Matthew Friend
Executive Vice President and Chief Financial Officer at NIKE
Thanks, John, and hello to everyone on the call.
NIKE's third quarter showcased the operating discipline of our teams as we delivered revenues up slightly on top of the prior year's double-digit growth, outperforming our expectations in North America and more than offsetting dynamic conditions in some other geographies. We executed well to recapture transitory cost headwinds and expand gross margins even in a promotional environment. Our inventory position remains healthy with total marketplace units down double digits versus the prior year and weeks of supply at their lowest levels since the pandemic.
Most importantly, our teams are focused on what matters most to capture the strong growth opportunity we see in the marketplace. This means creating more value for consumers by scaling new product innovation, with greater brand impact across the full marketplace with even more inspiration through sport and our athletes.
Last quarter, we highlighted that particularly in an uneven macro environment, newness and innovation are what drives brand distinction. Consumers are moving quickly to access new products. Trends are igniting in different places and rapidly spreading around the world. NIKE needs to be faster. And so we are accelerating a multiyear innovation cycle.
And while our new product cycle is just getting underway, this quarter showed that we are on the right track. Since the start of this fiscal year, new and updated footwear models have grown into a majority of our top 20 growing footwear franchises in Q3. Added up, footwear products introduced over the past several quarters are on track to generate a multibillion dollar run rate on an annual basis, and we see even more opportunity ahead.
On the whole, we see momentum where we are focused most. Performance footwear grew high single digits this quarter, with double-digit growth from $100-plus franchises, including Kobe and Ja in basketball, Metcon And Motiva in fitness and Structure and Vomero in running. Women's fitness footwear grew double digits and key apparel franchises such as $100-plus leggings, continued scaling with strong sell-through.
New product journeys from Book 1 to Vomero 5 and V2K, to Lunar Roam and Travis Scott Jordan Jumpman Jack drove consumer energy and ahead of a new wave of Nike Air innovation, the Air Zoom Alphafly 3 debuted with a marathon world record and sellout launches across multiple markets around the world. As you heard from John, we believe the Paris Olympics will serve as a catalyst for our brands as we launch our newest Nike Air innovations for athletes. Most importantly, this is just the beginning.
With a growing portfolio of new concepts, platforms and capabilities, our innovation teams are well positioned to continue driving breakthroughs in performance and lifestyle over the coming years. Now to maximize the impact of our new product cycle, we are accelerating several important actions lined up against key brand and sports moments.
First, we are elevating and differentiating the consumer experience with our brands at retail, especially as consumers continue to shift back into physical stores. This includes increased investment to support strong seasonal retail marketing execution, breadth and depth of assortment and elevated service and product presentation.
You heard John say that we will initially launch the Air Max Dn next week at more than 4,000 doors. We will increasingly leverage our full portfolio of thousands of physical doors to position our newest products in the path of consumers. Second, we are sharpening our brand storytelling to tell fewer, bigger stories with greater reach. We will focus our demand creation investments to elevate our brand and most distinctive products, leading with the voice of the athlete, amplifying our new innovation, and engaging consumers at the point of sale.
As we look forward, we see that our Olympics Air for Athletes campaign will be the boldest expression of NIKE's brand voice in many years. Third, we are in the midst of shifting our product portfolio towards newness and innovation. Last quarter, we spoke of our intentional actions to reduce marketplace supply of certain key franchises to ensure they remain healthy and strong, while feeding and scaling new products. Given the way consumers are responding to our newest product journeys, even amidst a more promotional environment, we have decided to accelerate our actions.
For example, we are pulling back supply of classics, such as the Air Force 1, and we're reducing supply of Pegasus ahead of launching new innovation in the Peg 41. We've been here before. 12 months ago, our basketball portfolio was meaningfully impacted when we exited a key signature franchise. Since then, we've more than offset that impact by scaling innovation with the GT series, introducing newness to consumers in Ja, Sabrina, Kobe and Book and returned to strong double-digit growth this quarter in basketball.
Looking ahead, we expect lifecycle management of key product franchises to create some near-term headwinds, particularly on digital. However, we are confident that we are taking the right actions to fuel brand momentum and return to stronger long-term growth.
Last, while we continue to bring operational discipline as we manage our business through these shifts and a multiyear period of higher cost inflation, we are also positioning NIKE for the future. This includes restructuring our organization to sharpen our focus and increase our investment on the consumer and sport, which we believe will fuel our next phase of long-term growth.
This quarter, we began streamlining support and operating functions, reducing management layers and shifting more of our resources towards consumer-facing activities. In particular, we are increasing investment in areas such as design, product creation, merchandising, brand and our ground game to drive greater impact for consumers, dimensions of sport and the marketplace. Overall, our focus is on allocating our resources to drive more return while building an operating model with greater speed and better cost productivity as we grow.
Now let me turn to our NIKE Inc. third quarter results. In Q3, NIKE, Inc. revenue was up slightly on a reported and currency-neutral basis with low single-digit growth in the NIKE brand, partially offset by declines at Converse. As a reminder, this follows 14% reported and 19% currency-neutral growth one year ago, as we were liquidating excess inventory in Q3 of fiscal '23.
NIKE Direct was up slightly versus the prior year, with NIKE stores up 6% and NIKE Digital down 4%, wholesale grew 3%. Gross margins expanded 150 basis points to 44.8% on a reported basis, driven by strategic pricing actions, lower ocean freight rates and improvements in supply chain efficiency, partially offset by higher product input costs.
This also includes 50 basis points of negative impact from restructuring charges. SG&A grew 7% on a reported basis as increased investments in demand creation was partially offset by disciplined expense management.
This quarter, SG&A was also impacted by approximately $340 million in restructuring charges. Our effective tax rate for the quarter was 16.5% compared to 16% for the same period last year. Diluted earnings per share was $0.77. Excluding the impact of the restructuring charges, earnings per share would have been $0.98, up 24% versus the prior year.
Now let me turn to our operating segments. In North America, Q3 revenue grew 3%. NIKE Direct grew 2% with NIKE stores up 3% and NIKE Digital up 1%. Wholesale grew 5% and EBIT grew 18% on a reported basis. This builds on extraordinary growth in the prior year, with North America revenue up 27%, including NIKE Direct up 23% and wholesale up 32% in Q3 of fiscal '23. This quarter, we exceeded our expectations in North America with strong holiday sales, lighter markdowns than our competitors and unit growth versus the prior year.
Inventory is also down double digits at the end of Q3. Kids grew double digits across footwear and apparel with seasonal fleece and performance footwear resonating. We also saw positive momentum in women's lifestyle and fitness with strong growth from the Dunk, free Metcon and retro running styles. Jordan Remix and Sport Performance grew double digits. And in running, Structure, Vomero and the Invincible delivered double-digit growth.
In EMEA, Q3 revenue declined 4%. NIKE Direct declined 4% as NIKE stores grew 6% and NIKE Digital declined 10%. Wholesale was down 5% and EBIT declined 6% on a reported basis.
As a reminder, these results compare to tremendous growth in Q3 of fiscal '23 when EMEA revenue was up 26%, NIKE Direct was up 39% and wholesale was up 20%. However, sales in the geography fell short of our expectations this quarter as we navigated increased macro volatility and softening consumer demand. That said, newness and brand distinction continues to fuel momentum in EMEA.
In running a sellout, Alphafly 3's launch energized our road racing portfolio. In Lifestyle, P-6000 and Vomero 5 continue to scale, and fitness grew double digits as we activated our ground game with brand activations and our trainer network.
Overall, inventory remains healthy with units down double digits versus the prior year. And as we look forward, we see the launch of Air Max Dn Euro Champs '24 and the Paris Olympics as opportunities to create near-term brand momentum despite a challenging consumer backdrop.
In Greater China, Q3 revenue grew 6%, in line with our revised expectations that we shared at the end of last quarter. NIKE Direct declined 1% with NIKE stores growing 6% and NIKE Digital declining 13%. Wholesale grew 12%. EBIT grew 3% on a reported basis with multiple points of impact from foreign exchange headwinds.
Chinese New Year sales grew year-over-year with our NIKE and Jordan Year of the Dragon Express Lane collections driving excellent sell-through. And retail sales with our partners grew double digits in Q3 versus the prior year. Kids led our growth in the quarter with performance dimensions up strong double digits. In basketball, Book 1, Kobe and G.T. Cut 3 launch with strong sell-through.
In running, the Structure, the Invincible and the Vomero drove strong growth this quarter. And the Jordan brand delivered double-digit growth in women's and kids with consumer anticipation building ahead of this week's opening of Jordan World of Flight Beijing, which will be the brand's first pinnacle retail concept in China. In APLA, Q3 revenue grew 4%. NIKE Direct grew 4% with NIKE stores up 18% and NIKE Digital declining 6%. Wholesale grew 3% and EBIT declined 3% on a reported basis.
In Central and South America, we delivered double-digit growth and improved return on sales in the first full year of our shift to a distributor model. In Mexico, we gained brand strength and momentum with strong growth in football. And in Japan, running grew double digits. Across the APLA, football and basketball grew double digits, fueled by the Mercurial, LeBron and the GT series. And women's holistic fitness grew across all channels with Motiva and statement leggings, in particular, resonating.
Now let me turn to our financial outlook. As we look forward, we are driving earnings growth and offsetting softer second half revenue with strong gross margin execution, disciplined cost controls and healthy and more productive inventory levels across the marketplace. Excluding restructuring charges, we expect to deliver on the full year earnings outlook that we communicated at the beginning of this fiscal year.
More specifically, for the full year, we continue to expect revenue to grow approximately 1%. We now expect Q4 revenue to be up slightly reflecting some shipment timing benefits in Q3 and lower digital growth due to franchise lifecycle management. Q4 also has one point of negative impact on reported revenue from a stronger U.S. dollar.
Moving down the P&L. I will note that our guidance includes restructuring charges of approximately $450 million in our second half, with $403 million incurred in the third quarter. This primarily impacts SG&A with approximately 15 basis points of impact to full year gross margins. We expect Q4 gross margins to expand approximately 160 to 180 basis points. This guidance continues to reflect benefits from strategic price increases, lower ocean freight rates, lower product input costs and improved supply chain efficiency.
Our outlook is now partially offset by higher markdowns, reduced benefits from channel mix due to franchise lifecycle management and worsening foreign exchange headwinds. For the full year, this translates into gross margins expanding approximately 120 basis points, including approximately 60 basis points of impact from foreign exchange headwinds. We now expect Q4 SG&A to be down slightly versus the prior year, including restructuring charges, reflecting improvement versus our prior guidance.
For the full year, this translates into SG&A growing low single digits, including restructuring charges, also reflecting improvement versus our prior guidance. Excluding the impact of restructuring charges, we expect full year SG&A to be roughly flat. Our guidance for other income and expense and our effective tax rate remain unchanged.
Additionally, given the strategic actions we walked through earlier, I want to share some early thoughts on how we are planning for our next fiscal year. First, we expect revenue and earnings to grow versus the prior year, with operating margins expanding, excluding the impact of the restructuring charges in fiscal '24.
However, we are prudently planning for revenue in the first half of the fiscal year to be down low single digits. As I mentioned earlier, this reflects near-term headwinds from lifecycle management of our key product franchises, more than offsetting the scaling of new products as we shift our product portfolio toward newness and innovation.
This also continues to reflect the subdued macro outlook around the world. Most importantly, we are focused on amplifying brand strength and consumer impact, which is the foundation for how we drive sustainable long-term growth. Looking ahead, we are confident in our product pipeline for fiscal '25 and the momentum that we will build throughout the year, moment-by-moment, creating brand impact and deep consumer connection through sport.
With that, let's open up the call for questions.
