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Nike (NYSE: NKE)
Q2 2025 Earnings Call
Dec 19, 2024, 5:00 p.m. ET

Nike’s Leadership Charts a New Course for Growth in Q2 2025 Earnings Call

Table of Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, everyone. Welcome to NIKE, Inc.’s fiscal 2025 second quarter conference call. If you wish to reference today’s press release, please find it at investors.nike.com. Leading today’s call is Paul Trussell, VP of corporate finance and treasurer.

Now, I would like to turn the call over to Mr. Paul Trussell. Please proceed, sir.

Paul Trussell — Vice President, Investor Relations and Strategic Finance

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE, Inc.’s fiscal 2025 second quarter results. Joining us on today’s call will be NIKE, Inc. president and CEO, Elliott Hill; and our CFO, Matt Friend.

Before we begin, I want to remind everyone that statements made during this call may include forward-looking statements based on current expectations. These statements involve risks and uncertainties that could cause results to differ. Detailed risks are outlined in NIKE’s SEC filings. Additionally, participants may discuss non-GAAP financial measures and other non-public information. For comparable GAAP measures, please refer to NIKE’s earnings press release or visit investors.nike.com.

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All growth comparisons shared today are on a year-over-year basis and presented in currency-neutral terms unless stated otherwise. We’ll begin with prepared remarks and then proceed to questions. In fairness to our stakeholders, please limit your initial question to one. Thank you for your cooperation.

I’ll now turn the call over to NIKE, Inc. president and CEO, Elliott Hill.

Elliott Hill — President and Chief Executive Officer

Thank you, Paul. Hello, everyone, and happy holidays. I’m excited to be back at NIKE, where I spent over three decades. The journey ahead is one I eagerly anticipate.

After retiring in 2020, I kept close ties with many teammates and supported them from afar. My strong dedication to this brand fuels my commitment to its future success, especially at a time when we face challenges.

In my first two months, I’ve gathered invaluable insights that I’ll share today, followed by immediate actions we’re taking to reposition the business. The NIKE team and I fully understand the urgency at hand.

Recently, my leadership team and I traveled to key cities like LA, New York, Amsterdam, and Beijing. We aimed to observe how consumers experience our brand. Meetings with major partners and community leaders helped deepen our understanding of our market position.

Engaging with sports commissioners and athletes reinforced our shared goal—a thriving NIKE brand. Positive feedback centered on a call for a return to our roots. We have unmatched strengths: iconic brands, a roster of influential athletes, and a comprehensive product range. Yet, it’s clear that we haven’t fully harnessed these advantages in recent times.

Upon reflecting on my observations, a few key issues stand out. For one, we’ve distanced ourselves from our core focus on sports. Future strategies will prioritize athletes and their experiences. The nuances of different sports are what make us distinct and enrich our culture.

Moreover, we need to shift from merely capturing brand demand to generating it through impactful marketing efforts. That’s critical as we roll out new products and tell compelling stories that resonate with consumers during key moments.

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NIKE’s Strategic Shift: Focusing on Innovative Products and Strong Partnerships

During a recent discussion, the leadership team of NIKE outlined their commitment to revitalizing the company’s approach. They plan to empower local teams to better connect with everyday athletes and influencers, acknowledging that prioritizing digital revenue has affected marketplace health. A new integrated marketplace will emphasize consumer preferences, ensuring that NIKE products engage shoppers across various platforms.

With an unwavering commitment to sports, NIKE seeks to reenergize its culture by staying true to its mission: to bring inspiration and innovation to every athlete in the world. The leadership is confident in the talent within the organization and believes the team is motivated to create an impact. This optimism stems from recent travels where engagement with teams, customers, and partners showcased world-class expertise in supply chain, product creation, technology, and more.

The focus now is on clear direction and strategic action, restoring the company’s commitment to excellence in product, brand, and marketplace management. Innovative, desirable products will lead the way as the company seeks to expand its presence both digitally and physically, including through wholesale channels.

To sharpen their focus, NIKE plans to restructure into sport-led teams that cater to men’s, women’s, and kids’ divisions, dubbed “fields of play.” This segmentation aims to identify new opportunities that drive growth, fostering innovation tailored to specific sports and genders. NIKE has a long history of using critical turning points to evolve its business strategy, and this approach will reinstate a disciplined focus on inventory and product management.

Recent successes include popular franchises like the Pegasus 41, NIKE Shox, and the Kobe lineup. Anticipation builds for upcoming releases like the Vomero 18 and Pegasus Premium, which were showcased at a local running event. While there’s still work to be done, positive signs emerge with expected innovations in high-demand categories such as running, training, and the Jordan brand lineup.

On the branding front, NIKE aims for impactful marketing that resonates globally while forging connections within local communities. High-visibility events at marathons in cities like Berlin and New York will be essential, as will aggressive partnerships in sports marketing. Recently, NIKE renewed deals with multiple organizations, including the NBA, WNBA, and NFL, reinforcing their commitment to iconic sports partnerships that drive brand growth.

In-person community engagement will remain a priority, with local teams vital to creating lasting consumer connections. NIKE’s commitment to resource these teams is clear: they will be empowered to build relationships with athletes, influencers, and partners to promote brand loyalty and growth.

However, not all trends are positive; traffic in both digital and physical NIKE Direct markets has declined. The lack of product innovation and engaging storytelling has led to increased promotions, disrupting the brand’s prestige. As a result, the split between full-price and promotional sales has become approximately 50-50, impacting profit margins and partner relationships alike.

NIKE plans to revert to premium pricing strategies and unique offerings, focusing promotional efforts on traditional retail moments instead of maintaining consistent discounting. By enhancing the consumer experience across all platforms, NIKE aims to restore its marketplace position as a sports industry leader with a compelling product narrative.

Strengthening partnerships with wholesalers remains crucial for NIKE’s future success. Open communication with key partners has already begun, and the company’s leaders are committed to rebuilding trust and collaboration. They believe that success is mutually beneficial—when partners thrive, NIKE thrives.

Before concluding, the leadership team expressed gratitude for their first two months in the role and reinforced that while challenges lie ahead, they are prepared to face them together as a united team.

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NIKE’s Strategic Actions Focus on Long-Term Growth Amid Short-Term Challenges

After recent discussions with my team, I am confident that we have a unified vision focused on immediate impacts. Here are our priority actions: enhance our culture by emphasizing sports and regaining our winning edge; push forward with a full product portfolio informed by athlete insights in sport-led categories; boost brand investment for impactful marketing; empower teams in key markets to enhance local performance; elevate our NIKE Direct offerings; and maintain strong relationships with wholesale partners. Some of these initiatives are already in progress, while others require acceleration. I will continuously evaluate what is necessary.

It’s important to note that some actions may negatively affect our short-term results. However, we are prioritizing long-term health for our brand and business, aiming to enhance shareholder value. I firmly believe that NIKE’s pathway to sustainable growth lies in our commitment to sports.

Now, I’ll hand it over to Matt to discuss our quarterly results and financial outlook, followed by a Q&A session.

Matthew Friend — Executive Vice President, Chief Financial Officer

Thank you, Elliott, and greetings to everyone on this call. Our Q2 financial performance met expectations as we implement changes across our business. I’ll start with our Q2 financial results.

Next, I’ll provide insights into our quarterly performance, covering marketplace trends, key highlights, and our operational segments. This quarter, revenues dipped 8% on a reported basis and 9% on a currency-neutral basis due to the impact of our franchise management strategies. We’ve seen significant reductions in our classic footwear franchises on NIKE Direct, which dropped 14%. NIKE Digital sales fell 21%, while NIKE Stores decreased by 2%.

Wholesale sales also faced a 4% decline. Our gross margins contracted by 100 basis points to 43.6% on a reported basis due to markdowns on NIKE Direct and wholesale discounts aimed at clearing inventory. However, we benefited from reduced product costs and strategic pricing adjustments. SG&A expenses decreased by 3% on a reported basis. We increased our investment in sports marketing, but this was more than countered by lower expenses related to wages and other demand creation costs.

Earnings per share were reported at $0.78. Now, let’s examine the quarter’s performance more closely. Marketplace trends showed challenges as traffic and retail sales fell short of expectations, particularly in September and October. Fortunately, November brought positive momentum with increased digital and physical traffic during key consumer moments.

In North America, Black Friday week became our biggest sales week ever on NIKE Digital, reporting double-digit increases. During the 11/11 shopping event in Greater China, our performance surpassed our expectations. Notably, our off-price sales on NIKE Digital rose significantly compared to last year, driven by enhanced performance marketing. As mentioned by Elliott, NIKE Digital has transitioned into a platform that captures demand, competing with wholesale partners rather than nurturing brand growth.

Improving the consumer experience and driving full-price demand will be crucial moving forward. Inventory levels remained stable year-over-year; however, elevated supply in North America and Greater China balanced declines in the EMEA and APLA regions. Footwear inventory saw a decrease, whereas inventory for apparel and accessories increased to support growth. Some of these trends arise from timing-related factors.

That said, our current inventory levels are higher than desired, particularly given the recent performance on NIKE Direct. Partner-owned inventory decreased compared to last year. We’ve initiated steps this quarter and plan to accelerate inventory actions in the second half to restore marketplace health. Our focus will be to diminish aging inventory, align supply with demand on NIKE Digital, and prepare for our newest products.

Reviewing our product portfolio, we made advancements in vital areas, getting back onto the offensive in sports with consumers. Our sport performance category saw overall growth, contrasting with a double-digit decline in sportswear. In training, we reported increases in men’s (high teens), women’s (high single digits), and kids’ (high single digits). Global football also saw incremental gains in men’s (low single digits) and significant growth in kids’ (high teens).

Looking at basketball, women’s saw strong double-digit growth while kids’ grew slightly. The running category remained stable for men while women’s increased in the low to mid single digits. Additionally, we continued to shift our product portfolio away from classic footwear franchises, which declined faster than the overall business in Q2 compared to the previous quarter.

As I noted in the last call, we anticipate these transitions to take effect over the next few quarters. Now, shifting to our operating segments: in North America, Q2 revenue plunged 8%. NIKE Direct experienced a 15% fall, with NIKE Digital down 22% and NIKE Stores down 3%.

Wholesale slipped 1%, and EBIT decreased by 10% on a reported basis. Positive highlights included notable growth in kids’ performance with strong results in apparel and footwear. Men’s and women’s training participated in this growth, while basketball showcased exceptional demand for popular products like Kobe shoes, which now lead the market. Additionally, Sabrina’s signature shoe has become the second most worn sneaker in the NBA this season, following the Kobe 6.

Throughout Q2, we amplified NIKE’s image as the brand for athletes across key sports moments. Our “Winning is uncomfortable” running campaign won recognition as Ad Age’s best ad of 2024, coinciding perfectly with the Chicago and New York marathons. The NFL season’s kickoff was marked by a historic NIKE cleat drop. Recent successes, including the WNBA championship for the New York Liberty and a World Series win for the LA Dodgers, further solidified our brand presence.

In summary, for May, we saw Q2 revenue decrease by 10%. NIKE Direct fell 20%, while NIKE Digital dropped 32%, but NIKE Stores showed a marginal increase of 3%. Wholesale revenue fell by 4%, with EBIT also down 10% on a reported basis. We continue to gain traction in sport performance, driven by significant growth in men’s and kids’ global football and a return to growth in men’s and women’s running. In EMEA, our leading franchises, including Mercurial, Pegasus, and Phantom, grew double digits, complementing gains from emerging brands like Shox and the LD-1000. Furthermore, we are repositioning NIKE Digital in EMEA as a premium platform.

This quarter, full price realization improved, evidenced by a significant decline in off-price sales. Although we’re facing short-term traffic constraints as we dial back promotional efforts and paid campaigns, these adjustments are intended to elevate the entire marketplace in the long run. In Greater China, Q2 revenue dipped 11%, with NIKE Direct down 7%, NIKE Digital decreasing by 4%, and NIKE Stores experiencing an 8% decline, while wholesale dropped by 15%. EBIT decreased by 27%.
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NIKE Faces Challenges Amid Declining Retail Traffic, Plans Strategic Realignment

Tough Quarter Signals Need for Greater Innovation

In Q2, NIKE saw a decline in retail traffic, attributing this trend to a tough macro environment. To combat low sell-through rates and slow inventory movement, the company implemented higher markdowns, which adversely impacted gross margins. Despite these challenges, NIKE is concentrating on innovative products and brand inspiration, particularly focusing on the growing sports market in China. The launch of the Ja 2 was met with strong sales, while Pegasus 41 excelled in women’s running sales. Meanwhile, new ACG apparel generated considerable social media interest. Furthermore, NIKE reported that over 250,000 runners participated in the Shanghai Marathon this fall.

Community Engagement and Brand Loyalty Initiatives

The brand is not just selling products; it’s actively fostering community. Marathoner Eliud Kipchoge participated in various events in China, including school visits and a run along the Great Wall, aiming to inspire young athletes. Despite the current difficulties, the sport sector continues to experience growth in China. NIKE is currently addressing its market challenges to restore brand momentum and ensure a healthier marketplace. In the APLA region, Q2 revenue dipped by 2%.

Financial Overview and Strategic Adjustments

NIKE Direct showed a 4% decline, with NIKE Digital down by 8%, although NIKE Stores recorded a 2% growth. Wholesale revenue fell by 1%, resulting in a 12% drop in EBIT on a reported basis. The company has taken proactive steps in response to changing consumer trends in Korea and Japan, diversifying its sportswear footwear offerings. Classic footwear franchises in APLA have underperformed compared to global metrics, yet new styles are making a comeback. Recent launches like C1TY and Air Max Muse have yielded positive traction, with notable growth in men’s and women’s training and children’s football gear.

Financial Guidance and Market Repositioning Efforts

NIKE plans to maintain quarterly guidance during this transitional period. The new CEO, Elliott Hill, has outlined several strategic moves aimed at revamping the company’s growth and enhancing brand appeal. Notable adjustments include transitioning NIKE Digital to prioritize full-price sales and minimizing reliance on promotions, alongside scaling back on performance marketing which would lessen paid traffic.

To address surplus inventory, short-term liquidation through lower-margin channels is necessary. This shift aims to create room for new seasonal and innovative products expected in the fall and holiday of ’25. Successful execution will require strategic investments in marketing efforts to support major product launches and upcoming sporting events.

Future Predictions and Expected Challenges

Looking ahead, NIKE anticipates that summer order books will be lower than the previous year, and Q3 revenues are projected to decline by low double digits. This forecast also accounts for increased foreign exchange challenges, though a timing benefit from Cyber Week might slightly mitigate losses. Gross margins for Q3 are expected to drop by 300 to 350 basis points, influenced by necessary restructuring actions.

Operating expenses, including SG&A, should slightly decline year-over-year, although there will be continued tight management of costs alongside planned strategic investments. NIKE forecasts other income and expense, including net interest income, to range between $30 million and $40 million for Q3.

Conclusion and Commitment to Growth

In wrapping up the discussion, Elliott Hill reiterated his commitment to put the company on a growth trajectory while regaining market share. He emphasized the necessity for transparency moving forward, promising stakeholders insights into NIKE’s plans and marketplace strategies that may fuel optimism. His vision for the company is ambitious yet rooted in potential, aiming to touch the lives of athletes globally and elevate the NIKE brand experience.

Questions & Answers:

Operator

[Operator instructions] The first question comes from Bob Drbul, Guggenheim.

Robert Drbul — Analyst

Hi. Elliott, welcome back, congratulations, and best of luck.

Elliott Hill — President and Chief Executive Officer

Thank you, Bob. I appreciate it. It’s good to be back.

Robert Drbul — Analyst

I appreciate all the insights you’ve provided. Can you elaborate further on the relationships with your retail partners, particularly your strategies to win back shelf space you may have lost over the last few years?

Elliott Hill — President and Chief Executive Officer

Absolutely, Bob. Our aim is to return to a leading market position by focusing on a consumer-driven approach. We recognize that consumers have different preferences when it comes to shopping NIKE products—some choose NIKE Direct, while others prefer wholesale or digital options. Our task is to present the best NIKE experience across all avenues. I have strong, established relationships with key wholesale partners, and our immediate priority is to regain ground, especially in specialty channels like running and football, where we’ve initiated significant investments.

NIKE’s Strategy to Reignite Growth and Drive Innovation

Positive Feedback from Key Retail Partners

During recent meetings with major retail partners, NIKE emphasized its commitment to restoring its goals and branding. Retailers expressed a strong desire for NIKE to return to its roots, focusing on innovative products across various sports and price points. They seek bold brand statements that can attract customers and drive sales. The goal is mutual profitability, and NIKE plans to achieve this by cleaning up the marketplace, introducing innovative products every quarter, and reigniting brand interest. Retail partners are open and receptive, indicating a promising path for collaboration.

Questions on College Sports

Robert Drbul, an analyst, inquired about the prospects for the University of Oregon Ducks in college football. NIKE CEO Elliott Hill chose to remain neutral, citing his commitment to the NIKE team. With several NIKE-sponsored teams in the playoffs, Hill remains optimistic regarding their chances.

A Focused Investment Strategy

Analyst Michael Binetti welcomed Elliott back to the conversation and shifted the focus to NIKE’s near-term investments. Hill outlined a restructuring strategy aimed at revitalizing the brand and ensuring it returns to growth. The current emphasis is on putting sports at the center of NIKE’s operations, improving product management, and shifting marketing dollars from performance to brand marketing. Additionally, NIKE will invest in the key areas that stimulate product innovation and brand presence.

Market Cleanup and Inventory Management

To clean up the marketplace, Hill noted that NIKE aims to clear out aged inventory, which includes liquidating products and planning markdowns in outlet stores. Matthew Friend, CFO, added context by sharing that ongoing efforts to manage expenses will prioritize investments in brand and demand creation. The financial strategy includes increasing demand creation and sports marketing investments moving forward.

Anticipated Challenges in 2026

Lorraine Hutchinson from Bank of America raised concerns about increased pressure on sales in 2026 due to the acceleration of lifestyle initiatives. Hill reiterated that NIKE’s primary focus is on managing core franchises and responding to market needs. He expressed confidence in the exciting product lineup on the way, particularly in running, training, and sportswear categories, reinforced by strong collaboration across teams.

Overall, NIKE is taking necessary steps to lead the marketplace while looking to innovate and grow its product offerings amid upcoming challenges. The focus is on structured growth, clearing inventory, and creating an impactful brand presence as they move forward in fiscal ’25 and beyond.

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NIKE’s Strategy Shift: Balancing Margins and Market Integrity

Company Aims for Sustainable Growth Amid Short-Term Challenges

In the recent financial discussions, it was highlighted that NIKE’s digital business has faced significant challenges due to franchise concentration. This has resulted in a mid-single-digit headwind on financial results for the remainder of the year, as mentioned last quarter.

The company has initiated accelerated actions under the leadership of Elliott, who stepped into his role 60 days ago, focusing on refining the product portfolio. These efforts aim to reduce supply over the coming seasons, thereby restoring these franchises to a healthy price level across the marketplace. Interestingly, projections for the summer of ’25 show a slight decline compared to the previous year, reflecting these expedited changes.

Despite these hurdles, the introduction of new and innovative products has nearly balanced out the negative impacts. This is a positive signal that NIKE’s ongoing initiatives to nurture a robust pipeline are beginning to resonate with partners and stakeholders.

Operator

Adrienne Yih from Barclays has the next question.

Adrienne Yih — Analyst

Thank you. Elliott, welcome, and I look forward to working together.

Elliott Hill — President and Chief Executive Officer

Thank you, Adrienne.

Adrienne Yih — Analyst

With my phone acting up, I appreciate your patience. I understand the priority of maintaining margins over increasing sales.

As you aim to reset your strategy for next fall, do you believe the proven innovations will be ready to replace the products being liquidated? Also, Matt, is there any ongoing inventory reevaluation affecting gross margins? It seems like you’re clearly focused on margins first, which may imply another potential decline in sales for FY ’26. Is that a valid assumption?

Elliott Hill — President and Chief Executive Officer

Thanks for the question. Let me address the product aspect first. We are segmenting our sports markets, focusing on men’s, women’s, and kids’ categories, assigning dedicated teams to these areas. This segmentation started over a year ago, and we’re beginning to see results from this approach.

Our confidence is particularly strong in our running segment, with new product releases like Structure, Peg, and Vomero offering varied price points, including a robust trail lineup. Our training products, especially the Metcon, remain a cornerstone of our offerings. We’re also excited about fresh concepts that combine comfort with performance.

In basketball, we have thrilling developments, introducing a women’s basketball program featuring stars like Sabrina Ionescu, whose shoe is currently the No. 2 in NBA sales. Additionally, our expanded sportswear line is connecting well with our audience.

Matthew Friend — Executive Vice President, Chief Financial Officer

To address the financial perspective, Adrienne, we are implementing several actions that Elliott has scrutinized. A key focus is to reposition NIKE Direct and NIKE Digital as premium channels. Though we are experiencing revenue declines and margin contractions, we aim to communicate transparently about our strategies every 90 days.

Our third-quarter outlook includes expectations of low double-digit revenue declines, along with a 300 to 350 basis point drop in margins. Certain actions will need time to bear fruit, yet our priority is to restore a full-price marketplace. A healthy inventory is crucial for showcasing new products effectively. Looking into the fourth quarter, we anticipate the challenges to escalate compared to the third.

Operator

The next question is from Jay Sole, UBS.

Jay Sole — Analyst

Thanks for the opportunity. You noted willingness to accept immediate impacts for long-term gains. NIKE historically balances short-term earnings with long-term investments.

My question is: To what extent will you pursue these immediate actions that may hurt financially? How long are you prepared to continue resetting the marketplace and investing in key markets to ensure the brand’s long-term success? Is there a limit to these investments, or is your strategy to do whatever it takes for NIKE to regain its winning path?

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NIKE Outlines Strategic Changes Amid Managerial Insights

Elliott Hill — President and Chief Executive Officer

Thank you for the opportunity to speak. I want everyone to understand that we are moving with urgency in our current initiatives.

As Matt discussed, we are making strategic moves regarding inventory and other areas. The main focus is putting sports back at the heart of our operations. Our product strategy will prominently feature sports, supported by our specialized teams.

Already, we are seeing the positive effects of our investments as we move through spring and summer of ’25, concluding in fall and holiday ’25. From a marketing standpoint, we will continue to support bold brand initiatives. The “Winning is uncomfortable” advertisement was recognized as the 2024 Ad of the Year by Ad Age.

We feel optimistic about our direction. Our investments in sports marketing are ongoing, and we are improving our marketplace strategies.

Investing in the marketplace involves various steps we’ve discussed, including reducing inventory and returning products to vendors. It also includes enhancing marketing for new products and in-store presentations. These strategies are being implemented at both national and community levels, particularly in North America. While this process will take time, I am confident that we are making the right decisions for moving our brand and business forward.

Matthew Friend — Executive Vice President, Chief Financial Officer

Jay, regarding our financial situation in the near term, I categorize our actions into two areas. First, we face immediate challenges due to changes in our sales channels and product lineup. These challenges are currently affecting us. However, we anticipate that once we adjust our channel strategies and product offerings, these challenges will subside.

Second, we have temporary challenges arising from our efforts to streamline our inventory and supply chain management. As sales have decreased, we will aim to recover growth. This framework should clarify our current landscape. We are targeting both these areas and believe that our actions will ultimately elevate NIKE and create new opportunities once they are fully executed.

Operator

Next, we have Matthew Boss from JPMorgan.

Matthew Boss — Analyst

Thank you. Elliott, could you rank the opportunities in your key sports categories? Additionally, what timeline do you envision for realigning inventory and achieving sustainable growth after investments in our product pipeline and marketing?

Elliott Hill — President and Chief Executive Officer

Sure. We are concentrating on five primary sports categories: running, basketball, global football (soccer), training, and sportswear. We will analyze these categories by men’s, women’s, and children’s products. We are excited about the product innovation and merchandising prospects available in these areas. For instance, there are specific times when we need to showcase our running products, including footwear and apparel, across various demographics. Our strategy allows us to address these opportunities, which we believe will drive growth for our brand and business in the future.

These categories represent our immediate focus, and as we learn more, we hope to expand our approach to even more sports, which adds to our excitement.

Operator

The next question comes from Jon Komp at Baird.

Jonathan Komp — Analyst

Good afternoon. I’d like to follow up on the potential for recapturing margins. Elliott, considering the brand’s recent focus on digital sales, do you see any specific opportunities for efficiency in supply chain and distribution, or will recovery rely solely on returning to growth?

Elliott Hill — President and Chief Executive Officer

Growth will undoubtedly drive improvements. I believe the strategic decisions we are making will set us on a path toward long-term sustainable and profitable growth. This includes product innovation, strategic marketing efforts, and a cleansed marketplace. One significant change I’ve implemented in my early days is having Venky, our new chief supply chain officer, report directly to me. He oversees everything from factory operations to logistics and delivery.

This focus will be crucial moving forward, especially concerning margin expansion.

Matthew Friend — Executive Vice President, Chief Financial Officer

Historically, we have maintained a double-digit margin. Assessing our marketplace actions today reveals several upcoming opportunities. Some years ago, we noted the benefit of selling through digital channels, and that relies heavily on full-price sales. Currently, our business is roughly split between 50% full-price and 50% discounted sales, which has pressured our profitability. In addition to managing our inventory effectively, we expect to improve margins through NIKE Direct. This includes initiatives to reduce fulfillment costs and minimize our dependence on paid media for sales, while enhancing brand investments to organically drive more traffic to us and our partners.

Operator

Next, we have Brooke Roach from Goldman Sachs.

Brooke Roach — Analyst

Good afternoon, and thanks for taking my question. Elliott, can you outline any specific actions planned for North America or Greater China to expedite these initiatives over the next year?

Elliott Hill

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NIKE’s North American Strategy and Market Outlook: Insights from Leadership

President and Chief Executive Officer

To start with North America, we have appointed Tom Peddie as the new leader. He brings extensive experience with NIKE, having previously led this region.

Under his guidance, Tom and his team are taking bold steps to improve our marketplace. They focus on rebuilding relationships with our wholesale partners, enhancing our brand presence, and elevating NIKE Direct starting this January. Their plan includes increased investment in Running Specialty Groups (RSG) and establishing a stronger presence in local markets through the EKIN program.

We’ve mentioned significant achievements, such as partnerships with Liberty and the Dodgers. Although this transition will require time, I trust Tom and his team to restore growth in the North American market effectively. Shifting to China, we maintain a long-term optimism about the market potential due to its large consumer base of 1.3 billion people.

Our main goal is to engage these consumers in sports and a sporty lifestyle, which will, in turn, boost the entire marketplace. Recently, while visiting China, I saw firsthand that it is a highly promotional market, with both international and local competition increasing. My experiences there date back to 2002, leading up to the 2008 Olympics, which provides a solid foundation for our strategies moving forward.

Product innovation will be key to our success in China. We are committed to creating products tailored for the Chinese market. Our local product development team, known as the Geo Express Lane (GEL), is actively working on this, alongside the NIKE Sports Research Lab (NSRL) focusing on local athletic needs.

We are poised to make impactful brand statements, such as our involvement with the Shanghai Marathon. A significant focus will be on establishing bolder, consumer-driven NIKE concepts that reflect the brand’s full scope. I’m pleased to report that strong partners like Topsports and Pou Sheng are eager to collaborate. Ultimately, success in both regions hinges on effective product management, brand strength, and effective marketplace strategies.

Operator

Next, we’ll hear from Ike Boruchow at Wells Fargo.

Ike Boruchow — Analyst

Thank you for taking my question. Elliott, it’s great to connect with you. I have a couple of follow-ups for Matt.

Firstly, regarding your expense guidance for the third quarter, can you clarify if this refers to the $4.2 billion expended last year? Specifically, are we accounting for the restructuring charges in this number? Secondly, when discussing increased headwinds in Q3, did you mean this in relation to revenue, gross margin, or is it more encompassing of all three elements?

Matthew Friend — Executive Vice President, Chief Financial Officer

To answer your first question, yes, the SG&A guidance includes the full prior year amount, including restructuring charges. Regarding your second question, yes, the impact of our actions will likely affect revenue, margin, and demand generation more significantly in Q4 compared to Q3.

The year-over-year comparison will show a more pronounced effect in the fourth quarter.

Operator

That concludes our Q&A session and today’s conference call. Thank you all for participating. [Operator signoff]

Duration: 0 minutes

Call Participants:

Paul Trussell — Vice President, Investor Relations and Strategic Finance

Elliott Hill — President and Chief Executive Officer

Matthew Friend — Executive Vice President, Chief Financial Officer

Robert Drbul — Analyst

Bob Drbul — Analyst

Michael Binetti — Analyst

Matt Friend — Executive Vice President, Chief Financial Officer

Lorraine Hutchinson — Analyst

Adrienne Yih — Analyst

Jay Sole — Analyst

Matthew Boss — Analyst

Jonathan Komp — Analyst

Brooke Roach — Analyst

Ike Boruchow — Analyst

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