Matthew Friend
Executive Vice President & Chief Financial Officer at NIKE
Thanks, John, and hello to everyone on the call. NIKE's second quarter financial performance reflected our proactive marketplace management and disciplined execution, with tremendous delivery by our teams in a dynamic environment. Revenue was up slightly versus the prior year, growing 1% on a reported basis, as we compare to 17% reported and 27% currency-neutral revenue growth one year-ago. Gross margins expanded despite a highly promotional marketplace. And combined with disciplined SG&A management, earnings per share and free cash flow accelerated. As I've said last quarter, we believe we are turning the corner and driving more profitable and sustainable growth. At the same time, there were a number of puts and takes in the quarter. So, before I walk through our financial results, let me share some perspective on our performance in light of current macro and consumer trends as well as additional insight into our business direction.
Now, as you recall, we moved proactively in the prior year to liquidate excess inventory and reduced wholesale selling for the first half of fiscal 2024. And while this dampened our reported revenue growth through Q2, total retail sales in the quarter grew across the marketplace on top of double-digit growth in the prior year. ASPs were up across both footwear and apparel and AURs grew across channels. Average order values among NIKE members increased versus the prior year. Our higher-priced products in particular have been resilient with our $100-plus footwear models, driving strong growth in units sold across the marketplace. And overall, we have maintained lower markdown rates than many of our competitors.
In the most impactful consumer shopping moments, NIKE's brand strength created even greater separation. We delivered market-leading results in Greater China on Double 11. And over the Black Friday and CyberWeek period, NIKE Direct grew approximately 10% across North America, EMEA and APLA. In Q2, NIKE Direct once again led our growth and wholesale shipments exceeded our expectations. Having said that, we are seeing indications of more cautious consumer behavior around the world in an uneven macroenvironment. Total retail sales across the marketplace fell short of our expectations with softer demand outside the key consumer moments. While NIKE store traffic continued to grow, we saw softness in digital traffic and higher levels of promotional activity across the marketplace. As a result, we are adjusting our channel growth plans for the remainder of the year.
Looking to our product portfolio, our top franchises continue to drive strong full-price sales. But we intentionally manage the lifecycle of these models across the marketplace for long-term value. Given the promotional environment and the cautious consumer behavior that we're seeing, we are stepping up our plans to reduce marketplace supply of our key franchises. Our goal is to focus NIKE's brand heat and energy on what is new, as we accelerate our product innovation cycle. We have seen encouraging signs from recent consumer activations around some of NIKE's latest innovations and newness. And we intend to accelerate our pace through the Paris Olympics and beyond. While this will initially take some time, we are confident in our pipeline and the product journeys, stories and consumer energy to come.
Now, as you heard from John, our priority is to drive sustainable and profitable long-term growth, while building a faster, more efficient NIKE. Since fiscal 2019, our investments in accelerating NIKE's consumer direct vision have created new operating capabilities, added tens of millions of new members to our member base and delivered a return of more than $12 billion of incremental revenue. However, we have also added complexity and inefficiency. In this competitive environment, we need to accelerate our pace of innovation, elevate our marketplace experiences, maximize the impact of our storytelling and increase our speed and responsiveness, all-in service of the consumer.
To do this, we are creating investment capacity to fuel NIKE's next phase of innovation, growth and profitability. We are identifying opportunities across the company to deliver up to $2 billion in cumulative cost-savings over the next three years, both up and down our P&L and across our value chain. Some examples include, simplifying our product assortment, improving supply chain efficiency, leveraging our scale to lower the marginal cost of operations, increasing automation and speed from data and technology, streamlining our organizational structure, reducing management layers and enhancing our procurement capabilities.
And as we look to drive greater efficiency and productivity, we will reallocate and invest the majority of these savings to deliver the greatest consumer impact on our largest growth opportunities. Ultimately, we believe that building a faster and more efficient NIKE will accelerate future growth and innovation and deliver long-term profitability, creating value for years to come. We will continue sharing updates over the coming quarters.
Now, let me turn to our NIKE, Inc. second quarter results. In Q2, NIKE, Inc., revenue was up 1% on a reported basis and down 1% on a currency-neutral basis following our strong top line growth one year-ago. NIKE Direct grew 4% with NIKE stores up 19% and NIKE Digital up 1%, while wholesale declined 3%. Gross margins expanded 170 basis points to 44.6% on a reported basis, driven by strategic pricing actions, lower ocean freight rates, improved supply chain efficiency and modest mark-down improvements partially offset by higher product input costs. This included impact from approximately 60 basis points of unfavorable changes in net foreign currency exchange rates.
SG&A grew 1% on a reported basis, favorable to our expectations through disciplined expense management and some shifts in timing of spending. Our effective tax rate for the quarter was 17.9% compared to 19.3% for the same period last year. Diluted earnings per share was $1.03, up 21% year-over-year. NIKE inventory dollars are down 14% versus the prior year and down high-single-digits versus the prior quarter. In total, NIKE inventory dollars are down over $1.5 billion from the peak at the end of Q1 in the prior year with days in inventory continuing to improve. Total footwear and apparel inventory units across the marketplace are down double-digits versus the prior year.
Now, let me turn to our operating segments. In North America, Q2 revenue declined 3%, with wholesale down 9% versus the prior year. NIKE Direct grew 3% with NIKE stores up 4% and NIKE Digital up 2%. EBIT grew 2% on a reported basis. This follows extraordinary growth in Q2 of fiscal 2023 with North America revenue up 31%, NIKE Direct up 23%, NIKE Digital up 31% and wholesale up 37%. This quarter we saw mid-single-digit retail sales growth with key partners including DICK's Sporting Goods, JD Finish Line and Hibbett.
Jordan and women's let our momentum in the marketplace with Jordan remix footwear grew double-digits and the AJ 11 Gratitude release delivered the brand's largest sharp drop ever. Within women's Dunk, Free Metcon and our $100-plus statement leggings delivered strong growth. In addition, Structure 25 and Vomero 17, our latest updates for everyday runners drove positive response from consumers and running specialty partners. In EMEA, Q2 revenue declined 3% with wholesale down 8%. NIKE Direct was up 7%, as NIKE stores grew 8% and NIKE Digital grew 7%. EBIT declined 6% on a reported basis. As a reminder, this also compares to tremendous growth in Q2 of fiscal 2023, with EMEA revenue up 33%, NIKE Direct up 44%, NIKE Digital up 62% and wholesale up 28%.
Against the backdrop of increased macro headwinds, we saw strong consumer response to newness and premium innovation. Our winterized running products drove positive sell-throughs along with strong growth from Invincible, Vaporfly and Ultrafly. Mercurial and Phantom and Tiempo grew double-digits. And our retro running styles including V2K, P-6000 and Shox continue to energize the marketplace. In Greater China, Q2 revenue grew 8% and wholesale grew 19%. NIKE Direct declined 4% with NIKE stores growing 16% and NIKE Digital declining 22%. EBIT grew 1% on a reported basis with multiple points of impact from foreign exchange.
On the whole, we are seeing a highly promotional marketplace with increased macro headwinds, especially on digital. That said, Q2 was another strong quarter in brick-and-mortar, with continued improvement in full priced sales and sales in NIKE-owned and partner doors growing mid-teens versus the prior year. We also continue to see strong momentum with key strategic partners, including Top Sports and Pou Sheng. And NIKE continues to strengthen its lead as Chinese consumers' number one cool and favorite brand.
Turning to our product portfolio, performance outpaced lifestyle this quarter, with innovation and hyperlocal storytelling resonating with consumers. We saw strong momentum in basketball, fitness, retro running footwear and winterized apparel. Locally inspired Express Lane collections, including our street dance inspired Dunk and hyperlocal Pegasus releases were top choices for consumers. And overall, our inventory remains healthy with units down and improved markdown rates versus the prior year.
Looking ahead, we continue to closely monitor the operating environment. However, we remain confident in NIKE's brand strength, our deep consumer connections and our foundation for long-term growth in China. In APLA, Q2 revenue grew 10% and wholesale grew 7%. NIKE Direct grew 15%, as NIKE stores grew 17% and NIKE Digital grew 14%. EBIT grew 7% on a reported basis. Southeast Asia and India, Korea and Mexico grew double-digits, leading a record quarter for the geography. Our Flipkart and Myntra platforms drove strong growth in India. Korea led record member days sales in the geography. And Mexico accelerated its digital momentum over the El Buen Fin shopping holiday.
We saw strong momentum across our portfolio led by Jordan New Kids. Jordan brand delivered strong growth in remix footwear, AJ 1 Essentials and signature basketball. In Kids lifestyle and global football grew double-digits with positive momentum from all kids Suisse, Court Borough and the Mercurial. All told, our team executed with tremendous focus and agility to deliver our Q2 results, while managing through volatility. Last quarter, as I provided guidance, I highlighted a number of risks in our operating environment, including the effects of a stronger US dollar on foreign currency translation, consumer demand over the holiday season and our second half wholesale order books. Looking forward, the impact of these risks is becoming clear. And as a result, we are adjusting our full-year financial outlook.
Looking through the balance of the year, we expect Q3 reported revenue to be slightly negative as we again compare to double-digit growth in the prior year. And Q4 reported revenue to be up low-single digits with full-year reported revenue now growing approximately 1%. This new outlook reflects increased macro headwinds, particularly in Greater China and EMEA, adjusted digital growth plans based on recent digital traffic softness in higher marketplace promotions, lifecycle management of key product franchises and a stronger US dollar that has negatively impacted second half reported revenue versus 90 days ago.
I will also remind you that there are approximately 400 basis points of headwinds from supply disruptions and accelerated liquidation in the prior year. We expect increased gross margin expansion in our second half, with Q3 margins expanding 160 basis points to 180 basis points and Q4 margins expanding 225 basis points to 250 basis points. We continue to expect full year gross margins to expand 140 basis points to 160 basis points. This reflects benefits from strategic price increases, improved ocean freight rates and supply chain efficiency, partially offset by higher product input costs and approximately 60 basis points of impact from foreign exchange headwinds.
We expect full year SG&A growth to improve to low-single-digits, excluding restructuring charges, as we continue to tightly manage expenses and improve productivity and efficiency. Specifically, we expect SG&A dollars in both Q3 and Q4 to be modestly above our first half run rate, excluding the charge. We anticipate a restructuring charge of $400 million to $450 million in our second half, primarily related to severance costs, which will be recognized largely in the third quarter. We expect full year SG&A, including the restructuring charge to grow mid-single-digits. We now expect other income and expense, including net interest income to be $275 million to $325 million for the full year. We continue to expect our full year effective tax rate to be in the high-teens range.
Taken altogether, strong gross margin execution and disciplined cost controls are enabling us to offset softer second half revenue and drive earnings growth. Excluding restructuring charges, we expect to deliver on our prior full year earnings outlook. While we expect the operating environment to remain dynamic, we have been here before and we know that moments like this are when NIKE operates and execute at its best. We will stay on the offense, manage risk, optimize opportunity and leverage our strengths to create even further competitive separation. As we move forward, our focus is building a faster, more efficient NIKE and embracing the opportunities in front of us to accelerate sustainable and more profitable growth.
And so with that, let's open up the call for questions.
