Good afternoon, everyone. Welcome to NIKE, Inc.'s Fiscal 2025 First 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, Vice President 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 us today to discuss NIKE, Inc.'s fiscal 2025 first quarter results. 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 non-public 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. Joining us on today's call is one speaker, NIKE, Inc.'s Executive Vice President and Chief Financial Officer, Matt Friend. We will start with prepared remarks, and then open up for questions. Today's call will be abbreviated as compared to past earnings calls. In order to allow as many of you to ask questions as possible in our allotted time, we would appreciate you limiting yourself to one question. I'll now turn the call over to Matt.

Thanks, Paul, and hello to everyone on the call. Before we get into a review of the first quarter, let me acknowledge that we are reporting our results in a transitional moment, as John retires as President and CEO; and Elliott Hill joins us as our new President and CEO on October 14th. First, we deeply appreciate John's contributions to NIKE. He has served on our Board, led our company through a global pandemic and meaningful supply chain disruption, accelerated our digital transformation, and initiated new NIKE community investments around the world. We thank him for all he has done to move NIKE forward. As we look ahead, we're excited to welcome Elliott back to NIKE. Elliott is a beloved NIKE veteran, who brings a powerful connection to our employees and culture, a deep love for our brands and a passion for sport. Over his 32 years with the company, he built a proven track record of leading our global teams, brands and businesses with significant expertise in delivering growth by bringing product and storytelling with impact into an integrated marketplace. Our Board believes that Elliott is the right leader to drive NIKE's next stage of growth. Having had the opportunity to work closely with Elliott for many years, he leads with a passion that inspires the best from the team. Our employees' response to this announcement has been tremendous. You can feel the energy and the enthusiasm walking around campus. And we've heard nothing but excitement from our teammates around the world, including our alumni network, as well as our partners. We all look forward to working with Elliott as he leads NIKE's next chapter. Given our CEO transition and with three quarters left in the fiscal year, we are withdrawing our full year guidance. We intend to provide quarterly guidance for the balance of the fiscal year. This provides Elliott with the flexibility to reconnect with our employees and teams, evaluate the current strategies and business trends, and develop our plans to best position the business for fiscal '26 and beyond. To that end, we have also decided to postpone our Investor Day. Now let me turn the discussion towards our current business. NIKE's first quarter results largely met our expectations set last quarter. We are moving aggressively to shift our product portfolio, create better balance in our business, and reenergize brand momentum through sport. That said, a comeback at this scale takes time. And while there are some early wins, we have yet to turn the corner. Today, I want to provide a deeper insight into the trends we saw in our first quarter. Then I will speak to the portfolio shifts that we are driving and the implications for our near-term performance. I will also touch on some of those early wins, including indicators to track our progress. And last, I will review our financial performance and Q2 outlook. Let's start with a deeper look into the first quarter. While Q1 revenue was largely in line with our plan 90 days ago, we delivered lower unit sales than we expected, partially offset by a higher ASP. Traffic declines across NIKE Direct were more significant than we anticipated. We saw particular softness in traffic on NIKE Digital, as well as in our partner stores in Greater China. As a result, retail sales underperformed our plan, including our wholesale partners, with slightly elevating marketplace inventories requiring higher levels of promotional activity in Q1 to drive conversion. This included the back-to-school period as our results underperformed the market. We saw store traffic improve in August and growth in factory stores in Q1, but the overall period fell short of our expectations. However, Q1 showed that we took an important step forward as we shift our portfolio to create better balance in our business. We have been intentionally reducing the proportion of our business driven by our classic footwear franchises, Air Force 1, Air Jordan 1, and Dunk. And as expected, NIKE revenue in Q1 from these franchises decelerated, declining more than the total business, as we tighten marketplace supply. We expect this trend to continue tempering our reported revenue over the coming seasons. Our timelines differ across each franchise, each geography and each channel. Overall, we have taken the most aggressive actions in NIKE Direct and especially, Digital. In Q1, these franchises were down nearly 50% versus the prior year on NIKE Digital, while we saw much better sales trends in wholesale. So we are actively rebalancing product allocations to our highest traffic channel in order to maximize franchise health and full price realization. In the near-term, this will have implications for certain dimensions of our business. Our men's and women's lifestyle business was planned down double-digits in Q1, and we expect these declines to continue through the year. The Jordan brand was planned down double-digits this quarter, and we expect Jordan to be down at the same rate for fiscal '25. And we expect NIKE Digital to decline double-digits in fiscal '25 versus the prior year. All taken together, these trends drove a mid-single digit headwind on Q1 revenue. As we look ahead, we are working to position new products in the path of the consumer, create scale for new ideas, and drive more balanced marketplace growth. Partner feedback on our future product pipeline has been very positive. I had the chance to meet with many of them at our Partner Summit in Paris during the Summer Olympics and directly hear their response to the products and stories that we have coming in our second half. We also gave them a sneak peek at what is coming in fall '25, deepening confidence in our accelerated pace of innovation to build a more compelling future product pipeline. Progress with partners will be accelerated through new brand momentum and new energy with consumers. But the multi-brand environment is very competitive today and it will take time to expand market share. This was reflected in our spring '25 order books, which came in roughly flat versus the prior year, a little lighter than we had planned. Our teams are now hustling to close out the upcoming summer season, closely engaging our partners as we finalize bookings. Now let's turn to some of the early wins that we are seeing, especially, as our teams get back on the offense in sport with consumers. This quarter, we saw growth in multiple sport dimensions, an indicator that we are gaining traction. This was led by men's fitness, men's global football, and men's and women's running footwear. In addition, two of our largest performance franchises, Mercurial and Global Football and the G.T. series in basketball delivered double-digit growth across all channels. We are especially encouraged by the momentum building in our Running offense. This has been one of our toughest fights over the past few years and it is one of our biggest opportunities. Our team's focus here first in driving our comeback. And more recently, men's and women's running footwear delivered positive growth in Q1, a meaningful improvement versus the prior quarter. The order book looking forward is strong with spring '25 footwear units set to grow double-digits versus the prior year. In North America, we were up double-digits this quarter with running specialty partners, and our holiday and spring order books will build on that strength. We also just launched a new campaign, one of our biggest Running brand investments in years, which will carry into fall and holiday. So far, consumer engagement has been very strong. Meanwhile, our ground game activations are creating energy and running communities around the world. In addition, our Pegasus 41 launch showed the impact that we create when we launch new ideas at scale, delivering mid-teens growth above last year's Pegasus model. And this is just the start, as we scale the franchise through multiple dimensions, Peg Trail, Peg Plus, and coming in spring, Peg Premium, which introduces visible full-length NIKE Air with more energy return than ever. Most importantly, we are most optimistic regarding the full product pipeline in Running across footwear and apparel that we will bring over the coming seasons. This includes a new maximum cushioning system in an iconic line, blending comfort and style for our softest, smoothest ride yet, a premium model that combines high-stack ZoomX foam and Zoom Air for a new sensation that had test runners raving; a refreshed lineup of performance running apparel, including new women's-led designs; the latest NIKE Trail models updated for even better traction and durability, and new franchises below $100 that scale innovation to more accessible price points. Looking more broadly across our product portfolio, particularly in footwear, we see clear indications of progress in accelerating newness and innovation. Q1 revenue from new footwear products was up strong double-digits versus the prior year. This includes multiple franchises that have scaled quickly based on unit growth over the past 12 months. For example, in performance footwear, Sabrina has grown roughly five times. Kobe has nearly quadrupled and Alphafly has almost tripled. Meanwhile, in lifestyle, what we call our look of running business, led by Vomero 5, V2K and P-6000 has grown more than four times over the past year. While this is not yet large enough to offset the declines elsewhere in our portfolio, we are gaining ground. As we look to the spring season, contribution from newness and innovation will take a significant step forward with growth in footwear units of mid to high-single digits versus the prior year. And over the coming seasons, we expect to see sequential gains and the percentage of newness and innovation as a mix of our total footwear business. As we move forward, we are continuing to invest to grow, while staying disciplined on costs. For our teams, this means tightly managing operating overhead and reallocating resources to maximize consumer impact and growth. You saw that this summer with our Paris Olympics campaign, Winning Isn't for Everyone. We led with the voice of the athlete on sport's biggest stage, backed by one of our biggest brand investments in years, as NIKE athletes dominated the medal count. NIKE owned over 60% of total share of voice during the games, resonating especially deeply with our athletes and Gen Z consumers. Most importantly, this summer was just the start, with the investment lined up behind a steady cadence of bigger, bolder brand storytelling to come. In addition, we are investing with our partners to elevate and differentiate our brand in retail. For example, last year, we partnered with DICK'S Sporting Goods to introduce an elevated women's fitness concept, which is generating impressive year-over-year comparisons in pilot doors. We also teamed up with Foot Locker to introduce a new concept, Home Court, in their doors with a shared vision to deliver a fresh new multi-brand basketball experience. By bringing the best of NIKE, we create sport-inspired distinction for consumers and deliver attractive returns for both NIKE and our partners. Together, we shape the kind of retail environments that drive competitive separation and segment the marketplace for growth, enabling us to serve consumers through strong assortments with full expression across each dimension of our portfolio. All told, we expect that the return to strong growth will take time, but we believe that we have all the right building blocks, especially, with Elliott now leading us forward. Now let me turn to our first quarter financial results. In Q1, NIKE, Inc. revenue declined 10% on a reported basis, and 9% on a currency-neutral basis. NIKE Direct was down 12% with NIKE stores up 1%, and NIKE Digital down 20%. Wholesale was down 7%. Gross margins expanded 120 basis points to 45.4% on a reported basis, primarily due to lower NIKE brand product costs, lower warehousing and logistics costs, and benefits from strategic pricing actions in the prior year. SG&A declined 2% on a reported basis, with accelerated investment in demand creation more than offset by a reduction in overhead expenses, primarily driven by wage-related savings. Our effective tax rate was 19.6% compared to 12% for the same period last year. Diluted earnings per share was $0.70. Next, let me turn to our operating segments. Given similar themes across many of our geographies, I will keep my comments here briefer than usual. In North America, Q1 revenue was down 11%, NIKE Direct declined 11% with NIKE Digital down 15%, and NIKE stores down 1%. Wholesale declined 11%, reflecting unfavorable shipping timing. EBIT declined 15% on a reported basis with gross margin expansion offset by higher investment in demand creation. This quarter's highlights included brand activations around a full summer of hoops. We engaged players and fans with our New York versus New York Series, our WNBA All-Star celebration, Jordan Grassroots Basketball in Chicago and L.A., and our Mamba League Invitational. In EMEA, Q1 revenue was down 12%. NIKE Direct declined 12% with NIKE Digital down 24%, and NIKE stores up 3%. Wholesale declined 11%. EBIT declined 15% on a reported basis. This summer in Paris, both NIKE and Jordan were unmissable, with our Olympics campaign just about everywhere you could look: on billboards, big screens, on the side of buildings and most importantly, across all of our retail touch points. In addition, Jordan introduced its new campaign with a six-week District 23 takeover in the city, a global one-on-one basketball tournament, and the brand's first-ever Twitch live stream, which drove over 10 million views, the biggest activation for any brand on the platform. In APLA, Q1 revenue was down 2%, NIKE Direct declined 4% with NIKE Digital down 15%, and NIKE stores up 9%. Wholesale declined 1%. EBIT declined 3% on a reported basis. This quarter, we celebrated the opening of our new NIKE and Jordan World of Flight Door in Mexico City, our largest retail space in Latin America and first dual brand shopping experience. Q1 traffic and sales for this concept far exceeded our plan, with consumers seeking out exclusive products, member-only experiences, and our latest women's and Jordan assortments. For Greater China, let me go a little deeper into this quarter's performance. Q1 revenue was down 3%, NIKE Direct declined 16% with NIKE Digital down 34% and NIKE stores down 4%. Wholesale grew 10%. EBIT declined 4% on a reported basis. This summer, retail sales moderated across the industry, and NIKE was not immune as traffic decelerated in our channels with lower sell-through rates. This has resulted in elevated inventory in the marketplace in an already promotional environment. That being said, NIKE continues to be the number one sports brand in China, and we continue to create brand distinction when we bring our best stories and products to local consumers. Over the summer, we drove incredible social buzz with storytelling around NIKE athlete, Zheng Qinwen, who took home gold as China's first Olympic Tennis champion. Jordan's first athlete tour in China since the pandemic was also a big success as Luka, Tatum, Paolo, and Zion connected with young fans in Shanghai and Beijing. Top innovation and sport performance continues to resonate. This quarter's standouts included Peg 41, Alphafly and Sabrina 2. In addition, consumer response to our latest Protro release proved that Kobe remains one of the most beloved athletes in China. While our outlook for the near term has moderated, we remain optimistic about the long-term opportunities for sport and for NIKE in China. Now let me provide specific guidance for the second quarter. We expect Q2 revenues to be down in the 8% to 10% range. We expect Q2 gross margins to be down approximately 150 basis points, with higher promotions, channel mix headwinds, and supply chain deleverage more than offsetting lower product costs and a decreasing benefit from strategic pricing actions. We expect SG&A to be roughly flat versus the prior year, with increased demand creation investment largely offset by tighter operating overhead. We expect other income and expense, including net interest income to be $30 million to $40 million, reflecting lower interest rates. And we expect our effective tax rate to be in the high teens range. Although we will not be providing full year guidance for the remainder of this fiscal year, we do want to provide additional color to help you understand our latest read of NIKE's business trajectory, as we see it today prior to our leadership transition. Looking forward, our revenue expectations have moderated since the start of the year, given traffic trends on NIKE Digital, retail sales trends across the marketplace, and final order books for spring. Franchise management actions will continue throughout the year, and we expect a similar impact in scale to what we experienced in Q1. However, we continue to see indications of slight second half improvement in revenue trends versus our first half, as we plan to introduce and scale newness and innovation across the marketplace. We now expect gross margins to decline versus the prior year due to incremental headwinds based on the previously mentioned factors. We intend to remain disciplined on cost, especially operating overhead, while we invest to fuel brand momentum. Before I wrap, I'd like to finish with this. Throughout our history, NIKE has always faced pressure. NIKE was born through adversity. Every obstacle, every setback was an opportunity to learn, to adjust and to improve. This is the foundational mindset at NIKE, inspired by athletes and competition and today is no different. Adversity creates sharper focus, leading to innovation and new growth. We will continue to address the challenges head on, and we look forward to doing so with Elliott's leadership. With that, let's open up the call for questions.

Thank you. We will now begin the question-and-answer session. Your first question comes from Bob Drbul. Please go ahead.

Hey, Matt. Good afternoon.

Hey, Bob.

I was curious about the inventory situation, especially regarding the elevated levels in China. Can you provide more details on the regional inventory status, particularly in North America?

Sure, Bob. I'd start by saying that as we look at the performance of our business over the last couple of seasons, retail sales have underperformed plan and that's a statement about the overall portfolio. It doesn't specifically relate to just the classics. While we saw growth in retail sales in North America and China in Q1, we are seeing slightly elevated inventory as a result of the retail sales plans falling behind. And so, as we've looked at our outlook for the remainder of the year and the commentary around trends moderating, we've taken into consideration a more muted point of view on retail sales trends and also the gross margin implications of needing to not only be more promotional to work through some of this elevated inventory, but also acknowledging the fact that the outlook for the balance of the year is going to require us to be more promotional as we're scaling new ideas and concepts while working through the rest of the product portfolio.

Your next question comes from the line of Alex Straton with Morgan Stanley. Please go ahead.

Perfect. Thanks a lot, Matt. I just wanted to drill down on this kind of unit disappointment in the quarter. Have you guys identified what exactly like the biggest challenges or I guess, problem areas are that you didn't expect a few months ago? And then just zooming out, as you look forward, have you guys identified the key metrics that you're monitoring just to gauge comeback progress throughout the year?

Yeah, Alex. I mean, overall, when we look at the business in its total, we are encouraged by the performance that we've seen on the new products that we brought to market. And we've delivered, I mentioned, we delivered double-digit growth in our new products. And it continues to give us encouraging signs as we see the team's focus on sport and performance, and the way that those products are landing in the marketplace and the growth that we're driving. As it relates to our performance in the quarter and the unit misses, I would start by saying that in Greater China, we did see performance in the quarter underperform our plan. And so that was one factor that impacted our unit decline. What I would say more broadly than that is just general macro across the different geographies. We just saw more softness for another season and so our teams are on it. They are focused on moving through these slightly elevated inventories. They're not in a place that causes us significant concern at this point in time, but they do require us to be proactive and to take action. And that's what we're focused on doing while we bring newness and innovation at a greater scale with greater impact in the second half of this year. On Digital, we did see, we were down 20% in the quarter in Digital, and that was largely driven by the three classic franchises being down nearly 50% versus the prior year. And the sales trends for those franchises in our wholesale channel were substantially better. And so that also had an impact on our Q1 results. But as I said, we planned for the declines on those big three franchises, and we're continuing to manage the inventory of those franchises carefully, beginning with NIKE Digital so that we can put the product where the traffic is, and we can drive high full price realization on that product in the right channels in the marketplace in order to continue to manage the long-term health of those franchises.

Your next question comes from the line of Michael Binetti with Evercore ISI. Please go ahead.

Thank you for all the support. Matt, I have a quick question regarding the near term. You mentioned that the spring order books were lower than expected, yet you pointed out some positive aspects of the second half revenue outlook compared to what was anticipated 90 days ago. Can you help clarify those two statements? Looking a bit further ahead, there was an earlier plan for direct-to-consumer to increase and improve the company's margins as margins in the DTC segment surpassed those in wholesale, following significant investments to prepare the DTC business for growth. Are those investments currently in place, and can they be leveraged over time, or are there aspects of the DTC business that still need to develop as you aim to return to growth in that sector?

Sure, Michael. Well, starting with the spring order books, what I mentioned is that our order books came in with our partners at flat versus the prior year. And it was a little light relative to what we expected. What we're seeing in there that we're encouraged by, very excited by, is the fact that we're seeing newness and innovation scaling in the second half. And so, I mentioned that footwear units related to newness and innovation, we define that as products that have been introduced, they are either new or have been introduced within the last eight seasons, are growing mid to high-single digits in the second half and, in particular, in that spring season. Underneath that, where we look with the most optimism and where we've been focused first is running. I talked about the momentum that is building in running. And this is where our team started focusing first more than a year ago. This quarter, men’s and women's running footwear was up and it was the first time we've got positive growth in several quarters. When we look at the order book for spring footwear, men's and women's running footwear is growing double-digits. Our North America Running specialty partners were up double-digits in Q1, and the order books for holiday and for spring are giving us indications that we're going to sustain that momentum. And when you look at the way we're investing behind the brand, the ground game that we're operating, if you visited any running events around the world, I recently ran a half marathon and saw NIKE quite present, but I know they were very present over the Berlin Marathon and multiple activations around the world. We're focused on being present with runners in their communities in order to truly land the impact of our product portfolio. And then I talked about the pipeline of what's coming. And we're really excited about a number of things that are coming in our product pipeline, including new cushioning innovation, new premium models that are blending foams and Zoom Air for a new running sensation. We've completely refreshed the lineup of our performance running apparel, which has always been a strength for NIKE, and so we're excited about the product that we're bringing there. The trail models that we've got are continuing to perform well in the marketplace. And we're excited about the growth that we see in the running segment around trail. And then lastly, we've talked about the core opportunity, which we define as below $100. And our teams have been focused leveraging our speed lane to be able to get product to market faster at below $100. And this represents several billion dollars' worth of revenue that we walked away from over the last couple of years. And our partners are very excited about the new product that's coming in this dimension. So Running and Core are the two areas where we're most optimistic that we see momentum building from an innovation and a newness perspective. As far as your question about DTC and the investments that we've made in DTC, we continue to see opportunities to more profitably run our Direct business. We talked about the investments that we were making against expectations for further growth, and we were largely meeting the demand that the consumer was driving towards those channels. We continue to see opportunities to drive efficiencies in the profitability of our Direct business. And that includes a higher mix of full-price product in our direct channels, but also leveraging supply chain capabilities against the capacity that we’ve in effect built to serve our DTC business. As we’ve talked about for the last couple of quarters, our focus is on driving growth across the entire marketplace, balanced growth across the entire marketplace. And that is where our teams have been focused, and that’s where you’ll continue to see us trying to drive growth and improve profitability across both dimensions of the marketplace.

Your next question comes from the line of Simeon Siegel with BMO. Please go ahead.

Thanks. Hey, good afternoon, guys. Matt, any – thank you for all this. Any color you'd be willing to provide or just order of magnitude on how large each of the core franchises that you are resetting are at this point and just maybe where you'd like to take them? And then just revenues were down double-digits, but the gross margin still grew nicely this quarter. So any context on the margins of those franchises that are being reset versus the rest of the product? Thank you.

We've been focusing on creating a better balance in our business over the past couple of quarters. Particularly this last year, we've recognized that our portfolio has become too concentrated in traditional styles. Our teams have been working to introduce new elements to these classic products, which has generated significant consumer demand. However, the heavy concentration on these styles in our portfolio has been an issue. Classic footwear is a crucial part of what we offer, and we internally refer to these products as icons due to their cultural relevance. This quarter, we made significant progress in reducing our reliance on these products, which led to their decline outpacing the overall business as we work to realign our portfolio. We plan to continue this effort in the upcoming quarters. I want to note that we anticipate a headwind similar to what we saw in the first quarter, expecting a mid-single-digit revenue impact for the remainder of the year as we manage these franchises back into a more balanced position within our portfolio. These long-standing products do yield attractive margins, especially through Digital sales, which is why managing margins and the insights we've shared about the year's outlook stem from our initiative to enhance product variety, particularly in the NIKE Direct and Digital channels. While there's a temporary pressure on margins as we adjust the portfolio, these classic products will still play a vital role moving forward. Our main goal is to drive innovation and introduce new offerings to energize and engage our consumers more effectively.

Your next question comes from the line of Lorraine Hutchinson with Bank of America. Please go ahead.

Thank you. Good afternoon. How would you characterize the receptivity of your wholesale partners to get behind some of the new launches, and how are your partners feeling about the level of inventory in the wholesale channel now and for the spring season?

Yeah. It's a great question, Lorraine. We've been working, our teams have been closely engaging with our partners since we acknowledged some of the missteps related to over centering on Direct. And I think the momentum that we're building with our partners is very encouraging. I referenced specifically the interactions that I had that I was personally a part of in Paris during the Summer Olympics. But our geography teams, Tom Petty, our partners are leaning in, in order to be able to reignite growth and momentum for NIKE on the wholesale side. And I wouldn't drive past the fact that what's most important in wholesale is, we've got to have a breadth of distribution segmented to create and demonstrate the full dimension of the NIKE portfolio across men's, women's, and kids, across sport dimensions and the Jordan brand. And one of the ways that we do that is, we invest with our partners to elevate and differentiate our brand at retail. That isn't a new playbook for NIKE but it's one that enables us to play to our strengths. And we've got a couple of proof points that we're already working on with partners on the sporting goods side. We're excited about the women's pad and concept, the women's fitness concept that we've been testing with DICK'S in their House of Sport. It's set to be ready to pilot, given the returns that it's driving for both us and for DICK'S. We're excited about bringing new energy to basketball with Foot Locker and you remember the House and Hoops concept, coming forward now with this new Home Court concept. And to be honest with you, maybe I'll take an opportunity to tie this a little bit back to Elliott because this is a similar approach that we took when we ignited growth in North America back in 2010. When we say things like we need to sharpen our focus on sport, it doesn't just mean that we need to sell more performance products. What it means is that we have to create deeper connections with consumers through sport and that's where our relationship starts. And when we create deep connections with consumers through sport, that enables us to extend into sportswear and lifestyle. And one of the things that we did in North America back in 2010 when our business was stagnating from a growth perspective, and Elliott was a new General Manager at that time, was we reprofiled the marketplace around sport to ignite growth in the marketplace. The net result was double-digit growth over the next four years and really set the foundation for NIKE to grow throughout the decades of 2010. And so that is where our focus and our attention has been. Digital is still and Direct is still an important part of our overall marketplace strategy. Having direct connections with consumers is strategically important. But our consumers want to connect directly with NIKE, whether it's in our channel or with a partner. And so, we’re going to continue to focus to elevate and to raise the marketplace and bring the best of NIKE to the market.

Your next question comes from the line of Paul Lejuez with Citi. Please go ahead.

Hey, thanks, guys. You mentioned Running up double-digits in North America, your Running specialty partners. Can you talk about how far that business has fallen from peak to trough? How much do you think you have to regain in that channel within North America? And also, the second quarter gross margin decline that you mentioned, can you just dimensionalize that by region, where your bigger pressure points are? Is it across the board? Where are the larger declines versus smaller declines? Thanks.

On your first question, Paul, I want to acknowledge that we've lost market share in the Running specialty channel. More than four years ago, we reduced our engagement with that channel, which led to these market share losses. However, investing and connecting in the Running specialty channel is important not just for driving revenue but for building a community with runners. While we have had great success at the top level with marathons and track events, our progress with everyday runners hasn't been as strong. That's where our team has focused their efforts over the past year. The statistics I've mentioned serve as indicators of the momentum building in this area of the business, which is crucial for NIKE. At our core, NIKE is a running brand, and we must succeed with runners. Our commitment to reinvesting in these channels and working closely with our partners daily will help change the trajectory of our business. The indicators I've shared are early signs of growing confidence in this momentum, and we are excited about the product pipeline we have coming. This will expand from Running specialty into sporting goods, and you'll see innovations transitioning into lifestyle products based on our market strategies. We're very encouraged by the momentum in running. Regarding the second quarter margin question, there are several factors impacting the margin between Q1 and Q2. The increased promotions, channel mix challenges, supply chain issues, and marketplace management actions are affecting the whole portfolio. There's no specific geography that stands out in terms of challenges. We're also noticing a reduced benefit from product costs in Q2 compared to strategic pricing actions taken last year, which were still evident in Q1. Additionally, we're closely monitoring the East Coast port strike, as it poses a potential risk to the current discussion, although we haven't accounted for it in our timeline yet.

We have time for one more question, and that question comes from Brooke Roach with Goldman Sachs. Please go ahead.

Good afternoon, and thank you for taking our question. I was hoping we could dig in a little bit more on the China business, and what you're seeing between the read on the macro and what's specific to NIKE. How should we be thinking about your inventory levels by channel in China and what types of engagement are you seeing on some of your franchise products versus your new innovation with the Chinese consumer today? Thank you.

Our traffic was lower across all channels this quarter. Analyzing our performance, it’s clear that NIKE has faced challenges from consumers in Greater China. The marketplace has been competitive, but we have managed our inventory carefully, leading to some improvements in full price realization. However, this quarter we adopted a more aggressive promotional strategy in response to the soft traffic trends we observed industry-wide. Our focus on inventory management is evident, particularly in wholesale, where our revenue increased by 10% in Q1, although this was partially influenced by shipping timing. Retail sales did grow, but not at the same rate. We are proactively managing our order books and providing margin assistance to move excess inventory while ensuring our partners are ready for the new products and innovations scheduled for the latter half of the year. In the first quarter, our leading performance innovations, such as Peg 41 and Alphafly 3, were well-received, and we observed growth in Running in China. Products like Sabrina 2 and KD connected with consumers, and we are excited about reintegrating the beloved athlete Kobe into our product line, which has garnered positive energy in China. We believe strong differentiation in the marketplace is crucial, whether against global or local competitors, by showcasing our best stories and products. Demand for our classic franchises in China, particularly Jordan, was robust, and we are carefully monitoring that segment. Our primary focus remains on performance and innovation, which have a larger share of business in China than in some other regions. Looking ahead, even though we have adjusted our short-term expectations for China for the rest of the year, we are optimistic about the long-term growth prospects in the Chinese sports industry, as participation in sports continues to increase. We intend to leverage our strengths in innovation and new product offerings, and our retail investments position us uniquely in this market. We are enhancing our capabilities tailored specifically to China, focusing on product development, digital platforms, and supply chain improvements to better serve the local consumer at the swift pace required. Overall, we are optimistic about the long-term potential for NIKE in China and the growth of sports there.

And ladies and gentlemen, that does conclude today's conference call. Thank you for your participation, and you may now disconnect.