Matthew Friend
Executive Vice President & Chief Financial Officer at NIKE
Thank you, John, and hello to everyone on the call. NIKE has become more agile, responsive and resilient over the past two years through the operational capabilities and playbook that we have developed to navigate the unexpected. This past quarter, the operating environment shifted rapidly as the latest COVID variant presented new challenges to business operations. And our teams around the world were prepared to do what was necessary to continue to serve the consumer.
Our ability to optimize near-term performance through heightened levels of volatility while continuing to make strategic progress on Consumer Direct Acceleration reinforces NIKE's positioning as a portfolio of leading brands with unlimited potential. Marketplace demand continues to significantly exceed available inventory supply, with a healthy pull market across our geographies. When inventory supply is available in region, we are quickly moving it to the appropriate channels to serve consumer demand.
Consumers continue to shift towards digital to find the products they love, and NIKE's digital experience continues to build deep consumer connections and capture digital market share.
Now let me briefly update on the supply chain. All factories in Vietnam are operational, with total footwear and apparel production in line with pre-closure volumes and our forward-looking demand plans. Nearly all of our supplier base is operational without restrictions, and we are working closely with our partners around the world to navigate through the most recent risks related to COVID.
Inventory supply in our geographies is beginning to improve from here. Transit times, however, remain elevated. And in the case of North America, transit times in the third quarter have worsened. We have taken numerous actions to address these challenges, and in many cases, to protect against lead times increasing even further. Despite these ongoing challenges, we have been able to mitigate our transit delay impact by nearly four weeks versus industry averages. I am so proud of how our teams continue to respond, demonstrating how to win in a dynamic and rapidly changing environment.
Now consumer demand for all three of our brands, NIKE, Jordan and Converse, remains incredibly strong. Our growth in the third quarter would have been even higher if we had greater quantities of available inventory to meet marketplace demand. Across the marketplace, holiday retail sales finished strong, and spring retail sales are off to a great start, fueled by strong demand for performance men's running, Air Jordan 1, classics footwear and our apparel fleece franchises. We are also sustaining a higher full-price mix with year-over-year improvement in markdown activity. NIKE Digital has seen improvement in conversion rates and lower customer returns despite having lower levels of available inventory in our most desired product franchises.
And in Greater China, we saw improvement in full price realization versus the prior season. Speaking of product, we continue to refresh and reimagine our most iconic franchises through design, collaboration and creative storytelling. We are expanding the contribution of our Express Lane in all geographies to make more locally relevant product on shorter lead times, yielding higher rates of sell-through and profitability for NIKE and our partners.
We continue to deliver a consistent flow of product innovation in performance sports like running, basketball and training and through platforms like ZoomX, FlyEase and with the Space Hippie with crater foam. Our product is our most valuable form of demand creation, and we have a highly loyal and engaged audience eager to share in the stories we have to tell around our athletes and products.
This quarter, the NIKE Brand registered as both the number one cool and number one favorite brand in all 12 of our key cities around the world. Recent product announcements ranging from our collaboration with Drake on the NOCTA line of apparel and sneakers. To the Ted Lasso, AFC Richmond kits for the show's third season speaks to the depth of our cultural reach. Our brands live at the intersection of sport, media, music and increasingly, technology, enabling us to be highly relevant to today's youth.
As I've said repeatedly over the past year, NIKE's market opportunity is larger than ever. Consumer interest in sport, health and well-being has never been greater. And consumers' desire to wear athletic inspired footwear and apparel in more moments of their lives is here to stay. NIKE will always be a growth company, fueled through innovation to help all athletes achieve their full potential.
Now continuing with the theme of growth, John said earlier that our marketplace strategy is a growth strategy. And so I'd like to go a little deeper on where we are in our journey to create the marketplace of the future, including how we have managed our wholesale portfolio.
Over the past four years, we have reduced the number of wholesale accounts worldwide by more than 50% while delivering strong revenue growth through NIKE Direct and our remaining wholesale partners. We are now moving into the next phase of our marketplace strategy. We have finished communicating the big account pivots. And our go-forward growth plans are aligned with our wholesale partners.
Wholesale partners play an integral role in our future marketplace, first, to authenticate our brands and then to create scale of distribution through a consistent consumer experience across a larger retail footprint. We will drive healthy wholesale growth with our remaining wholesale partners and recapture dislocated demand by elevating our partner's retail environment and digitally connecting NIKE membership with their retail experience.
Take, for example, our collaboration with James Whitner's Whitaker Group, owner of Social Status and other sneaker boutiques. We recently partnered with The Whitaker Group to develop unique silhouettes of Jordan and Dunk products as well as produce SNKRS Live content to connect our brand to important communities. We are committed to driving growth with partners like this as they create authentic, deeply connected consumer concepts in key cities and communities around the world.
NIKE Digital continues to be our fastest-growing component of the marketplace. This quarter, downloads of the NIKE mobile app accelerated, and member buying frequency and average order values improved again as we continue to test member engagement across activity, content, community and commerce.
In Q3, NIKE Digital gained 3 points from the prior year and now represents 26% of our total NIKE Brand revenue. We're investing in NIKE stores to specifically address gaps in distribution to serve the growth opportunities we see in women's apparel and Jordan. Our NIKE Live concept is showing promising levels of productivity per square foot, store profitability and new member acquisition. We continue to obsess over the consumer experience and perfect the concept for her to maximize the incremental growth opportunity in the marketplace.
We will also begin testing a Jordan-only concept in North America in fiscal '23, leveraging a popular consumer experience that has been wildly successful in Greater China, the Philippines and Korea. Our approach is to first pilot these new concepts, iterate and perfect, and then move to scale.
Since the onset of the pandemic, we have seen how creating the marketplace of the future will deepen our connections with consumers, fuel marketplace growth and expand the profit pool for NIKE and our wholesale partners.
Now let me turn to the details of our third quarter financial results and operating segment performance. NIKE, Inc. revenue grew 5% and 8% on a currency-neutral basis, led by 17% growth in NIKE Direct. Wholesale returned to growth, up 1% on a currency-neutral basis. NIKE Digital grew 22%, fueled by strong demand through our NIKE app. NIKE-owned stores grew 14% with significant improvements in traffic during the quarter.
Gross margin increased 100 basis points versus the prior year, driven primarily by higher NIKE Direct margins due to lower markdowns, favorable foreign currency exchange rates and a higher full price mix, partially offset by increased freight and logistics costs.
SG&A grew 13% versus the prior year, primarily due to strategic technology investments, normalization of investment against brand campaigns, wage-related expenses and digital marketing investment to fuel heightened digital demand. Our effective tax rate for the quarter was 16.4% compared to 11.4% for the same period last year. This was due to a shift in our earnings mix, effects of stock-based compensation and recently finalized U.S. tax regulations. Third quarter diluted earnings per share was $0.87.
Now let's review the operating segments. In North America, Q3 revenue grew 9% and EBIT was flat. NIKE continued to drive momentum through key product franchises across men's, women's and kids. This was highlighted by double-digit growth in key men's running franchises like Pegasus as well as updates on franchises like the Winflo and Zoom Air. NIKE Direct grew 27% versus the prior year, led by NIKE Digital delivering industry-leading growth, increasing 33% versus the prior year, driven by double-digit growth in traffic, strong growth in new members and member engagement and improvements in member buying frequency.
NIKE Digital in North America now has the highest penetration of all the geographies, representing one-third of total North America revenue in the quarter. NIKE-owned stores grew 16% due to traffic improving towards pre-pandemic levels and successful activations in key cities during moments like the Super Bowl in L.A. North America continues to experience strong full price realization and low markdown rates across the marketplace as inventory supply begins to improve.
NIKE-owned inventory levels increased 22% versus the prior year, with in-transit inventory now representing 65% of total inventory at the end of the quarter, as transit times are now more than six weeks longer than pre-pandemic levels and two weeks longer than the same period in the prior year.
In order to ensure the right assortment of products arrive on time for the fall selling season, we have moved forward our buying time lines to accommodate for longer transit times.
In EMEA, Q3 revenue grew 13% on a currency-neutral basis, with growth across all consumer segments, and EBIT grew 34% on a reported basis. Retail sales across the marketplace grew strong double digits with improvements in full price realization and lower average markdown rates. Team sports continues to make its comeback and the continuation of the Champions League tournament enabled global football to drive energy across the region. The momentum behind the Jordan brand in EMEA is also driving strong growth across all consumer segments, led by women.
NIKE Direct grew 22% on a currency-neutral basis, led by growth in NIKE-owned stores of 44% as we compare to uneven store closures due to COVID-related government restrictions in the prior year. NIKE Digital rose 11%, fueled by member-only access and app-exclusive releases and another quarter of strong double-digit growth in full price demand. Wholesale revenue grew 10%, led by even stronger growth rates from our strategic accounts.
As John mentioned in his remarks, we remain focused on the safety and well-being of our teammates regarding the deeply troubling crisis unfolding in Ukraine. Our own stores and digital commerce operations remain paused in Russia and Ukraine. As a note, our business in both countries represent less than 1% of total company revenue.
In Greater China, Q3 revenue declined 8% on a currency-neutral basis, and EBIT declined 19% on a reported basis. Our results for this quarter were in line with our expectations, with sequential improvement versus the prior quarter. As we continued rebuilding local brand activities again this quarter, NIKE was rated the number-one cool and number-one favorite brand in China, creating separation and distinction versus the competition.
And as I said earlier, we are observing continued improvement in full price realization. Greater China delivered over $2 billion in revenue this quarter, driven by the Lunar New Year period as Nike.com saw record weekly traffic. We leveraged our Express Lane capabilities to design hyperlocal products with the Year of the Tiger elements, resulting in strong sell-through across men's, women's, kids and Jordan. Speaking of Jordan, the brand had a record quarter for revenue in the region, growing versus the prior year through momentum in both footwear and apparel.
NIKE Direct was down 11% on a currency-neutral basis, with declines in both digital and physical retail channels. COVID-related lockdowns continue to create challenges for retail traffic. NIKE-owned stores were down 5% and Digital declined 19% due to the ongoing supply delays that negatively impacted timing of product launches. We created marketplace energy with the opening of NIKE Beijing, the first connected partner-operated Rise door and two new Unite doors that set consecutive records for global opening sales.
Our relentless focus on sport, product innovation and our most iconic product franchises, combined with local athlete storytelling, remains a competitive advantage for us in Greater China. We are closely monitoring the current situation regarding the virus, but we are encouraged by the momentum we are building in the marketplace.
Now moving to APLA. Q3 revenue grew 19% on a currency-neutral basis and EBIT grew 17% on a reported basis. This quarter was the largest and most profitable in the history of the APLA region. We saw double-digit currency-neutral growth across nearly all territories led by Korea, Mexico and SOCO. We're winning with the consumer and sport across performance and lifestyle, demonstrated by strong growth in running, fitness, Jordan and Classics.
NIKE Direct grew 39%, led by NIKE Digital growth of 61% due to record-setting member days across a number of territories, delivering more than 2.5 times the demand versus a typical week. NIKE-owned stores grew 17% while the wholesale channel grew 9%.
Our focus on localized product and content, particularly the launch of our Kwondo 1 collaboration with K-Pop star G-Dragon demonstrated yet again our deep connection to consumers. It was APLA's biggest hyperlocal launch ever, reaching 91 million users on social and 3.8 million entries across SNKRS and our marketplace partners.
Now let's turn to our financial outlook. We continue to expect revenue for the full year to grow mid-single digits versus the prior year. As you know, comparing quarters to prior periods has not been intuitive, so we continue to look at the size, trend and health of our business, market share and profitability relative to pre-pandemic periods, and we remain confident we are on track towards our long-term financial goals.
Specifically for the fourth quarter, in North America, we expect a decline in revenue due to year-over-year comparisons. And in Greater China, we expect to see another quarter of sequential improvement while we closely monitor the operational impact related to recent COVID lockdowns.
We now expect gross margin to expand by at least 150 basis points versus the prior year as strong consumer demand continues to fuel high levels of full price realization, low markdown rates and low customer returns.
Benefits of strategic pricing expected in Q4 are being partially offset by elevated product costs, primarily due to higher macro input costs, supply chain costs and strategic actions to expedite delivery of product in North America.
Despite the recent strengthening of the U.S. dollar, we continue to expect foreign exchange to be a 55 basis point tailwind versus the prior year. We now expect SG&A to grow mid-teens for the full year as our spend normalizes, and we continue to advance our capabilities to support our ongoing digital transformation. We continue to expect our effective tax rate to be in the low teens for the fiscal year.
And as we look ahead to fiscal '23, we are optimistic as our brand strength is unparalleled with a strong product pipeline and momentum against our largest growth drivers. Marketplace demand continues to exceed available supply as inventory supply begins to normalize in the fourth quarter, against the context of a healthy pull market, setting the foundation for another year of strong growth.
We are focused on what we can control while there are several new dynamics creating higher levels of volatility. As a result, we will provide more specific financial guidance for fiscal '23 during our fourth quarter earnings call.
In closing, our strategy is working. NIKE's brand strength and consumer demand remains at an all-time high and we are confident in our business momentum. Our deep focus on the consumer and sport is what sets us apart from the rest. We continue to leverage the same principles for how we are strategically and financially managing the company. And as we approach our 50-year anniversary, we are reminded of NIKE's rich history of delivering consistent results even through periods of uncertainty as we build NIKE for the future.
With that, let's open up the call for questions.