Good afternoon, everyone. Welcome to NIKE, Inc.’s Fiscal 2022 First Quarter Conference Call. For those who want to reference today’s press release, you will find it at http://investors.nike.com. Leading today’s call is Paul Trussell, VP of Investor Relations and Strategic Finance. Before I turn the call over to Ms. Trussell, let me remind you that the participants on this call will make forward-looking statements based on current expectations, and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in the reports filed with the SEC, including the annual report filed on Form 10-K. Some forward-looking statements may concern expectations of future revenue growth or gross margin. In addition, participants may discuss non-GAAP financial measures, including references to constant dollar revenue. References to constant dollar revenue are intended to provide context as to the performance of the business, eliminating foreign exchange fluctuations. Participants may also make references to other nonpublic financial and statistical information and non-GAAP financial measures. To the extent nonpublic financial and statistical information is discussed, presentations of comparable GAAP measures and quantitative reconciliations will be made available at NIKE’s website, http://investors.nike.com. Now, I’d 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 2022 first quarter results. As the operator indicated, participants on today’s call may discuss non-GAAP financial measures. You will find the appropriate reconciliations in our press release, which was issued about an hour ago, or at our website, investors.nike.com. Joining us on today’s call will be NIKE, Inc. President and CEO, John Donahoe; and our Chief Financial Officer, Matt Friend. Following their prepared remarks, we will take your questions. We would like to allow as many of you to ask questions as possible in our allotted time. So, we would appreciate you limiting your initial questions to one. Thank you for your cooperation on this. I will now turn the call over to NIKE, Inc. President and CEO, John Donahoe.

Thanks, Paul, and hello to everyone on today’s call. NIKE creates value through our relentless drive to serve the future of sport. As we saw again in Q1, our strategy is effective, yielding business results that highlight our strong connection to consumers worldwide. Our brand momentum, culture of innovation, commitment to purpose, and proven operational playbook keep us ahead of the competition. Q1 marked another strong quarter for NIKE, with revenue growth of 16%. While physical retail traffic returned across much of our portfolio, digital maintained its momentum, achieving 25% currency-neutral growth, particularly in North America where it exceeded 40%. Our digital success reflects the product innovation, brand strength, and scale that foster meaningful consumer relationships as we maintain momentum in our key growth areas. Since the pandemic began, I have been proud of how our entire NIKE Inc. team has managed through macro volatility. Over the past 18 months, we have shown our ability to navigate turbulence and emerge even stronger. We will continue this approach as we address current supply chain challenges, focusing on what we can control while utilizing the resources available to us. In comparison to our competitors, we are in a stronger position than before the pandemic. The current market changes work to our advantage, as the consumer shift to digital that might have taken five years will now occur in just two. This shift benefits NIKE significantly, and our Consumer Direct Acceleration strategy is taking advantage of this market transformation. We believe that when we come out on the other side, we will be even stronger, more agile, more direct, and more digital. Thus, we remain confident in our long-term business outlook. Our competitive edges, including our innovative products, brand strength backed by compelling storytelling, an outstanding roster of top athletes, and industry-leading digital retail experiences will continue to set us apart. Our strong consumer demand leaves us with unwavering confidence. We recently concluded an extraordinary summer of sport, highlighted by the Olympics and Paralympics, which invigorates our approximately 75,000 employees globally. This passion for sport drives us to innovate and connect with consumers. In Tokyo, our position as the world’s most innovative sports brand was once again on display. If NIKE were a country, we would have outperformed competition, capturing 226 medals, including 85 gold. This summer witnessed the rise of Gen Z as a dynamic generation of athletes, notably 13-year-old skateboarders who expanded the definition of sport. We excelled in key team sports, securing golds in both men's and women's football, and achieving five of six medals in basketball, including both golds. Our strong legacy in track and field saw NIKE athletes winning more individual medals than all other brands combined. Additionally, the European Championships infused energy into football in Q1, with England reaching the final. Our brand anthem, The Land of New Football, introduced a fresh approach, embodying our vision of inclusivity in the sport, garnering over 800 million impressions and being viewed by more than half of EMEA’s Gen Z population. The summer also featured Giannis and the Milwaukee Bucks winning the NBA championship after an exciting finals. Shortly after, we launched Giannis’ new signature shoe, the Zoom Freak 3, designed to complement his dominant playing style. The response to the Zoom Freak has been strong, and we are pleased with the development of our Giannis business. Regarding Devin Booker, Q1 highlighted our commitment to nurturing the next generation of superstars, as we added Dak Prescott to the Jordan Brand, alongside rising talents like U.S. Open winner Emma Raducanu and Manchester United’s Jadon Sancho. As the summer sport transitioned into the back-to-school season, our kids' business reported a nearly 30% sell-through so far this fall, driven by digital growth nearing 70%. Our new consumer approach is resonating with families, allowing us to create child-specific designs and utilize new channels for engagement. For instance, we launched Playlist, an exclusive kids' series on Nike.com and YouTube, filled with games, challenges, and special athlete content supporting our mission to promote movement and play. The latest season featured LeBron James and other stars from Space Jam: A New Legacy. Playlist has been well-received by both children and parents, exceeding our expectations. Our kids' business remains crucial, serving as a genuine incubator of our brand across generations with considerable potential ahead. As I’ve emphasized, innovation is the foundation of NIKE. Our innovative culture is our greatest competitive advantage. This week, I visited the new LeBron James Innovation Center at our headquarters with LeBron. Spanning over 750,000 square feet, it is five times larger than our previous lab, further underscoring NIKE’s leadership in sports science. We expect this center to enhance our innovation capabilities even more. Today, I want to discuss two key areas where our continuous pipeline of innovative products creates a significant competitive edge – apparel and sustainability. Regarding apparel, we are seeing strong growth of 16% in this vital area. Our investments in the new consumer construct are fueling greater apparel growth for women, particularly in our yoga segment. Our yoga collection features multiple groundbreaking innovations like Dri-FIT and Infinalon, resonating with consumers and allowing us to nearly quadruple our yoga business over the past two years. Another apparel highlight in Q1 was our sports bras segment, where we maintained our top market share in North America and launched the NIKE Dri-FIT ADB Swoosh bra, an innovation combining premium cooling fabrics with advanced engineering that has resonated with consumers as we scale this technology across our offerings. In terms of sustainability, our Space Hippie line demonstrates our commitment, being made from recycled materials and debuting four sustainable innovations such as Crater Foam and Space Waste Yarn. We have strategically expanded this franchise globally, with over 43 styles utilizing Space Hippie innovations across various sports and brands, including popular items like Air Force 1 Crater and the COSMIC Unity performance platform. Consumers have shown strong interest, with impressive full-price sell-through rates for these products, presenting ongoing opportunities for business growth. This example showcases our focus on platforms over mere products, as our structured franchise and innovation management yield scalable, sustainable impacts on our business. I am excited about upcoming innovative platforms we will introduce. Now, let’s address NIKE’s growing digital advantage. We continue to lead by creating a premium, consistent experience that strengthens relationships with our consumers. Our advantage is evident in retail, both digitally and at the intersection of digital and physical channels. Even as physical retail revenue nears pre-pandemic levels, our digital business grew by double digits this quarter due to our strategic investment in comprehensive digital transformation. We expect digital to be our primary growth channel in fiscal '22. A key measure of our digital success is how effectively we connect with members, where we’ve experienced a 14-point increase in member buying penetration since last year. Our membership strategy is successful as we use data analytics to personalize member experiences and offerings, leading to a 70% increase in repeat buying members this quarter. Part of our success comes from our determination to broaden the definition of NIKE membership. We launched a new experience exclusive to the SNKRS App in Q1 that revolutionizes how we engage consumers. This new launch approach debuted with the highly anticipated Off-White Dunk, using data science for tailored access based on member engagement. Consequently, we successfully offered the Off-White Dunk to hundreds of thousands of deserving members, creating what we refer to as “exclusivity at scale.” This enhanced consumer experience positively affects our overall business, as those enjoying exclusive access tend to spend more across NIKE due to the excitement of their success. Our personalized approach to launches and benefits like member days and unique NIKE By You access demonstrate our commitment to enhancing the value of NIKE membership. We are also leveraging our digital advantage by investing in our physical retail footprint, creating a compelling experience for our consumers across both realms. Recently, I toured several NIKE stores in Los Angeles, including our NIKE Live store in Long Beach and a community store in East L.A. What stood out to me across all locations was the dedication of our team to their community and their passion for bringing our products to life for consumers. I also visited partner stores, such as DICK’s and Foot Locker. What’s evident in the marketplace, both owned and partnered, is how online and offline experiences are becoming seamlessly integrated. Enhanced connectivity between physical and digital channels drives improved consumer experiences and loyalty. O2O services such as buy online, pick up in-store, and ship from store, along with in-store features of the NIKE App, propel our premium, seamless consumer experience. We are beginning to extend these innovative experiences globally, having introduced the NIKE Rise concept in Seoul, which includes interactive RFID-enabled digital footwear tables for easy shoe comparisons. Our digitally connected retail experiences resonate well with consumers, as our in-line fleet experienced over 70% revenue growth, approaching pre-pandemic levels. Member engagement is growing not only digitally but also at physical stores, with buying penetration rising significantly since last year. We will keep expanding these engaging experiences across our fleet in fiscal '22, fostering the integration of physical and digital retail. Ultimately, NIKE is staying proactive. The strength of consumer demand globally reinforces our confidence in our strategy and execution. I reaffirm my pride in our resilient and innovative team at NIKE, Jordan, and Converse, and our ongoing commitment to delivering for consumers. Our long-term confidence remains unwavering. We have become stronger amidst this pandemic, and we will continue to emerge even more robust. I will now turn the call over to Matt.

Thank you, John, and hello to everyone on the call today. NIKE’s acceleration to a more direct member-centric business model continues to fuel deep connections between consumers and our portfolio of brands. Drawing upon our culture of innovation, unmatched global scale, and our industry-leading digital platform, we continue to serve the modern consumer as only NIKE can. Our first quarter results proved again that our strategy is working. NIKE’s Consumer Direct Acceleration is fueling the transformation of our long-term financial model. Our relentless focus on serving the consumer translated into revenue growth of 16% and EBIT growth of 22% versus the prior year. The NIKE Brand remains distinctive and deeply connected in our key cities around the world. From New York to Paris, Shanghai to Tokyo, NIKE continues to be consumers’ number one cool and favorite brand, with a position that has gained strength as we’ve navigated through the pandemic. Consumer demand for NIKE, Jordan, and Converse remains incredibly high, and our first quarter financial results would have been even stronger, if not for supply chain congestion, resulting in a lack of available supply. Despite these headwinds, retail sales still grew double digits versus the prior year, including a record-setting back-to-school season in North America. SNKRS has increasingly become an indicator and barometer of brand heat, now being operational at scale in 50 countries around the world. NIKE Digital is now 21% of total NIKE brand revenue, which is an increase of 2 points versus last year, with strong double-digit growth versus the prior year, even with the broad reopening of physical retail. Digital is increasingly becoming a part of everyone’s shopping journey, and we are well positioned to reach our vision of a 40% owned digital business by fiscal '25. And coming back to marketplace health for a moment, we delivered strong growth in average selling price this quarter with continued improvement in full price realization. This performance reflects our intentional efforts to manage the health of our product franchises as demand surges, to move available inventory to serve demand in the right channels, and to drive a more premium experience for consumers. This quarter, we exceeded our 65% full price sales realization goal, which reflects the expectations that we put forward at our last Investor Day. As we accelerate our consumer-led digital transformation, we are developing and refining new capabilities that are transforming our operating model, quickly becoming a competitive advantage for NIKE. Central to these capabilities is scaling our digital-first supply chain to enable NIKE’s digital growth while optimizing service, cost, convenience, and sustainability. We are evolving our distribution network and forward deploying inventory closer to the consumer, leveraging data and advanced analytics. These actions will improve service levels, reduce carbon impact, and ultimately reduce costs to fulfill an order. Our regional service center outside of Los Angeles opened one year ago, and we’re excited about the opening of two more centers in Q1, one on the East Coast and one in Spain. Our investments in O2O services are putting our products in the path of more consumers and more efficiently optimizing our inventory. Today, we have at least two O2O services in each of our NIKE-owned stores in the U.S., and we are aggressively scaling these services across the globe. Our Express Lane offense is also creating more and more agility across our portfolio, from creating locally relevant products on shorter lead times to leveraging a shared inventory pool across the marketplace, we are better conserving consumers with more operational flexibility, yielding higher profitability. This quarter, Express Lane grew roughly 20% versus the prior year and increased its share of overall business. And last, the NIKE App continues to enable a convergence between physical and digital shopping journeys, eliminating friction for consumers. From member-driven personalization and localization to building an endless aisle through digital integration with our most important wholesale partners, Consumer Direct Acceleration is transforming NIKE’s operating model to move at the speed of the consumer. Now, let me turn to the details of our first quarter financial results and operating segment performance. NIKE, Inc. revenue grew 16% and 12% on a currency-neutral basis, with growth across all marketplace channels. NIKE Digital grew 25% and NIKE-owned stores grew 24%. Wholesale grew 5% in the quarter, negatively impacted by lower available inventory supply due to worsening transit times. Gross margin increased 170 basis points versus the prior year, driven primarily by higher NIKE Direct margins and partially offset by increased ocean freight surcharges. SG&A grew 20% versus the prior year. This was due to higher wage-related expenses, higher levels of brand activity connected to the return to sport, and strategic technology investments. Our effective tax rate for the quarter was 11% compared to 11.5% for the same period last year. This was due to increased benefits from stock-based compensation and discrete items, offset by a shift in our earnings mix. First quarter diluted earnings per share was $1.16, up 22% versus the prior year. Now, let’s move to our operating segments. In North America, Q1 revenue grew 15% and EBIT grew 10%. Demand for NIKE remained incredibly strong for the fifth consecutive season, energized this quarter by back-to-school and the return-to-sport. Retail sales for our performance business grew strong double digits during the fall season, led by running, fitness, and basketball, powered by excitement from the Olympics, the new WNBA season, and the NBA finals. NIKE Direct grew more than 45%, with NIKE Digital now representing a 26% share of the business. Digital continued its momentum and grew by more than 40%, increasing market share by outperforming industry trends with strong growth in traffic and repeat buying member activity. The return to physical retail accelerated NIKE-owned store growth of over 50% as we serve members with elevated experiences. NIKE-owned inventory increased 12% versus the prior year. This was driven by highly elevated in-transit inventory levels as transit times in North America deteriorated during the last quarter, now almost twice as long as pre-pandemic levels. This impacted product availability across the marketplace and our ability to serve strong levels of consumer demand, particularly in the wholesale channels. Closeout inventory was down double digits versus the prior year. In EMEA, Q1 revenue grew 8% on a currency-neutral basis and EBIT grew 26% on a reported basis. This region was energized by the Euros this summer, where NIKE players scored more goals than all other brands combined, and more than half of those goals were with our material boots. We saw a strong consumer response to both the material boot and replica jerseys during the tournament. NIKE Direct grew 10% on a currency-neutral basis, led by our NIKE-owned stores. Following a full reopening, we saw traffic increase by double digits versus the prior year with better-than-expected conversion rates. In EMEA, while NIKE Digital grew 2% in the quarter, demand for full-price products grew nearly 30% as we compared to higher liquidation levels in the prior year. NIKE-owned inventory declined 14% on a reported basis with closeout inventory down double digits. Transit times to EMEA have also deteriorated over the past 90 days, causing higher levels of in-transit inventory and negatively impacting product availability to serve strong consumer demand. In Greater China, Q1 revenue grew 1% on a currency-neutral basis. EBIT grew 2% on a reported basis as the team delivered in line with our own recovery expectations. Retail sales were impacted in late July and August due to regional closures and lower levels of foot traffic due to COVID containment. Prior to late July, physical traffic had been approaching prior year levels. In July, we engaged with consumers through the launch of our Joy of Sports, local marketing campaign. This campaign generated over 1 billion local views, demonstrating strong brand connection with Chinese consumers. NIKE Direct declined 3% on a currency-neutral basis, partially impacted by retail closures. NIKE Digital declined 6% as we compared to higher liquidation in the prior year, partially offset by double-digit improvement in full-price sales mix. We experienced a strong 6/18 consumer moment where we grew nearly 10% versus the prior year and remained the number one sports brand on Tmall. Demand in our SNKRS App grew more than 130% for the quarter. Our experienced local team continues to navigate through marketplace dynamics. We finished the quarter with healthy marketplace weeks of supply, and inventory normalization is on plan. Now moving to APLA. First quarter revenue grew 31% on a currency-neutral basis and EBIT grew 72% on a reported basis. Revenue growth was led by SOCO, Japan, Mexico, and Korea, with more muted growth in Pacific and Southeast Asia and India due to COVID restrictions and government-mandated store closures. NIKE Digital grew more than 60% on a currency-neutral basis, highlighted by the expansion of our NIKE App. In June, the app went live in Mexico and six additional countries across Southeast Asia, generating 3 million local downloads during the quarter. Earlier on the call, John spoke about the new NIKE Rise retail experience in Seoul. To mark the opening of the store, our Express Lane, SNKRS, and NIKE Rise teams created the NIKE Seoul Dunk. This collaboration drove more than half of day one sales and highlights how digital and physical experiences are converging in our own stores, leveraging local insights and a more agile supply model. Now, I will turn to our financial outlook. Consumer demand for NIKE remains at an all-time high, and we are confident that our deep consumer connections and brand momentum will continue. However, we are not immune to the global supply chain headwinds that are challenging the manufacture and movement of product around the world. Previously, I had shared that transit times are expected to remain elevated for the balance of fiscal '22. Unfortunately, the situation deteriorated even further in the first quarter, with North America and EMEA seeing increases in transit times due primarily to port and rail congestion and labor shortages. Additionally, several of our factory partners in Vietnam and Indonesia were required to abruptly cease operations in the first quarter. As of today, Indonesia is now fully operational. But in Vietnam, nearly all footwear factories remain closed by government mandate. Our experience with COVID-related factory closures suggests that reopening and ramping back to full production scale will take time. Therefore, we’re revising our short-term financial outlook to incorporate the following factors: 10 weeks of production already lost in Vietnam since mid-July; factory reopening to occur in phases beginning in October with a ramp to full production over several months; and elevated transit times, consistent with where we are now operating today. We now expect fiscal '22 revenue to grow mid-single digits versus the prior year versus our prior guidance of low double-digit growth, due solely to the supply chain impacts that I just described. Specifically for Q2, we expect revenue growth to be flat to down low single digits versus the prior year as factory closures have impacted production and delivery times for the holiday and spring seasons. Lost weeks of production, combined with longer transit times, will lead to short-term inventory shortages in the marketplace for the next few quarters. We expect all geographies to be impacted by these factors. However, those geographies in Asia with less in-transit inventory at the end of the first quarter will experience a disproportionate impact beginning in Q2. For the balance of fiscal '22, we expect strong marketplace demand to exceed available supply. We are optimistic inventory supply availability will improve heading into fiscal '23 against the backdrop of a very strong brand and healthy pull market across all geographies. Turning to the rest of the P&L, we still expect gross margin to expand 125 basis points versus the prior year, at the low end of our prior guidance, reflecting stronger-than-expected full-price realization, the ongoing shift to our more profitable NIKE Direct business, and price increases in the second half. This more than offsets roughly 100 basis points of additional transportation, logistics, and air freight costs to move inventory in this dynamic environment. We also expect a lower foreign exchange benefit, now estimated to be a tailwind of roughly 60 basis points. For the second quarter, we expect gross margin to expand at a rate lower than the full year due to higher planned airfreight investment for the holiday season. We expect SG&A to grow mid to high teens. We intend to maintain our position as the number one cool and favorite brand and to celebrate the return to sport as we inspire and engage consumers around the world. We will also maintain pace on our multiyear investment plans in order to transform our business for the future, as I’ve outlined in prior quarters. NIKE’s financial strength is a competitive advantage, and it is in moments like these where our competitive strengths and strong balance sheet afford us the ability to remain focused on what’s required to win and serve consumers for the long term. In closing, our vision for NIKE’s long-term future remains unchanged. NIKE is a growth company with unlimited potential. Despite new short-term operational dynamics, our Consumer Direct Acceleration offense is driving our business forward and transforming our financial model toward the long-term fiscal '25 financial outlook I shared last quarter. This quarter’s impressive results are additional proof that our strategy is right, not only for the moment we find ourselves in, but also for the opportunity to serve the future of athletes and sport like only NIKE can. I wouldn’t trade our position with anyone, and there is no better team to navigate through volatility and lead long-term transformational change.

Thank you. Good afternoon. I appreciate the update on the real-time insights into the supply chain. My question is, as we approach the fall and holiday season, are there any specific footwear franchises facing greater challenges than others? Additionally, looking at the long-term, what investments do you plan to continue making in the supply chain to enhance your agility? Thank you.

Thank you for your question, Erinn. The current supply chain challenges have several complex aspects that may not be immediately obvious from my earlier remarks. I'll take a moment to elaborate on this. As I mentioned, consumer demand is at an all-time high, and we anticipate this strong demand will persist for the coming quarters. In the past 90 days, two unexpected developments have occurred in the industry: transit times, which were already extended, have worsened, and local governments in Vietnam and Indonesia have enforced shutdowns. It's essential to recognize the global complexities and variations in transit times and sourcing across different regions. I'll use North America as a case study to explain further. Before the pandemic, transporting products from Asia to North America took about 40 days. However, due to container shortages, congestion at ports and railways, and labor shortages, transit times have significantly increased, reaching approximately 80 days in Q1, which is about double the normal time. This has resulted in higher levels of in-transit inventory, meaning we had full-price inventory that was not available to meet current consumer demand, ultimately affecting our top-line results. The elevated transit times we've discussed for several quarters worsened this quarter and continue to impact our business. Additionally, in Vietnam, it's crucial to consider these factors together. Currently, 80% of our footwear factories in the south and nearly half of our apparel factories in Vietnam are closed. This shutdown has led to a loss of 10 weeks of production, and this gap will persist until the factories can reopen and resume normal operations. This has disrupted the flow of inventory that was ordered for delivery starting in mid-October. Based on our experience navigating the pandemic over the past 18 months, we expect it will take several months to return to full production. On a positive note, some factories have received approval for their reopening plans this week, and we are hopeful about a gradual reopening and ramping up of production starting in October. Indonesia is already back to operational status and is increasing its capacity. Consequently, North America is entering Q2 with increased in-transit inventory, meaning it will have more fall season products to sell in the second quarter, although holiday and spring production has been delayed. When you factor in longer lead times, the effects of lost production will be more pronounced in North America in Q3. On the other hand, Greater China, which has lower levels of in-transit inventory and shorter transit times due to its proximity to factories, will experience the impact of lost production sooner, in Q2. Our teams are using their experience and operational strategies to mitigate these challenges. They are maximizing footwear production capacity in other countries, shifting apparel production from Vietnam to places like Indonesia and China where feasible, leveraging airfreight strategically, and continuing to take a seasonless approach to products to meet strong consumer demand. Despite the dynamic environment, we believe these supply chain issues are temporary. From what we observe today, we are optimistic that inventory availability will improve as we move into fiscal year '23.

Erinn, regarding the second part of your question about investment, we are taking the approach that strong companies adopt during times like this. We will keep investing in innovation and product development, enhancing our brand and storytelling, supporting the return of sports, and leveraging our robust sports marketing portfolio along with our digital transformation. This will continue. Additionally, we will maintain a strong focus on driving demand and brand awareness, even amid a supply-constrained market. As Matt mentioned, we will expedite air transportation and other aspects of our supply chain that enable us to manage every possible aspect in this supply chain-constrained environment. Our guiding principle as we enter this next phase remains the same as it was at the beginning of the pandemic: we want to ensure we emerge from this situation stronger than when we entered.

Great. Thanks. So, John, maybe could you speak to the overall health of the athletic industry? How best to think about overall TAM for NIKE as we exit the pandemic? Can you leverage size, scale, and innovation to accelerate market share? And then, Matt, real quick, just on the revised gross margin outlook for this year, aside from the supply chain impact, I guess, my question is, could you speak to maybe some of the underlying drivers? It sounds like full-price selling and digital margin is on track. Meaning aside from the supply chain dynamics, does anything really change? Meaning do you see this as fully transitory, any change to the multiyear gross margin outlook?

Well, Matthew, regarding the first part of your question, the healthy athletic market is evident in our comments. Sport is back, and that is an energizing and significant development for NIKE. We observed this during the summer with events such as the Olympics, basketball, global football, and the U.S. Open Tennis, as well as college football and U.S. football returning. I would say traditional sports are strong and back, and this trend is also seen in high schools and grade schools as students return to school. The second observation is the broadening definition of sport, exemplified by the inclusion of skateboarding in the Olympics for the first time. Some of the most thrilling moments at the Olympics were centered around skateboarding, particularly with the Gen Z generation making a remarkable impact. Additionally, as we emerge from the pandemic, the concept of sport is evolving to encompass all athletes in various ways, emphasizing movement and health, and recognizing that sport can take place at home, in the gym, in yoga studios, or on basketball courts. One of the driving forces we’re noticing is that sport is becoming an integral part of everyone’s daily life, which is beneficial for us. Also, athleisure is merging the athletic aspect of life with everyday life, which we see as another positive factor. Therefore, we are focusing on traditional sports and leveraging these new emerging definitions of sport. This was evident in skateboarding at the Olympics, and it can also be seen in our brand campaigns that resonate closely with the Gen Z consumer. We believe this is promising for our future.

And I’ll just hit the gross margin quickly, Matt. We believe that this quarter was an excellent proof point of the success that we’re seeing in driving our consumer-led digital transformation. We’re seeing meaningful movement forward in both NIKE Direct mix of business and also NIKE Digital mix of business, as I mentioned. And that’s what fueled our gross margin expansion in the first quarter, high levels of full-price realization, greater mix of NIKE Direct and NIKE Digital business, and lower markdowns as we leverage the capabilities that we have to serve consumer demand, how and where they want it. As we look longer term, we’re absolutely continuing to look towards that high-40s gross margin outlook that we provided last quarter. In the short term, we’re going to navigate through these transitory impacts. But when you’ve got a strong brand and you’ve got a healthy pull market, what we’re seeing is strong full-price margins offsetting some of these transient costs that we’re going to experience as we move product around the world.

Could you elaborate on the trends in China during the quarter? Last quarter, you discussed some trends following the impact in April to help us understand the path back to normalcy at that time. What dimensions do you see this quarter? You mentioned COVID lockdowns in some markets affecting the overall China trend. Where do we currently stand in Q2, and what do you believe is the right pace for returning to normal in that market? Additionally, regarding North America, as you need to make decisions on inventory allocation moving forward, I know you have a considerable amount in transit that could impact 2Q. How should we think about the allocation between the DTC channel and wholesale as we progress? Is it similar to what we observed in the first quarter, or have there been any changes in that trajectory?

Matt, why don’t I take the first part of Mike’s question, you take the second for North America. On China, Michael, I’ll just reiterate what I said last quarter, is we take a long-term view in China, we’ll invest for the long term, and we’re confident in the long-term opportunity. Coincidentally, this month is the 40th anniversary of NIKE’s participation in China. We saw Q1 results that were roughly in line with our expectations. As Matt said, supply constraints will impact our second-quarter performance. But, we are continuing to do what frankly Phil has done from the beginning in China, which he’s done over the last 40 years and we’ve done and we will continue to do over the next 40, which is deliver innovative products that connect with local consumers, strong consumer connections to our brand, partly reinforced by the 7,000 mono-brand stores across the country. We’re blessed to have a really strong local team, and I am so proud of that team, how they’re navigating through. As we’ve said many times before, they have led us in the sort of pandemic playbook and they continue to be very responsive on the ground there. We have always been and will continue to be very respectful and responsible corporate citizens, promoting sport and the well-being through activity and promoting sustainability and other important societal themes. We’ll continue to stay on that playbook and invest with consistency and longevity during this period.

In North America, we've maintained strong growth in that market. I've noted five consecutive quarters of exceptionally high demand. Our strategy remains consistent with what we've been discussing for the past couple of years. We consider the consumer's perspective—how and where they shop and engage with our brand. We will keep prioritizing product availability in the locations where consumers are shopping, focusing on NIKE’s own channels and key wholesale partners. This is how we will meet that demand. The marketplace will remain tight, with limited inventory, but NIKE and our partners will strive to enhance the consumer experience throughout the rest of the fiscal year.

Just two questions. The first one is on spending levels. With the updated outlook on the revenue with the disruption of the supply chain, can you just help us understand how you’re thinking about spending against the lower levels of revenue, whether it’s demand creation or the investment in technologies? And I have a follow-up.

Sure. Thanks, Bob. The year-over-year comparisons, as we’ve talked about for a while here, are not really intuitive. A couple of quarters ago, I talked about as we were starting to see the strength in consumer connections and the acceleration of our business, that we were going to begin accelerating investment to drive our digital transformation. In particular, where we were investing was against technology, our digital-first supply chain, and the marketplace. We created a multiyear investment plan against our outlook to drive that growth. When we finished the first quarter, we finished our first quarter spending at about 29% of revenue. As we think about the transitory nature of these impacts, we believe this is a moment where NIKE’s financial strength is a real competitive advantage. We believe that these short-term dynamics will pass, but we’re more convinced and committed to what we believe the capabilities we need to operate a consumer-direct business at scale as we execute the strategy. That’s where our focus and attention is going to be. We’re going to keep our teams focused on creating those capabilities, which we’re seeing translate into strong growth and profitability. That also includes the investments that we’re making from a brand perspective. Strong brands get stronger in this environment. Having that deep consumer connection, especially when it’s rooted to sport and the return of sport is exactly what we need to be doing in order to continue to stay in a position of strength.

I'm really glad you asked, Bob. This morning, I had a win on the NOCTA line through SNKRS, specifically the vest. I'm really excited about it; it's a fantastic collection. Anytime you win on SNKRS, it's a rush. I was in the middle of my workout at one of our gyms on campus and paused my workout at 7 a.m. to check if I won, and I did! I'm thrilled about that. As mentioned earlier, there are millions of SNKRS users, making it a great experience. Moreover, this line exemplifies how NIKE stands out in our ability to create innovative, stylish products that connect with consumers.

Just when thinking about your price elasticity of demand, so recognizing the unit pressures you’re talking about with inventory, can you just talk about maybe the opportunity or order of magnitude for potential pricing you see? And then, Matt, any way just to parse out the change in wholesale performance this quarter between the undifferentiated partners and then the strategic partners that you’re continuing to support? Thanks.

Yes. Regarding the pricing question, I mentioned in my prepared remarks that we have taken some pricing actions in the second half. What I would say is that we evaluate the price value of our products on a seasonal basis and consider several factors in our decision-making. However, we have a long-standing relationship with our consumer. The price increases we've implemented in the second half are in the low single-digit range, which we believe is appropriate given the current marketplace and the rising input costs impacting our business. It's important to note that we continue to see strong growth in average selling prices across the entire marketplace, driven by higher full-price realization and lower markdowns. We are leveraging our inventory capabilities, optimizing our product placement both physically and digitally, and increasingly providing endless access to our strategic wholesale partners. All these efforts contribute to a higher level of full-price realization, which we see as a foundation for our operations rather than a temporary moment. This strategy is enhancing profitability for NIKE amid various disruptions. In response to your second question about undifferentiated versus differentiated partners, we have observed continued strong growth among our differentiated partners. They are enhancing the consumer experience and driving more demand, resulting in their weeks of inventory on hand being significantly lower than desired due to this high demand. Over the past three years, we have exited about 50% of our undifferentiated accounts while achieving strong double-digit growth. We intend to persist with this strategy, and as John mentioned in his remarks, we believe that supply-related reductions will likely accelerate the marketplace transformation toward NIKE and our key wholesale partners.

Great. Thank you so much. And really, really great color on the call today. Thank you. Matt, I wanted to just talk through the resumption in production and when you see inventory levels normalizing, assuming that production resumes through that October, November timeframe that you laid out. As you sort of think about your lead times, the low inventory levels, when do you think, in calendar year 2022, you’re going to feel really comfortable about having gotten caught up on the inventory that is holding back revenue growth here over the next few quarters? Thanks so much.

Sure. Well, Kimberly, our optimism stems from the fact that our factories are starting to have reopening plans approved. That has happened this week. We’re optimistic that we’re going to start to see production begin in October. Our experience from the COVID-related closures in China earlier in the pandemic and then in Indonesia earlier this quarter tells us that it will take time for those factories to ramp back up to full capacity. We’ve lost 10 weeks of production since mid-July. What we’re really focused on is, are our factory partners getting back to full capacity so that we can serve demand that we see in the marketplace. When we combine the lost production and the re-ramping plus the extended lead times, we feel optimistic that we’re going to see inventory supply improving as we exit this fiscal year and move into fiscal year '23. Our experience tells us that while this situation is going to be dynamic and it’s not going to be linear, that’s what we’re planning towards at this point in time.

Both Matt and I wish we had a crystal ball, but we don’t. One of the things we are showing in this very dynamic phase is that, regardless of what the future holds, we are capitalizing on it. We are doing what great sports teams do, which is confronting reality, making adjustments, showing agility, and executing in a way that allows us to emerge stronger. Last year, we experienced demand shocks with the closure of retail in the first phase of the pandemic. Now, we are facing supply shocks in the second phase of the pandemic this year. We will navigate through these challenges just as we did last year. I believe we are stronger today than we were 18 months ago, and we will be stronger 18 months from now than we are today. In the process, we are building our capabilities by leveraging our strengths and our leadership position. I would like to conclude this call by expressing my sincere thanks and appreciation for the 75,000 NIKE teammates worldwide, who are continually adjusting to the circumstances on the field, demonstrating teamwork, resilience, and creativity to serve our consumers, and continuing to innovate. That’s what we will keep doing, regardless of what the future brings.

Thank you, Kimberly, for the question, and thanks to all for joining us today. We look forward to speaking with you next quarter. Take care and stay safe.

Ladies and gentlemen, we thank you for your participation in today’s conference call. This concludes today’s conference call. You may now disconnect.