just a little bit for a second on the NIKE Direct digital business. And what I'm challenging and Matt and I and the entire leadership team are challenging our team to do is to elevate and grow the entire marketplace, not just NIKE Direct digital commerce. Our -- we need to be and serve consumers wherever and however they choose to shop for our brands. And really, it starts with that -- what I just touched on, the innovative relentless flow of innovative products across all 3 brands in all sports. And in every channel of business in which we do business, especially sporting units, athletic specialty, department stores, family footwear and NIKE Direct because being sharp on the consumers we're serving in each location, digital or physical, wholesale and direct, that drives consumer right assortments in the right depth and we are elevating the presentations at point of sale, and that drives profitable growth for NIKE and for our partners. And again, we're seeing some really good successes of that in in North America, EMEA is coming and APLA. So again, I'm excited about the team and the way we are elevating the entire marketplace. And again, in terms of NIKE Direct digital commerce. Matt, do you want to hit on anything.

Sure. I referenced and have been referencing for a couple of quarters now that we expected the organic traffic to be down double digits. And that's primarily because of the actions that we've taken to reposition the business in fiscal year '26. We highlighted this quarter that we've made progress across all of our geographies. We've reduced promo days, we've improved the markdown rates. We've reduced the classic share of business. We've reduced the launch share of business and we pulled back on paid media as it was largely driving bottom of funnel traffic to our platforms.

EMEA and North America started first, Brook, and they're the furthest ahead. is making progress, and Elliott and I both referenced that Greater China marketplace is structurally different. And so the dynamics there are different from a digital perspective. I think that the progress that we're making is real and I think one of the ways that you can measure that progress is looking at the momentum we're actually building with our wholesale partners because we needed to reposition digital alongside our partners and stop competing with our partners in order to be able to start building momentum on wholesale. And we're starting to see the early indicators and the early signals of that success alongside a strong product pipeline.

So it's going to take us more time as we both highlighted. We don't expect direct to return to growth in this fiscal year, but we do believe that direct should be a healthy part of our business in the future, and it should be a more profitable part of our business in the future as we reposition it.

The next question comes from Lorraine Hutchinson of Bank of America.

I wanted to see if you could focus on China for a minute. Can you talk about the strategies that you're using to turn the digital business? And then also the cost and time line of the store refresh.

Yes. Lorraine, thanks for the question. Let me start maybe a little bit bigger picture on China really quickly. We believe in the long-term opportunity in China. And I said it in my prepared remarks, it starts with us leading with sport. We see that sport continues to grow. It's a tailwind in that country. And we think it will unlock further growth. We were just there, Matt and I and the leadership team and we left with a an even stronger belief in the future of the market, and we're confident that the win now actions that were put in place will help us return the market over time back to growth. But as Matt said, this year, we've got some work to do.

You've already touched on it, that structural -- there are structural differences in the marketplace. And that's why really China is on a different time line. But here's how we think about winning in that marketplace. When we lead with sport and starting with innovative product, running, training, basketball, especially outdoor basketball and football. And when we supplement that assortment with our GEO Express Lane, which is our local-for-local product, we are seeing good results there. When we tell better stories, not only utilizing our global assets, but our local athletes that also is paying dividends. And we're elevating the overall marketplace. As you pointed out, the digital marketplace is promotional, those big consumer moments, 11/11, et cetera, and we're working to find the right path forward for our digital business.

The physical marketplace is a mono brand. We're testing and resetting new consumer concepts. But we've got to be stronger operationally in those physical doors with the right assortments and the right depth, stronger presentation and service, and that's how we're going to get back to driving sell-through. And again, as I touched on when we do do it right. It does resonate. We had some really good successes in running this quarter and then some basketball successes around John, LeBron. So overall, we're definitely in a bit of a turnaround. But Matt and I have been actively involved in some of those turnarounds before. Our teams are focused, moving with urgency. They're taking the right actions to clean up the marketplace, elevating overall mono brand in digital, and we've got quarter-by-quarter plans in place to elevate the overall integrated marketplace.

And then cost and time line, the rain, I would just say that we've made some significant investments in the China marketplace over the last 3 quarters. in order to clean up inventory and set the business up for a foundation of success. When I look at our inventory being down, Nike's inventory being down 11% versus the prior year. I think we're seeing the fruit of that, and we feel good about where marketplace inventory levels are as well. The challenge is what Elliott highlighted, which is that while we can invest to keep the marketplace clean and healthy. It's an expensive operating model is sell-throughs don't improve to the level that we need to see on a season in a season out basis. And so all of the actions that Elliott referenced are really our focus on trying to improve sell-through to create brand distinction in that marketplace, which will result in or should result in greater profitability, but in the near term, we think it's going to take time. And so that's why we believe that China will continue to be a headwind on the top line and on margin for the balance of fiscal year '26.

Last quarter, we referenced a few pilots that we were working on and that our teams are working on. And we had a chance to see them when we were in China a few weeks ago. We're actually encouraged by the progress that the teams are making on these initial store pilots, but there's a little bit more work that needs to be done because while they're outperforming the broader fleet, we'd like to see them do a little better before we start to scale with our partners. And we've got great relationships with our partners in that marketplace. And so we're confident that once we get these pilots performing the way that we want to, both we and our partners are prepared to invest to turn the business in the direction that we want to have.

The next question comes from John Kernan with TD Cowen.

Congrats on the momentum with the turnaround. Matt, inventory down 2% on the balance sheet, which I think would imply units down even further, how would you characterize the inventory in the wholesale channel and the timing of when wholesale discounts, which I think have been a pretty sizable headwind on gross margin when will they begin to fade? .

John, I'd say that we feel really good about where we landed on inventory this quarter. Units were down in North America, EMEA and in Greater China. We had a -- we did see an increase in units in APLA, and that's the area where we're going to focus. But we're pleased with the progress that we've made and the actions that we put into place to and entered the second half in a healthy position. I think that we would expect -- we do expect that we should start to see some gross margin benefit in the second half -- half from lapping these aggressive actions. We are expecting to see improvement within the wholesale channel. I think our partners inventory, we feel really good about. And what I keep saying is that the best indicator of that is the forward-looking order book because our partners and we have a plan together as we've been driving sell-through as we've been investing to move through inventory and get ourselves to a healthy place. And that's ultimately so that we can create capacity in our partners open to buy for the newness and the innovation and the things that our teams are most excited about, particularly on the performance side of the business, but also some new things that we've got coming on the sportswear side like the Eva Rover and some of the other products that we've started to see some momentum with there.

So I think overall, we feel really good about the progress that we're making there. I'll remind you that there are some other headwinds to gross margin in the second half that are going to mute this, and I referenced those earlier on the call. But as it relates specifically to the way that we're managing the marketplace, we continue to be pleased with the progress we're making on the plan that we set.

Okay. How about if I just close it out really quickly with just some comments. We are more confident than ever that our win now actions are the right path forward. In the first quarter, we saw progress in the areas that we prioritize first, running North America and wholesale. We're in the early stages and our comeback will take time, and our progress won't be linear, especially in the areas such as sportswear, NIKE Direct, Greater China and Converse. We are going to accelerate the win now actions by activating our sport offense that I've spent some time speaking to.

As a reminder, we are organizing ourselves into smaller cross-functional teams by brand and by sport, by country and by channel, wholesale and direct, digital and physical. Our teams are energized, they're inspired and are ready to compete. We're getting back to leveraging NIKE Inc.'s unmatched portfolio of brands, sports and countries to drive deeper consumer connections and profitable, sustainable growth. Thank you very much.

This concludes today's conference call. Thank you for joining. You may now disconnect.

Good afternoon, everyone, and welcome to NIKE, Inc.'s Fiscal 2025 Fourth Quarter Conference Call. For those who want to reference today's press release, you'll find it at investors.nike.com. Leading today's call is Paul Trussell, VP of Corporate Finance and Treasurer. I would now like to turn the call over to Paul Trussell.

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE, Inc.'s fiscal 2025 fourth quarter results. Joining us on today's call will be NIKE Inc. President and CEO, Elliott Hill; and our CFO, Matt Friend.

Before we begin, let me remind you that participants on this call will make forward-looking statements based on current expectations, and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in NIKE's reports filed with the SEC. In addition, participants may discuss non-GAAP financial measures and nonpublic financial and statistical information. Please refer to NIKE's earnings press release or NIKE's website, investors.nike.com for comparable GAAP measures and quantitative reconciliations.

All growth comparisons on the call today are presented on a year-over-year basis and are currency neutral unless otherwise noted. We will start with prepared remarks and then open up for 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 question to one. Thank you for your cooperation on this. I'll now turn the call over to NIKE, Inc. President and CEO, Elliott Hill.

Thank you, Paul, and hello, everyone. I'll kick it off with a reflection on Faith Kipyegon's attempt to run the mile in under 4 minutes today called Breaking4. While she crossed the line at a personal best of 4:06, today's attempt will always represent more than the pursuit of a specific singular time. We're super proud of Faith, our teams and everyone who supported her and we were all inspired by her effort. The Breaking4 journey will live on as a symbol of courage and ambition. You have to dare to try, and I deeply admire the monumental effort.

What it showed is that no other brand offers athletes the depth of expertise that we can. No other brand dreams as big as we can, and more than anything, no other brand inspires 8 billion potential athletes to believe. Faith's historic attempt comes at a unique moment for NIKE and our consumers as the sportswear industry continues to operate under geopolitical volatility and tariff uncertainty. Specifically to our business, the results we're reporting today in Q4 and in FY '25 are not up to the NIKE standard. But as we said 90 days ago, the work we're doing to reposition the business through our Win Now actions is having an impact. From here, we expect our business results to improve. It's time to turn the page.

Just look at the pace of change we've embraced and the progress we made over the last 8 months. It all started on October 14, my first day back at NIKE, with an all-employee meeting and a declaration to our teammates that we are a sport and a growth company and that we will put the athlete at the center of everything that we do and every decision that we make. In December, we aligned our teams against the 5 Win Now actions: culture, product, marketing, marketplace, and our ground game with a sharp focus on 5 key sports, 3 key countries and 5 key cities.

We also set out to aggressively rightsize 3 very important franchises, Air Force 1, Dunk, and the AJ1 and to return NIKE Digital to a premium destination. With our teams executing against our actions, I flattened my leadership structure and made changes to 11 of my 15 direct reports. We pulled the lever we could pull the fastest, investing heavily in big sport moments and key product launches to win back our brand voice. That energy has ignited NIKE performance products with consumers, which is helping us to better balance our portfolio.

Reclaiming our voice in sports has turned out to be the jump start we needed for our team culture, too. I see the fight in our teams. We believe and we're competing. A sharp sport point of view and a less promotional NIKE marketplace is helping us gain the confidence of wholesale partners. I'm personally meeting with our partners to reaffirm that we're prioritizing and investing in their businesses. We're also strategically adding more points of distribution to be in the path of a wider range of consumers.

NIKE Direct is showing early signs of being a more premium destination, especially when tied to a sport moment, a key product launch or a NIKE-created on-the-ground activation. To accelerate our Win Now actions, the next step is to realign into dedicated cross-functional teams by sport. We're organizing into a sport offense to have deeper relationships with the athletes we serve, to gain better insights, to drive sports-specific innovation, telling inspiring stories and differentiating ourselves in the marketplace.

Instead of a men's, women's and kids' construct, NIKE, Jordan and Converse teams will now come to work every day with a mission to create the most innovative and coveted product, footwear, apparel and accessories for the specific athletes they serve. These sports-obsessed teams will create greater dimension and distinction for our 3 brands, will make us more competitive and will accelerate our growth.

We'll pay it off in an integrated marketplace of our own design. We'll invest in NIKE Direct digitally and physically and thoughtfully segment wholesale partners to serve sport-specific consumers across channels and up and down price points. Strategically, sharper marketplace segmentation in a sport offense allows us to deliver unique assortments and storytelling opportunities across different channels and partners to better serve our consumers and to help drive profitable, sustainable growth for our partners.

We're already moving on a number of these fronts. To better serve wholesale partners, we're in the process of hiring retail marketing, visual merchandising and account management teammates. And in NIKE Direct, we're getting into the rhythm of lining up against sport moments and key product launches. Two wholesale partnership examples this quarter were through with DICK's through our 24/7 Training Collection, and with JD through the Air Max 95. The result: elevated presentations, better consumer connections and increased sell-throughs.

Earlier this month, our NIKE L.A. door at The Grove was homebase for a highly successful global After Dark run series. Hosting thousands of women runners in L.A. created energy throughout the week. The day before the race, we captured our best sales day at The Grove in 3 years. And at the conclusion of the inspiring French Open finals, NIKE Digital posted the pre-, during and post-game looks of Carlos Alcaraz and Jannik Sinner with a 30% bump in day-to-day sell-through. Consumer-right, sport-led assortments, in-the-moment storytelling and elevated presentations in a segmented and differentiated marketplace, these are some of the many we will compete brand by brand. sport-by-sport, geo by geo.

The truth is we're in a fight in every sport we're in and each sport has different competitors. As we began to align our iconic brands by sport, we'll have a closer line of sight so we can develop targeted plans to match up against each one of them. We're approaching every opportunity with an athlete mindset, passion, commitment and determination.

Our teams are also making strong progress in expanding our distribution with strategic partners. I'll focus briefly on North America, who in this quarter, led a Gen Z-targeted experience with Urban Outfitters, becoming the #1 brand in select doors on the opening weekend. We entered over 200 women's-led doors, including boutiques like Aritzia. We hosted 30 running specialty accounts from around the world at the NIKE Campus for a 4-day immersion and our upcoming running innovations. We leveraged 2 of our iconic brands, NIKE and Jordan, to create meaningful product activation with key city specialty partners along the I-95 corridor. And finally, we announced a new partnership with Amazon. This fall, they'll carry a select assortment of footwear, apparel and accessories, and NIKE will have a featured brand store on the platform focused on running, training, basketball and sportswear.

The NIKE integrated marketplace is beginning to take shape. Along with NIKE Direct, these partners will play an important role in serving a wider range of consumers. This is NIKE at its best, leveraging our portfolio of brands and sport-led product offerings across multiple channels and up and down price points. Q4 was also filled with a number of sport moments for NIKE, Jordan and Converse. All 3 brands showed up with louder brand statements to leverage the emotion of epic story lines.

At the golf majors with Rory and Scotty; with Asia to kick off a new WNBA season; at the Champions League final with and Inter Milan; with Shai for both his MVP and the Thunders NBA Championship; and at Roland Garros with Alcaraz and Sinner. All of that is in 90 days. It's a reminder of the strength of NIKE's athlete relationship and our brand's far-reaching influence across all sports.

Shifting to our product portfolio. We made progress this quarter in rebalancing sportswear and performance. We're getting back to executing our formula more consistently, to create innovative and coveted product, accelerate demand through a more emotional storytelling and then scale at an unmatched level to meet the growing demand in the marketplace.

Take NIKE running as an example, which grew high single digits overall for the quarter. The energy was led by Vomero 18, which in just over 90 days has already become a $100 million-plus franchise with strong sell-through. In basketball, our women's business expanded more than 50% this fiscal year, proving that product demand is catching up to the spike in energy surrounding the women's game. The biggest basketball headline this quarter was the retail release of Asia Wilson's Signature Collection and her first shoe, the A1. It showed how effective we are when we line everything up for a thoughtful journey, closely plan with the athlete. The first launch sold out in 3 minutes on NIKE Digital in North America and we'll double the amount of Asia pairs in coming seasons.

In sportswear, the look of running footwear saw continued strength through products like P-6000, Vomero 5 and Shox, and we're reintroducing the Air Max 95 to a new generation of consumers through a more thoughtful journey of high energy driving models through different channels, account by account and through early adopters like athletes and creative partners in our key cities. While we have a ways to go to return to a truly diversified sportswear lineup at scale, I'm pleased with the progress the team is making.

I'll close by saying a few words on fiscal year '26. As we put the sport offense in place, we're building a full pipeline of innovative products and driving momentum in the marketplace. I see a clear path to recovery ahead. A strong signal of our progress is the momentum we're seeing in NIKE performance product, which we expect to continue throughout fiscal year '26. In running, our [ 9 box ] footwear lineup will continue to deliver new innovation.

We'll approach basketball through multiple dimensions, and we'll build on apparel opportunities in training, golf and tennis that span the spectrum of sport and style. In global football, the stage is set for an intense World Cup battle. We're prepared with an upgrade of all 3 football boot silos in a 12-month window. Our kits look phenomenal and we'll debut an exciting apparel innovation that will scale across multiple sports.

The early feedback to the product pipeline from our wholesale partners at our engagement meetings has been positive. For example, our order book is improving sequentially with our holiday orders up. We're finding a better balance with our portfolio of sport performance and new dimensions of sportswear, expected to offset the declines in our classic franchise with wholesale partners.

As I step back and look at the overall progress against our Win Now actions by geography, momentum and confidence are building in North America and EMEA, APLA's progress varies by individual country, and China will take longer due to the unique characteristics of the marketplace. We've been operating in China for over 4 decades and our teams know what is required to return to growth. We're executing our plans and trending in the right direction, but a full recovery will take time.

I believe we have everything we need to win and we are ready for the new fiscal year. We're laser focused on what we can control, inspiring and innovating for the 8 billion consumers we have the privilege to serve. We know what it will take to set off the next wave of growth for NIKE. From here, it's on us to get back to executing at the level we expect. And like Faith Kipyegon, our entire team is ready to run towards something bigger and is committed to writing the next great chapter for our beloved company. From here, I'll pass it to Matt.

Thanks, Elliott, and hello to everyone on the call. In fiscal '25, we reclaimed our identity through sport and implemented the Win Now actions to reposition our brands and business for future growth. While in line with our expectations, we are not pleased with our financial performance. However, as I said last quarter, the fourth quarter reflected the largest financial impact from our Win Now actions. We expect the headwinds to revenue and gross margin to begin to moderate from here.

Today, I will review our financial results, highlighting progress made against our Win Now actions. Then I will explain our approach to the newly issued tariffs. Last, I will provide guidance for the first quarter of fiscal '26 as well as additional insight for how we expect Win Now to shape our financial performance over the next fiscal year.

I'll begin with our financial results. For the fourth quarter, revenues were down 12% on a reported basis and down 11% on a currency-neutral basis. NIKE Direct was down 14% with NIKE Digital declining 26% and NIKE stores increasing 2%. Wholesale was down 9%. Gross margins declined 440 basis points to 40.3% on a reported basis due to higher wholesale discounts, higher discounts in our NIKE Factory stores, supply chain cost deleverage and channel mix headwinds.

SG&A was up 1% on a reported basis. This was driven by increased investment in demand creation, up 15%, partially offset by a 3% decline in operating overhead. Our effective tax rate was 33.6% compared to 13.1% for the same period last year due primarily to decreased benefits from stock-based compensation and onetime items. Earnings per share was $0.14.

For the full year, revenue was down 10% on a reported basis and 9% on a currency-neutral basis. Diluted earnings per share was $2.16. Inventory was flat versus the prior year and down 1% versus the prior quarter. Inventory remains elevated but we are making progress. We closed the year in line with our plans and remain on track to exit the first half of fiscal '26 in a healthy and clean position.

Now let me go deeper into our performance over the last 90 days. As I shared last quarter, our geographies are at different stages of progress against our Win Now actions, and as a result, business recovery is trending on different time lines. Today, I will focus my geography remarks on the specific context and insights of our Win Now progress.

In North America, Q4 revenue declined 11%, NIKE Direct declined 14% with NIKE Digital down 25% and NIKE stores up 3%. Wholesale declined 8%, EBIT declined 29% on a reported basis. North America made meaningful progress cleaning up the marketplace and repositioning NIKE Digital as a full price model. Momentum is building in wholesale with newness in the product portfolio. Sportswear declined in the quarter, driven by a near 40% reduction in our classic footwear franchises. Performance also declined. However, we saw strong sell-through for new products offered in running and training.

North America inventory actions continued with higher sales-related returns and higher discounts to liquidate aged inventory. Inventory dollars and units increased due partially to investment to support new distribution, unfavorable shipment timing and new tariffs. On Digital, we saw a meaningful improvement in markdown rates as well as a higher share of demand at full price in the quarter.

In EMEA, Q4 revenue declined 10%, NIKE Direct declined 19% with NIKE Digital down 36% and NIKE stores up 5%. Wholesale declined 4%. EBIT declined 41% on a reported basis. EMEA is furthest along in cleaning up the marketplace and repositioning NIKE Digital within an integrated marketplace. The team has demonstrated progress by delivering growth in key performance dimensions of our portfolio and diversifying sportswear with new product journeys. In Q4, Running and Training delivered growth, offset by declines in our Sportswear business.

Within Sportswear, we have taken meaningful steps forward to diversify our portfolio. In fact, Sportswear grew overall in wholesale in Q4, and women's sportswear, footwear returned to growth in the quarter. As it relates to inventory in EMEA, we ended the quarter slightly ahead of our target, with inventory dollars flat and units down mid-single digits versus the prior year. NIKE Digital also delivered improvements in markdown rates as well as a double-digit increase in the share of demand at full price.

In Greater China, Q4 revenue declined 20%, largely in line with our plan. NIKE Direct declined 15% with NIKE Digital down 31% and NIKE stores down 6%. Wholesale declined 24%. EBIT declined 45% on a reported basis. Greater China executed a deeper reset of inventory relative to our other geographies with higher sales-related reserves, higher discounts and supply reductions. Traffic remains challenged, and our priority is to refresh local monobrand store concepts and elevate brand presentation through sport.

On product, we saw bright spots this quarter when we launched sport-led innovation like Vomero 18 or utilized our geography Express Lane to tell hyperlocal stories. Consumers continue to have strong reaction to brand activations in the marketplace. Running returned to growth in the quarter, offset by declines in Sportswear and Jordan. Inventory was down 11% versus the prior year, driven by aggressive actions to clean and reset the marketplace. Digital remains highly promotional across the marketplace, and we have taken initial steps to reposition our own platform with plans to extend our efforts to the broader ecosystem in fiscal '26.

Our priority in Greater China is to refresh the monobrand marketplace, creating greater brand distinction through sport-led consumer concepts and full price growth. We have launched a pilot across select doors. However, our actions to energize and reset this marketplace will take time. In APLA, Q4 revenue declined 3%, NIKE Direct declined 1% with NIKE Digital down 6% and NIKE stores up 4%. Wholesale declined 5%. EBIT declined 33% on a reported basis.

APLA delivered mixed results across countries with further work required to clean up inventory. The team has also taken initial steps to reposition NIKE Digital. In the fourth quarter, our performance business returned to growth, driven by running and training. This momentum was more than offset by declines in Sportswear and Jordan. Our teams took aggressive actions to clean up the marketplace and further tighten the buys on NIKE Digital. However, inventory remains elevated.

Okay, let me spend a few minutes talking through our approach to the newly issued tariffs. Over the past 50 years, NIKE has built a globally expansive supply chain that is responsive and resilient. We have strong relationships with our factory partners, and our leadership team is experienced in managing through disruption. NIKE has consistently been a top payer of U.S. duties, with an average duty rate on footwear imported into the United States in the mid-teens range.

Therefore, these tariffs represent a new and meaningful cost headwind, and we are taking actions that balance the consumer, our partners, our Win Now actions as well as the long-term positioning of our brands in the marketplace. First, we will optimize our sourcing mix and allocate production differently across countries to mitigate the new cost headwind into the United States. Despite the current elevated tariffs for Chinese products imported into the United States, manufacturing capacity and capability in China remains important to our global source base.

Currently, China represents roughly 16% of the footwear we import into the United States, and we expect this to reduce to the high single-digit range by the end of fiscal '26 with supply from China reallocated to other countries around the world. Second, we are partnering with our suppliers and our retail partners to mitigate this structural cost increase in order to minimize the overall impact to the consumer. These partner arrangements will come into effect at different times throughout fiscal '26.

Third, as part of our regular approach to seasonal planning, we have implemented a surgical price increase in the United States with phased implementation beginning in fall '25. And last, we will evaluate corporate cost reduction as appropriate. However, our highest priority right now continues to be reigniting brand momentum through sport and stabilizing our business. With the new tariff rates in place today, we estimate a gross incremental cost increase to NIKE of approximately $1 billion. We intend to fully mitigate the impact of these headwinds over time as we implement and annualize the actions I've outlined.

For fiscal '26, we expect this financial impact, net of the actions described earlier to be approximately 75 basis points to gross margin, with a greater impact in the first half. We will continue to monitor developments closely, and I am confident in our ability to lean on our strengths, our experience and our scale to navigate through this disruption. Looking forward, we intend to continue to provide specific quarterly guidance during this period of transition.

Today, I will also share some additional insights for how we expect our Win Now actions to shape elements of our financial performance throughout fiscal '26. Momentum is building in our new product franchises. And with the holiday order book in hand, we are beginning to see more clearly around the corner of our product portfolio transition. In fiscal '25, we made significant progress managing down our classic footwear franchises, with year-over-year declines of more than 20%. In Q4, these declines accelerated to more than 30%, representing almost a $1 billion headwind to revenue.

We also finished Q4 down approximately 10 points from the peak as a percent of our total footwear mix. We expect these headwinds to continue through the first half of fiscal '26, with signals that the Air Force 1 is stabilizing while we plan for larger reductions for the Dunk. We remain on track for a healthy and clean market by the end of the first half of fiscal '26. Over the next 2 quarters, NIKE will continue liquidating excess inventory through our value stores and select value partners. In the second half, we then expect to see a modest headwind to revenue as we lap aggressive clearance activity in the prior year.

We continue to expect Digital traffic to be down double digits in fiscal '26 as we reposition NIKE Digital as a full-price model and reduce the mix of our classic footwear franchises. At the same time, we see encouraging signals of progress in the marketplace with our wholesale partners. As Elliott said, our holiday order book is up versus the prior year with growth in North America, EMEA and APLA partially offset by Greater China. We expect SG&A to grow low single digits in fiscal '26.

We are investing to reignite growth in the business, particularly demand creation and [indiscernible] sports and commercial At the same time, we recognize that SG&A has deleveraged relative to historical sales growth with improving gross margins and disciplined expense management over time. We have moderated our share repurchases in the near term due to a more dynamic and uncertain environment as well as the impact of the Win Now actions on our financial results. We have a strong balance sheet, and it remains a competitive advantage for our business.

Overall, we are pleased with the progress our teams are making against our Win Now actions. As I said last quarter, these are the building blocks for NIKE to return to sustainable profitable growth. Last, I'll finish with our first quarter guidance. We will continue navigating through several factors that create uncertainty in this operating environment, including for the consumer, and so our outlook reflects our best assessment of these factors based on the data we have available today.

We expect Q1 revenues to be down mid-single digits. We expect Q1 gross margins to be down approximately 350 to 425 basis points. This includes approximately 100 basis points negative impact due to the new tariffs based on the rates that are in place today. We expect Q1 SG&A dollars to be up low single digits. We expect other income and expense, including net interest income, to be 0 to $10 million in the first quarter, and we expect the tax rate for the full year to be 19% to 20% due primarily to anticipated changes in earnings mix. With that, I'll pass it back to Elliott.

Before taking questions, I want to share some final thoughts on another historic sports moment this past quarter, Rory McIlroy's Masters win. I was lucky enough to be at Augusta earlier that week, and I couldn't help but relate Rory's experience to NIKE's recent journey. To me, his final round performance was a master class on the power of the athlete mindset. And I've been asking my NIKE teammates to hold on to some of the lessons he taught us.

For those of you that don't know, Rory has been chasing a Masters victory for 14 years. It would complete his career Grand Slam, the Holy Grail of golf, something only 5 others have ever accomplished. He was also battling a decade-long drought of winning a major. He's had his share of close calls and heartbreaks and more than enough doubters. Sunday's final round at Augusta was no different. What made it so fun to watch was how aggressive Rory was playing. He was taking the shots that others wouldn't, putting the pressure on the rest of the field, but one time he did play it safe, he laid it up on the 13th and rolled it into raise creek for a double bogey.

Lesson learned. He played better when he was attacking. Despite another up and down round, the win was still in his grasp. All he needed to do was seek a 5-foot plot on the [ 18th ]. He stepped up and missed, wide left. He was heading to a playoff. His caddie, Harry Diamond, his lifelong friend and biggest supporter, knew just what to say. "You would have given your right arm to be in the playoff at the start of the week."

And that was it, the mindset shift Rory needed. He didn't have to play a playoff. He got to play a playoff. It was his for the taking, an amazing reminder for NIKE that no matter the situation we face, we're the leader in an exciting industry. It's a privilege to get to compete every day and with all of our advantages we have, we're in control of our own destiny here. Rory went back to the 18th, stuck to second shot 4 feet for the pen. And this time, he sank the put, dead center. Rory finally had his green jacket and his career Grand Slam.

And we were all treated to one of the most memorable Sundays in golf. For over a decade, his patience was tested but he stayed the course. Whether it was Rory, Alcaraz, Shai or Faith these past 90 days, we worked alongside some of the most mentally tough human beings on the planet. And lately, I've been talking a lot about the athlete mindset, that special ability to keep believing, to keep competing. I'm asking my teammates at NIKE to do just that, to show up with passion, commitment and determination and to compete every day. I think we're on our way.

We're ready for questions.

[Operator Instructions] Our first question will come from the line of Matthew Boss with JPMorgan.

So Elliott, could you maybe elaborate on the accelerated actions under your sport offense realignment and maybe speak to the phasing of innovation into the back half of the year in FY '26? And then, Matt, if you could just speak to the cadence of revenues this year or puts and takes to consider in terms of items impacting the first quarter revenues relative to the back half of the year?

I'll take the first part of this around product. And what I will say, we will lead with a sharp focus on sport. That's why we're moving to the sport offense. But before I dive deeply on products, I just want to make certain that we hit on the unmatched portfolio that we have with depth and dimension, 3 brands, NIKE, Jordan and Converse. And what we're doing, Matthew, is we're organizing into sport-obsessed teams through our sport offense, which will drive a relentless flow of innovative product across all 3 of the brands, performance, sportswear, men's, women's, kids, footwear, apparel, accessories, and up and down price points.

We will differentiate each brand by sport and create a -- which we believe will create sharper distinction and dimension. And we do know, Matthew, when we focus on sport, we win. The best example that we have right now from a product perspective is our running, which is up high single digits. We have innovative and coveted products across our 9-box matrix that we've been talking a lot about, 3 silos, Pegasus, Vomero Structure, times 3 price points. We also have trail and race.

In terms of performance, Peg Premium, Vomero 18, our Swift and Stride apparel, they're all selling well at retail and we're getting positive feedback from our partners. I mentioned it in my script that the Vomero has already become a $100 million business with growth in all geos. And so in addition to what I just touched on, we have Vomero Plus and Vomero Premium common, which both those shoes are beautiful shoes and incredibly innovative and distinctive.

So best example is running, continuing on in our focused sports. Training would be next in line with momentum and sell-through in MetCon and 24/7 Apparel Collection. In basketball, we've got signature athletes, Shai for Converse. I'm sure you guys saw Shai at the NBA finals with his gold shoe around his neck. Adding dimension to the men's -- to the NIKE basketball with Sabrina and Asia, Tatum and Luca in Jordan.

Best example in terms of performance this quarter, it was Asia 1, and I hit that in the prepared remarks. Lined up beautiful products to retail and it sold through at retail. Global football. Two weeks ago, we had a summit with over 200 of our partners from around the world to share with them of our World Cup offering, and we have exciting innovation coming to the game across our 3 football silos, and Fantom. And we have some really interesting innovation coming in our national team kits that we'll be able to leverage across other sports as we move forward. So feeling really good with our sport performance and with each season, it continues to get stronger.

As it relates to Sportswear, we continue, as you heard throughout the prepared remarks, to rightsize Air Force 1, the AJ1 and the Dunk. But we do know that we've got to have a portfolio that extends beyond those large franchises in sportswear. We've got in Air and we will continue to leverage Air because it's a proprietary technology that we have. Muse, Air Max Muse for women and Air Max 95 are really good examples this quarter. And then we see those continuing throughout FY '26.

Look of Running, Vomero 5, P-6000, Shox doing well, and we will take the consumer somewhere new in '26 with the Ava Rover and family. So in the end, it's going to take time to flow into the market but we're confident in the product pipeline. It's getting stronger with each season.

And Matt, I would just add that, as Elliott said, we're pleased with the progress we're making on the Win Now actions in the fourth quarter, reflected the largest financial impact of our Win Now actions. And so our guidance for Q1 in revenue down mid-single digits, it's really reflective of a continuation of some of the trends that we see in Q4, such as the classics, our classic footwear franchises.

We expect to continue to see headwinds from the franchise management actions that we're taking there. We expect to continue to be liquidating excess inventory through our factory stores and through some value partners on the wholesale side. And we expect digital traffic to be down as we spend less money on performance media and also manage our classic franchises.

That's being offset in the first quarter by what I highlighted last quarter, which was our fall order book. We said last quarter that our fall order book almost offset the decline that we were managing in our classic footwear franchises. And now with our holiday order book being up with North America, EMEA and APLA only partially being offset by Greater China, and newness across performance and sportswear that Elliott just referenced offsetting our classic franchises, we're seeing improvement in the revenue trend.

As we look to the back half, I highlighted that we expect that the franchise management headwinds will heavily be focused on the first half, but we do expect our actions on the Dunk to continue throughout the full year. We expect Digital to continue to be a headwind for the full year as we reposition the channel. And I highlighted that we expect a modest headwind to revenue as we lap aggressive clearance activity in the second half of the prior year.

But we do expect to see continued momentum building with our wholesale partners. And our wholesale partners -- momentum with our wholesale partners is indicative of us cleaning the channel and confidence in our product portfolio. And it's 2 important elements of the building blocks of us returning to growth.

Our next question will come from the line of Brian Nagel with Oppenheimer.

So I'm just going to put 2 questions together, if I could. They're, I guess, relatively short. I mean, first off, with respect to the continued, sort of say, cleanup of the marketplace that you're telegraphing now through the first half of fiscal '26, the question I have is, is that consistent with your prior plans? Or have you found something new as you've continued to work on the business?

Then the second question I have, with regard to tariffs, the way that you described it, this could be an impact here in Q1. But then over time, you'll be able to mitigate that, I think was $1 billion you said. Is that as simply saying that it takes time for these mitigation efforts to take hold? Is that why we're expecting this -- the Q1 impact?

Yes, Brian. So as it relates to inventory, we remain on track. No change relative to what we communicated 90 days ago. We remain on track for a healthy and clean marketplace by the end of the first half of '26. And as I highlighted, North America and EMEA have made more progress. We've made significant progress managing down our classic footwear franchises as I highlighted. And so all I'm trying to say is that we are -- we will continue to be liquidating that extra inventory, but it's consistent with the plan that we had before.

The quality of the inventory in the marketplace has improved relative to where we were 90 days ago. And just to reiterate something I said to Matt, the fact that our holiday order book is up, I think, in wholesale also shows that the channel is getting clean and our partners are investing behind the newness that we're bringing into the market.

As far as your second question goes on tariffs, yes, I think you summarized it well. Larger impact in the first quarter primarily because as I laid out the 4 different actions that we're going to take to offset the $1 billion headwind, we're implementing those at different points in time throughout the fiscal year based on taking into consideration the consumer, the back-to-school holiday season, the conversations we're having with both our suppliers and our retail partners. And so we're confident in our ability to fully mitigate these over time as these actions that we're talking about are fully implemented and annualized. But just within the confines of the fiscal year, it will be a 75 basis point impact on our gross margin.

Our next question comes from the line of Lorraine Hutchinson with Bank of America.

I wanted to focus on gross margin for a minute. Are you expecting the pressures to abate sequentially as the year progresses? And can you talk about the back half if there's an opportunity to return the gross margins to growth?

Yes, Lorraine. Taking all of the comments that we've made into consideration, we do expect our margins to remain under pressure in the first half of '26 as we finish executing our Win Now actions. We expect that our first half to be impacted from the strategic actions we've outlined but also the timing of the tariff implementation relative to the actions that we're implementing. But we do expect that to moderate in the second half of the fiscal year.

When I think about our '26 margins, I sort of step back and think of 3 dynamics that we have. One, we've got short-term product and channel mix headwinds that we're going to navigate through the year as we manage our product portfolio and shift our marketplace portfolio towards our wholesale partners. We've got the transitory impact of the Win Now actions which are largely impacting the first half of fiscal '26 and then we've got the newly implemented tariffs. And I said that's a 75 basis point impact on the year. It's a 100 basis point impact in the first quarter. And we expect to see those headwinds begin to moderate from there.

Our next question comes from the line of Jonathan Komp with Baird.

I want to follow up. There's obviously too many dynamics to think about guiding past Q1. But just given that wholesale is the largest driver of your business today and you are seeing the inflection in order growth, are there any scenarios where you could get back to total growth at any point in this year? Just trying to get a sense of how you're looking out on the horizon here.

I'll take that, Jonathan. Let me start with -- what I would start with is, I've been here now 8 months and I'm even more convinced that the path back to sustainable profitable growth is through our Win Now actions and now implementing our sport offense. We're seeing signals that the actions are working. Our teams are energized, inspired and competing. The actions are resonating with our partners.

Matt already touched on the order book and the reaction we're getting from our partners. And it's with our consumers. We're having good sell-through as well. We've walked through some signals. Inventory actions are back on track. We're elevating NIKE Digital, the user experience, less promotional, et cetera. We're having good brand impact and sport moments and product launches. The product pipeline, which I already hit on, we're feeling good about that and it gets better with each season, and we're having an improvement in our order book.

So overall, what I would tell you is that each geo is in a bit different stage of executing those actions. North America and EMEA began executing them the earliest, and they are demonstrating the clearest progress and Matt hit on some of those financials. We're making good progress in APLA. It does, Jonathan, vary a little bit by country. And then in Greater China, we're still cleaning up the marketplace with the nuance of it being a monobrand marketplace, but we continue to work closely with the team to drive progress there. So we're seeing momentum. Matt's already hit it and our holiday order book is up. And right now, just because of everything that's going on, we're going to take it 90 days at a time because we believe full recovery will take time.

Our next question comes from the line of Adrienne Yih with Barclays.

It's nice to see the progress at wholesale. Elliott, I guess I'm going to start on that topic. Can you talk about the marketplace at a high level, kind of where DKS-Foot Locker JV kind of sit in that specialty retail and then the segmentation with the newly added Amazon expansion of distribution? And then Matt, along the same line, when did you start shipping or recognizing wholesale revenue? I know you're going to be on board there in late July. So just wondering how that revenue -- is that part of the revenue wholesale order book being kind of having more visibility as we go into the back half, the addition of Amazon?

Okay. Adrienne, our biggest competitive advantage is our ability to elevate and grow an entire marketplace. And again, we are challenging our teams to make certain that we're serving consumers wherever and however they choose to shop for our brands. I will say this, we do have an unbeatable footprint, 40,000 points of distribution, nearly 190 countries, digital, physical, wholesale, and direct.

What we are doing, we are making certain we are moving across multiple channels, our own NIKE Direct channels, specialty, sporting goods, athletic specialty, department store, family footwear. As you know, each one of those channels and the partners that sit in each of those channels, they all serve different consumers. And so we -- with this new flow of innovative product, we're segmenting and we're differentiating in the marketplace. When we do that across wholesale partners to serve different consumers, that's how we drive growth and profitability.

And again, it does start with our own NIKE Direct and elevating that, making it less promotional. But we are working closely with our partners across the entire marketplace, our 3-year growth plans, translating that into annual plans and quarterly plans. And we continue to invest in elevating the presentation of our assortment. So I'm feeling good about where -- how the teams now are embracing, looking across the entire marketplace to serve different consumers at different points of distribution.

In terms of Amazon, they serve a very focused consumer, and we're using them as part of and partnering with them as part of to grow the overall integrated marketplace. And we're excited about the partnership. You heard it in my script, we're working on the right assortments that will go in there. We'll have a featured brand store on the platform. We'll be offering footwear, apparel and accessories through running training, basketball and sportswear.

And I would just add, Adrienne, that as Elliott said, as we're serving consumers across the [indiscernible] of the examples that he gave in terms of how we've expanded distribution, we typically start small. So we will go live on Amazon in Q1 but it's not a material needle mover. What I would say is that wholesale overall and the commentary around our order book, I think, is an important leading indicator of the progress our teams are making to transition our product portfolio and also get our business back to growth.

There's obviously going to be some noncomp items, like I've highlighted, the liquidation in the first half, the work we're doing in order to continue to work through our classic footwear franchises. But wholesale and the progress that we're making in wholesale, I think, is a strong indicator of the progress we're making in our Win Now actions.

Our next question comes from the line of Jay Sole with UBS.

Matt, you just talked about a modest headwind to the second half of '26, revenues your promotions. Can you just talk about maybe what modest means? Can you talk about the trade-off between boosting gross margin as you get back to full-price promotions versus what it means for unit volumes as you try to run a more full-price business?

Sure, Jay. What I was specifically referring to there is, we started our Win Now actions as Elliott came back 8 months ago. And we highlighted them on our Q2 call, and it set us on an accelerated path to change the trajectory that the company is on. And one of the things that, that required us to do is to move quickly to shift our product portfolio and address some of the aged inventory that was sitting in the marketplace.

And so we started to move more aggressively with that through sales-related returns, through more discounts to our retail partners so that they could mark down that inventory and move it through, and as well as selling off-price product to our value partners. When we get into the second half of fiscal year '26, we expect to be in a clean marketplace, a healthy marketplace. And so that business in the second half will be more full price, it will be more profitable, but there will be a revenue headwind from the compare to the higher level of off-price liquidation in the prior year.

Our next question comes from the line of Brooke Roach with Goldman Sachs.

Elliott, I'm curious on your thoughts on the China marketplace and the opportunity to drive full recovery there over time. I understand there's some unique characteristics of the marketplace that are making it a little bit more difficult to clean it up as quickly as the other geos. Can you talk about the time line and the cadence of what we should see over the course of the next fiscal year as you look to return that to growth? And how are you thinking about the competitive and operating environment for the brand there today?

Thanks, Brooke. Let me start with making certain that you hear this, that we do believe in the long-term opportunity in China. There are some structural tailwinds which will continue to unlock further opportunity. And I think our biggest opportunity is, from a brand perspective, to inspire and invite the 1.3 billion consumers into the world of sport, lifestyle sport and to fitness.

That said, we're not happy with where we are. And Matt went through the results. They are in line with what we planned. I want to make sure you guys hear that as well. We're confident in the Win Now actions, but as you've already pointed out, Brooke, China is on a bit of a different time line. And part of it is because of the structural differences in the marketplace. It's monobrand. The good news is we've been operating in China for more than 40 years. We have deep relationships there.

Matt and I have both been involved in turnarounds in China, and we're working closely with the team there, the team's focus on taking the right actions to clean up the marketplace, similar to what you've already seen in North America and EMEA and now is taking place in APLA, clean enough the big 3, elevating digital. The key here is we're investing in testing some new retail concepts. At the same time, we are resetting and -- resetting some of our consumer-led concepts in existing doors, but we have work to do.

The key to winning, and I am confident key to winning is that we need to connect locally. We've got to elevate the consumer-led product concepts. Performance running, we touched on, is working there, but we also have some China-specific product through outdoor basketball, the ST Flare and that we're leveraging our geo Express Lane to create China-specific product. And you will see more of that from us as we move forward.

And then it is getting the right consumer-led retail concepts in place. We've got a plan around renovating and upgrading throughout '26, launching new concepts and getting the right assortments, consumer-right assortments and the right depth, presentation and storytelling. That's how you return to drive revenue and profits there. It's through driving productivity. And so we're doing it. The team's hustling. But here's what I'd say, the changes are going to take time, but we're focused on pulling the right levers to return to growth.

Our final question will come from the line of Alex Straton with Morgan Stanley.

Perfect. Maybe for Elliott or Matt, as you think about kind of once the smoke clears through this year, just structurally, is there any reason why this business like should not be a double-digit margin business? Or maybe just high level, can you walk us through perhaps what's changed in as you think about clearing these actions and those all getting behind you, if anything has really changed in like the structural margin of the business longer term?

Well, Alex, we've consistently been a double-digit margin company over our history, regardless of the size of our business or the composition of our portfolio. And so I think we believe that, that is still a goal that's worthy of pursuing. I highlighted the actions that we've got -- that we've taken in '26 associated with Win Now and the timing of them between the first half and the second half.

And we believe the Win Now actions are the right actions to reposition NIKE as a full-price brand in a healthy market. And they're the right actions to reignite brand momentum and growth. And so when I think about the longer term, our goal is to return to sustainable organic revenue growth and to see the recovery of these transitory impacts that we've been talking about as we've been repositioning the business. And with disciplined expense management, it should yield operating leverage as we return to growth, and so that's where we're focused.

I think the only thing that I would add to it is our team's leadership team and teams around the world have embraced the Win Now actions. We believe by lining up against the sport offense, that will further accelerate those actions. And over time, we absolutely have the ambition to get back to double-digit operating margins.

And that will conclude our question-and-answer session and our call today. Thank you all for joining. You may now disconnect.