Matt Friend
Chief Financial Officer at NIKE
Thanks, John, and hello to everyone on the call. NIKE's 50th year has been a year of transformation. Through dynamic conditions, our team has remained focused on what we can control, continuing to lead with speed, agility and responsiveness. Most importantly, we stayed focused on accelerating our strength and building NIKE for the future. In this environment, what guides us is a relentless focus on creating value for our consumer and what fuels our confidence is the way our consumer is responding.
Fiscal '22 was our largest revenue year ever, even with supply constraints challenging our ability to serve consumer demand. We are optimistic as we enter fiscal '23, with our source base fully operational, production surpassing pre-pandemic levels and inventory flowing again into our largest geographies.
As we set the foundation for another year of strong growth, I'd like to provide some broader context around our strategic transformation. Two years ago, we introduced a bold new phase of our strategy, our Consumer Direct Acceleration. In the early months of the pandemic, we set our sights beyond simply navigating through short-term volatility. Instead, we outlined a clear vision to pursue even further competitive separation by expanding our digital advantage, reshaping the marketplace of the future, and creating deeper, more direct consumer relationships.
Today, NIKE's continued momentum shows that our strategy is working. As we look forward, let me briefly highlight 3 of NIKE's foundational elements for long-term value creation, our global portfolio, our consumer-led digital transformation and our expanding direct-to-consumer operational capabilities.
First, one of NIKE's greatest strengths is our unrivaled global portfolio. Together, NIKE, Jordan and Converse, represents 3 of the world's most connected consumer brands, dimensionalized across sports and lifestyle, footwear and apparel, up and down price points, throughout geographies at the center of cultural relevance. Today, NIKE is the #1 cool and #1 favorite brand in all 12 of our key cities around the world, leading as the champion for athletes and sport. With a sharpened consumer construct across men's, women's and kids, we're deepening our sport focus, expanding our product pipeline, and accelerating our long-term growth potential.
The next chapter of our partnership with Kobe Bryant and the Bryant family is just one example of how we continue to bring new energy and dimension to our portfolio. Jordan brand's momentum has also been unstoppable, with some of the most exciting young athletes in sport and some of the most iconic products in the world. Since fiscal '20, Jordan Women's has tripled. International geographies have grown over 60% and apparel has grown over 50%. Now with approximately $5 billion in revenue, fiscal '22 was Jordan's biggest year ever, with epic growth potential ahead.
Converse also delivered incredible milestones in fiscal '22. Product and storytelling through the lens of youth and creativity are resonating deeply with growing strength among women consumers. As Converse scaled its digital offense and invest in new product creation, the impact is clear with global revenue approaching $2.3 billion, total digital penetration reaching 27% globally and EBIT more than doubling since fiscal '20. Across all 3 of our brands, we're driving a more direct, digital and differentiated future and I wouldn't trade our position with anyone.
Next, our consumer-led digital transformation is driving long-term growth and value. A more digitally connected NIKE is a more valuable NIKE. Today, our own digital business, representing over $10 billion in revenue, is more than double in size versus pre-pandemic levels. After increasing market share and gaining 3 percentage points from the prior year, NIKE Digital now represents 24% of total brand revenue. More importantly, we are accelerating the pace and scale of NIKE's direct consumer connections.
With growing digital traffic and NIKE App downloads, our apps now represent almost 50% of total digital demand. In turn, increased digital engagement is translating into more repeat buyers, a higher buying frequency and increased average order value, ultimately driving higher lifetime value through membership. And as retail consolidation continues and consumers converge around fewer digital platforms, a distinct NIKE consumer experience is driving more direct connections, positioning us well for long-term growth.
Lastly, we are transforming our operating model with new capabilities in order to move at the speed of the consumer. This year, we will begin to see value from our biggest investment in NIKE's Digital transformation, our new ERP. As we shift to an increasingly direct-to-consumer future, a new ERP will be foundational for increasing speed and agility across our supply chain. This will give us real-time visibility to inventory across our network, plus dynamic transactional capabilities to optimize consumer demand and inventory productivity. We will go live with our new ERP in Greater China in July and continue building and testing in North America for deployment in fiscal '24.
We will also see a new consumer marketing offense in action in fiscal '23. Through new capabilities activated in partnership with Adobe, we will unlock additional productivity and demand creation and member retention across our NIKE ecosystem. We have started testing audience segmentation in North America with real-time data and personalized journeys on the NIKE app with plans for further expansion in the coming months.
In Greater China, we are also accelerating our digital capabilities, building on our 40-year history in the market with an ecosystem from China and for China. In fiscal '23, we will deliver a new suite of Converse and sport activity apps, deepening our connections with Chinese consumers through an enhanced user experience, including locally relevant features across our digital apps, services and our owned and partner retail stores.
Finally, we continue to scale our Express Lane, which combines hyper local consumer insights with improved responsiveness and speed to market. In fiscal '22, Express Lane drove approximately 25% of total NIKE Brand revenue with higher profitability. We expect to build Express Lane into a larger portion of our business in fiscal '23 and beyond.
Now let me turn to NIKE, Inc. fourth quarter financial results and operating segment performance. In Q4, NIKE, Inc. revenue declined 1% and grew 3% on a currency-neutral basis. This was led by 11% growth in NIKE Direct, offset by a 3% decline in wholesale. NIKE Digital grew 18%, fueled by strong demand across our app ecosystem.
Fourth quarter reported gross margin declined 80 basis points versus the prior year. This was primarily due to specific actions taken to manage supply and demand in Greater China following COVID-related disruption as well as elevated freight and logistics costs. Headwinds were partially offset by benefits from strategic pricing actions, favorable foreign currency exchange rates, improved NIKE Direct margins and a higher full price mix.
SG&A grew 8% in Q4, primarily due to strategic technology investments, increased NIKE direct variable costs, wage-related expenses and increased demand creation expenses. Our effective tax rate for the quarter was negative 4.7%. This was due to a shift in our earnings mix and a noncash onetime benefit related to the onshoring of our non-U.S. intangible property.
Fourth quarter diluted earnings per share was $0.90. This includes a $0.10 nonrecurring noncash charge related to both the deconsolidation of our Russian operations as well as the transition of our Argentina, Chile and Uruguay businesses to a strategic distributor model.
Finally, inventories were $8.4 billion, up 23% compared to the prior year period. This was driven by elevated in-transit inventories due to extended lead times from ongoing supply chain disruptions, partially offset by strong consumer demand.
Now let's move to our operating segments. In North America, Q4 revenue declined 5% and EBIT declined 18%, in line with our expectations as we lapped supply shifts in the previous year. Elevated ocean freight and logistics costs continue to dampen near-term profitability in this geography. NIKE-owned inventory grew 30% versus the prior year, with extended lead times causing in-transit inventory to be 65% of our total inventory at the end of the quarter.
Wholesale revenue declined 12% due to inventory supply constraints. Strong marketplace demand drove closeout units down double digits versus the prior year. NIKE Direct grew 5% versus the prior year, delivering its highest quarterly revenue ever. Marketplace channel growth was led by 11% growth in NIKE Digital with another quarter of historically low markdown rates and lower available inventory supply.
NIKE Digital total penetration reached 27% for the quarter, led by strong NIKE app growth. Even with lean available inventory, our power franchises continue to resonate deeply. Pegasus led the wafer performance footwear, Jordan launch delivered a record-breaking quarter and classics such as Dunk and Blazer drove strong full price growth. Meanwhile, we continue to test and learn across our newest retail concepts, such as our NIKE Live doors, which are increasing member buying amongst women.
In EMEA, Q4 revenue grew 20% on a currency-neutral basis. EBIT grew 63% on a reported basis. With broad-based growth across channels, consumer dimensions and product engines, NIKE Direct grew 25% on a currency-neutral basis, powered by healthy retail traffic as we anniversary COVID-related closures from the prior year. NIKE Digital grew 21%, driven by positive launch sell-through, improved full price selling mix and lower markdown rates.
Sport continues to power our EMEA marketplace, highlighted by growth in running and fitness, performance franchises such as Metcon and Mercurial and apparel launches such as the Alate bra in women's. Looking ahead, EMEA will kick off the most unprecedented 12 months of global football in NIKE's history, starting with the Women's EURO Champs this summer, Men's World Cup in the fall and Women's World Cup next summer, NIKE is meeting the moment with a complete offense, including new kit launches, new training and lifestyle assortments and a new Mercurial, Tiempo and Phantom footwear innovations across men's, women's and kids.
Next, I'll provide some deeper color around our results in Greater China. In Q4, revenue declined 20% on a currency-neutral basis, and EBIT declined 55% on a reported basis. This follows the region's most widespread COVID disruption since 2020, impacting over 100 cities and over 60% of our business. As conditions shifted, our experienced local team acted quickly and decisively. We leveraged the diverse logistics network and strong local partnerships, returning to 100% capacity at our central logistics center within 3 weeks.
Our marketplace team also adjusted inventory to meet digital demand. As a result, NIKE Digital landed Q4 with low single-digit growth. Despite a dynamic operating environment, NIKE extended its leadership position as Chinese consumers' #1 cool and #1 favorite brand. We saw this translate into positive business impact on NIKE Tmall Super Brand Day, which drove 90% number demand penetration and nearly 1 billion impressions. NIKE also created a clear separation on 6/18 as the undisputed #1 store and #1 brand on Tmall sport channel, outperforming the market. In addition, as lockdowns lifted in specific trade zones in late April, May and early June, we saw improved store traffic and overall consumer demand.
Key footwear franchises continue to win in the marketplace, led by G.T. Cut as the #1 style in performance basketball and Pegasus 39, which drove strong results in men's and women's running. Express Lane also drove incredible sell-through with locally inspired launches, such as the Air Force 1 logo and the head-to-toe street dance pack in footwear and apparel.
As I mentioned earlier, we took specific actions in Q4 to recalibrate forward-looking supply and demand, prioritizing the return to a healthy pull market by the end of the second quarter. While there may be near-term risk of further COVID disruption, longer term, we continue to be encouraged by another quarter of brand momentum in the marketplace.
As we turn to APLA, Q4 revenue grew 24% on a currency-neutral basis and EBIT grew 31% on a reported basis, reflecting our largest quarter ever in the geography. We saw double-digit currency neutral growth across Korea, Mexico, Southeast Asia and India and Japan. NIKE Direct grew 43% on a currency-neutral basis, led by 59% growth from NIKE Digital. Membership fueled double-digit growth across all territories as our sneakers app drove its best ever quarter in Japan, Korea and Mexico.
We also saw our biggest quarter for women's, led by performance running, classics and lifestyle apparel. Kids led the way within NIKE Digital, up nearly 100% from last year. We're expanding support for a new generation, driving strong results with proven franchises such as the Court Borough plus newer innovations such as Dynamo GO.
Now I'll turn to our financial outlook for fiscal '23. We enter the year confident in our brand strength, consumer connection, product pipeline and normalizing inventory supply into a healthy pull market in North America, EMEA and APLA. We continue to see momentum against our largest growth drivers and our most iconic product franchises. At the same time, we are closely monitoring consumer behavior, and the implications of high inflation on near-term economic growth and consumer demand.
We are also taking a cautious approach to Greater China, given uncertainty around additional COVID disruptions. As such, we have factored various risk scenarios into our guidance for fiscal '23. We expect revenue for the full year to grow low double digits on a currency-neutral basis, partially offset by foreign exchange headwinds of approximately 400 basis points.
In the first quarter, we expect real dollar revenue growth to be flat to slightly up versus the prior year due to COVID disruption in Greater China and more than 500 basis points impact from foreign exchange translation. We expect gross margins to be in the range of flat to declining by 50 basis points versus the prior year with a wider-than-usual range reflecting our consideration of a number of scenarios.
We expect to benefit from mid-single-digit pricing actions and continued gains from our shift to a more direct business, offset by another 100 basis points headwind from elevated ocean freight costs, increased product costs, discrete supply chain investments and normalization of historically low markdown rates. We expect foreign exchange to be a 30 basis point headwind on gross margin due to strength in the U.S. dollar, largely offset in fiscal '23 by favorable hedge rates versus current spot rates.
We expect gross margin pressure to exceed 100 basis points in the first quarter of fiscal '23, both as we recalibrate supply and demand in Greater China and as we anticipate higher promotional activity to sell seasonal inventory, which has arrived late due to a combination of factory closures and longer transit times.
We expect SG&A to increase high single digits to low double digits as we continue to invest in our people, our brands, new stores and our transformational capabilities. And lastly, we expect the fiscal '23 effective tax rate to be in the mid-teens range.
As we move forward, we will stay focused on what we can control and continue managing the business for the long term. This includes leveraging our scale and financial strength, optimizing supply and demand and most importantly, creating value for our consumer from the products we design to the stories we tell, to the experiences that we deliver. Our consumer-direct acceleration is working. Our long-term vision has never been more clear. And if there is anything that's 50 years of growth have proven, it's that with the right team and the right strategy, the future is ours to create.
On that note, I'd like to close with a heartfelt thank you to the team that makes it all possible, the people behind the art, science and magic of NIKE. Our team is and always will be NIKE's greatest competitive advantage. And as proud as we are of all that NIKE has achieved over the past 50 years, what excites us most is what comes next.
With that, let's open up the call for questions.
