NIKE Inc. (NYSE:NKE) 2018 Annual Shareholders Meeting Call September 20, 2018 1:00 PM ET
Mark Parker - Chairman of the Board of Directors and President and CEO of NIKE
Ann Miller - Vice President and Corporate Secretary
Andy Campion - Chief Financial Officer
Jonathan Rodgers - Former President and CEO of TV One
Tim Cook - Lead Independent Director, CEO of Apple
Cathy Benko - Board Member
Peter Henry - Board Member
Dean Emeritus - NYU's Stern's School of Business
John Donahoe - CEO of ServiceNow
Alan Graf - CFO of FedEx
Beth Comstock - Vice-Chair of GE
I'm Mark Parker, Chairman of the Board of Directors and President and CEO of NIKE. Welcome to NIKE's 30th Annual Shareholders Meeting. I'd like to introduce first our Board of Directors. Firstly I have Lead Independent Director, Tim Cook, CEO of Apple. Next to Tim is Cathy Benko our newest board member. Cathy is former Vice-Chair and Managing Principal of Deloitte. And next to Cathy is Peter Henry. Peter joined the Board earlier this year, and is Dean Emeritus of NYU's Stern's School of Business. And next to him is John Donahoe, CEO of ServiceNow. And next to John is Alan Graf, the CFO of FedEx. Next to Alan is Beth Comstock former Vice-Chair of GE.
And in the second row, we have Michelle Peluso, Chief Marketing Officer of IBM. And next Michelle is John Conners, a partner at Ignition Partners and former CFO at Microsoft. And next to John, is Travis Knight, President and CEO of Laika. And next to Travis is John Lechleiter, the former CEO and Chairman of the Board of Eli Lilly. And next to him is Hall of Fame, Basketball Coach, John Thomson. And finally next to coach is Jonathan Rodgers, former President and CEO of TV One and former President of Discovery Networks. I'd like to thank Jonathan for his outstanding contribution and insights during his tenure, including in his role most recently, as a member of the Compensation Committee of the Board. Jonathan is stepping down, this is his last meeting. You will be greatly missed.
I note the presence of our outside auditors, Rob Gettings and Trevor Tyacke. They are from PricewaterhouseCoopers. And they have been NIKE's outside independent auditors for many years. We have Lisa Porter of Computershare here as well. Computershare will serve as the Inspector of Elections.
Before we get started, I'd like to ask our Corporate Secretary, Ann Miller, to remind you of the ground rules for the meeting. Ann?
Thank you, Mr. Chairman. First, the use of cellphones, computers or audio or video recording equipment, is prohibited at all times during the meeting. A transcript of the meeting will be available on our Web site shortly following the conclusion of the meeting.
Second, unless you have been recognized by the Chairman, we ask that you remain seated and quiet during the course of the meeting. Where you have been recognized by the Chairman to present a proposal, please limit your remarks to no more than three-minutes. And please ensure your remarks are related to the proposal and not other matters. This will help ensure those presenting proposals have an equal opportunity to speak and that the meeting runs smoothly for the benefit of all shareholders. Third, as part of registering to attend the meeting this morning, you should have received a card, on which you could write your questions. Those cards should have been collected as you entered the meeting. If your card has not been collected, please raise your hand now so an usher can collect it.
Thank you. Management welcomes and will answer as many questions as time permits. Where one or more questions or submitted about a particular matter, we'll consolidate those questions and answer them together. A failure to observe these rules is a basis for removal from the meeting. We appreciate your cooperation. Thank you, Mr. Chairman.
Thank you, Ann. All right, let's get on to business. The agenda for the meeting will be: first, to consider four matters to be voted on by shareholders: second, to hear report on the state of the business; and finally, our Chief Financial Officer, Andy Campion and I, will answer questions from the shareholders.
The results of the balloting will be announced shortly after voting. I've been advised by the Corporate Secretary that notices of this meeting were duly and properly given, being mailed in accordance with the bylaws on August 8, 2018. And that a quorum of both Class A and Class B common stock are present today. Since the quorum is present, I declare this Annual Meeting of the Shareholders of NIKE Inc. duly convened. We will dispense with the reading of the minutes of the last Annual Meeting and proceed to the matters to be voted on.
There are four matters to be voted on in this Annual Meeting, each of which is described in your proxy statement; one is the election of Directors; two, an advisory vote to approve executive compensation; three, a shareholder proposal regarding political contributions disclosure; and four, ratification of the appointment of PricewaterhouseCoopers as NIKE's independent auditors for the current fiscal year.
Ann, I'd like you to present the Board of Directors' recommendations to the shareholders at this time.
Thank you, Mark. The first matter we will vote on is the Election of Directors. The Board nominees for election by the Class A shares, are; Cathy Benko, Beth Comstock, John Connors, Tim Cook, John Donahoe, Peter Henry, Travis Knight, Mark Parker, John Thompson, Jr. The Board's nominees for election by the Class B shares are; Alan Graf, Jr., John Lechleiter, Michelle Peluso. I move that these nominees be elected to the Board of Directors.
Is there a second? Thank you we have a second. In accordance with the Company's bylaws and corporate governance guidelines, the Board has reviewed and considered all other nominations received by the Company. Therefore, I declare the nomination is closed.
The second matter to be voted on is an advisory vote on executive compensation. I move that the compensation of the named executive officers as described in the proxy statement be approved.
Is there a second? Thank you. We have a second.
The third matter to be voted on is a shareholder proposal regarding political contributions disclosure. Is the proponent or its representative here to present the proposal?
Unidentified Company Representative
Yes, good morning. My name is Brian [indiscernible] and I stand on behalf of Investor Voice to move proposal number 3, which ask for improved disclosure on political spending. This is the proposal 6th year and last year for vote was over 30%. The highest yet, which is important to note for two reasons; first, because the SEC mandated threshold for automatic resubmission is only 10%; and two, when one considers the shares that are truly independent, not controlled or heavily influenced by founder, family, insiders and those closest to them, these votes may well represent the thinking of an absolute majority of independent stockholders.
What does this proposal actually ask for and why? It’s simple really. The proposal asked NIKE to be a leader. It’s no secret that the growing costs for public elections concerns most voters, especially the influence of dark money paid by corporation and wealthy elites to a host of non-traceable entities. This proposal would protect NIKE and shareholder dollars from those begging for dark money handouts. NIKE peers, Boeing, Microsoft, Starbucks, Plum Creek, Washington Mutual and Nordstrom, each acknowledged as much when they agreed to transparency of this and started reporting on their political spending.
Especially in light of the Colin Kaepernick ad campaign, what does NIKE truly believe? Does it believe that the words middling, unremarkable and mediocre are acceptable? NIKE’s rank among peers is quite middling, only 55.7 out of a 100 on the prestigious CPA-Zicklin Index, which was compiled by the Center for Political Accountability and the Wharton School Zicklin Center for Business Ethics Research. This proposal shows NIKE the way to true excellence. For our part, we believe in what NIKE has set of itself, take the high road then go higher. Greatness is for us all. This is not about lowering expectations, it’s about raising them.
And from Phil Knight himself, there’s an immutable conflict at work, in life and in business, a constant battle between peace and chaos. Neither could be mastered but both can be influenced. How you go about that is the key to success. This proposal presents one of the keys to success, it involves the how. This key to success does not succumb to get enough and fade away in the middle of the pack. It is not fearful of leading despite what competitors may or may not do. This key to success involves formalizing the Company’s highest aspirations and taking the stand openly and proudly, not just for love of the game but for the good of the game. Please cast your vote for proposal number 3. Thank you.
Okay. Is there a second? Thank you. We have a second.
The final matter to be voted on is shareholder ratification of the appointment of PricewaterhouseCoopers as the Company’s independent registered public accounting firm for fiscal 2019. I move that the selection of PricewaterhouseCoopers be ratified.
Is there a second? Thank you. We have a second. Does anyone need a ballot? Any shareholder who wants a ballot should raise his or her hand and the ushers will provide a ballot. It is not necessary to ask for a ballot if you’ve already sent in your proxy. If you previously sent in a proxy, please do not execute a separate ballot unless you mark your ballot to show that a proxy was previously submitted and that you desire to revoke your proxy. There are separate ballots for Class A and Class B shareholders.
Okay. I now declare the polls closed. The Inspector of Elections will now tally all votes on the measures and return the votes to the Secretary. While the votes are tallied, I’d like to share and review our performance in fiscal year '18.
At NIKE, we are in the business of human potential, and that means helping athletes reach new heights is central and that links everything that we do. And through that process, we’ve learned that the best in their sports do more than what it takes to win today. They also set themselves up to succeed tomorrow, which is a good way to describe NIKE’s fiscal year 2018 where we delivered strong results, created value for our shareholders and more importantly, set the stage for our future.
In fiscal '18, we invested to define the next decade of performance innovation, of retail and a next generation supply chain. We began the year aligning to the new consumer director offence. It created focus on our biggest growth opportunities by revitalizing the North America retail landscape and accelerating the momentum we see internationally. And it makes real our triple double strategy where we go deep on our three core areas, and that’s innovation, direct and speed.
We’re transforming our company through digital to ignite our next phase of long-term sustainable growth and profitability. And with this new strategy, we’re now tracking progress through new measures of success. At our Investor Day, last October, we highlighted that over the next five years more than 50% of our growth will come from new innovation platforms that will scale across multiple categories.
Revenue from digital, both owned and partnered, will increase to more than 30% of our overall business. And the acceleration we see globally will continue with nearly 75% of our growth coming from our international geographies. And we’re well on our way to accomplish our goals. In fiscal '18, we saw immediate progress; for example, new innovation platforms help to fuel NIKE sportswear, which is now a $10 billion category; the largest sportswear business in the world and growing fast. Our revenue from digital commerce grew 27%. Greater China, the home of our greatest growth opportunity, grew 21% for the year. And we saw a strong growth across our EMEA and APLA geographies. And our largest geography, North America, returned to healthy and sustainable growth in the fourth quarter.
So I’ll dive into some of the details for the year, starting with how we’re creating deeper connections with consumers. As you might have seen, right now, we’re celebrating the 30th Anniversary of Just Do It. And in many ways, that rally cry and self belief and big dreams rings truer than ever before. The consumer landscape though is fractured. It has fractured, it's accelerated. And that original Just Do It Campaign in 1988 leveraged TV as the best way to communicate to humanity at once. Well, it's different. Today, with mobile phones at our fingertips to communicate, to consume, to educate and entertain in an instant, we're reinventing how we connect with our consumers. Not just once, but again and again. And we do through our app ecosystem as we continue to expand geographically and in new capabilities.
The Sneakers app, for example, is the world's number one footwear shopping app and is completely transforming how consumers shop for Sneakers. And we're using data in whole new ways, where we are rewarding our most devoted Sneaker app members with access to exclusive products and specialized services, and we're combining physical and digital experiences. We're leveraging the benefits of each to create frictionless and personal moments with consumers. And we're refreshing assortments at stores based on what app users in the local area are buying.
And to accelerate our journey, this year, we acquired two exceptional analytics companies, Zodiac and Invertex. We acquired both companies to leverage their world-class data scientist and proprietary tools to make us even more precise. By sensing the market faster and removing friction, we're delivering the right products at the right time. And it's creating stronger full price sell through and better overall supply and demand management. In other words, this is one of the many investments that proves its worth in the near term, as well as far into the future.
Now, fiscal '18 was a year where we led in sport as well. We celebrated our first ever all NIKE World Cup Men's Final this summer with amazing performances from NIKE athletes, like Luka Modric and Kylian Mbappé; Shalane Flanagan became the first American woman to win the New York City Marathon in over four decades; Kevin Durant back-to-back NBA titles and final NVP awards; Brooks Koepka won the U.S. Open and the PGA Championship this year; and of course last week, Eliud Kipchoge smashed the Marathon world record by over a minute finishing at 2 hours 1 minute and 39 seconds in Berlin, amazing.
In Basketball, our first full year as NIKE Partners with the NBA, it proved the massive success, leading through performance and style. It was great for our brand and our business as we introduced new franchises like addition Jerseys, City Addition Jerseys, and the Showtime Hoodie. As our players and our lead partners grow in popularity, passion for sport has never been higher. We see people everywhere wanting to lead healthier lives. In China and the U.S. alone, more than 500 million people are active at least once a week.
With the variety of athletes we see today, we're offering more choice on our top products. And one way we're doing that is through a renewed focus on innovation platforms, not just individual products but actually platforms that can be adapted to multiple sports and styles. And through those different dimensions, we sustain growth over many years. In fiscal year '18, we unveiled the Nike React cushioning in running with the Epic React. It's already one of the top performance running shoes in the market.
And we've begun to transfer some of that Nike React energy into Sportswear. This exciting new models, like the React 87 element. More categories will begin to adopt React is fiscal '19, including iconic styles from Jordan. The cultural shift to active lifestyles and comfort made Air Max one of the years' dominant platforms. The Air Max 270 became the most successful launch in Air Max history. And Air VaporMax delivered in a big way across both performance and Sportswear.
The success of our new cushioning platforms is driving momentum in our women's business as well. In fact, following our launches last quarter, the 270, the VaporMax and the Epic React, were the top three selling women's athletic footwear models above $125. Overall, women's sportswear continues to set the pace for the category. One of the biggest opportunities for fiscal '19 is to scale our women's sneaker business across both NIKE and Jordan. In women's apparel, lifestyle is also leading the way, highlighted by strong growth in tops and fleece. And looking ahead, we're building on our leadership in sports bras and bringing more innovation through Nike Flyknit apparel in the second half of the year. It's great to see all the energy across our women's products and marketplace teams right now.
In fiscal '18, we also released our sustainable business report, which detailed our progress in the areas that are shaping greater purpose for the company. It highlighted how sustainability continues to be an integral part of our business agenda, and gave many examples, such as Flyleather and Air VaporMax that are good for the environment, provide distinction and catalyzed growth. It also covered who we advocate for bring sports into kid's lives. How we're innovating a new business model for the 21st century through supply chains that create value being lean, green and fair. And now we're focused on ensuring that NIKE is the kind of place we all want it to be, for our people, right here at home and around the world.
This is the most important investment we're making right now. We're rolling out concrete initiatives that include new training programs for employees, manager and leadership development and fostering an environment of openness and accountability. Ultimately, this was a year of sharpening our focus and setting the stage for long-term sustainable growth. We closed out fiscal year '18 with strong performance across the business but we still see tremendous opportunity ahead. And the work continues to build on our momentum. NIKE is after all a company that loves to look ahead, not just the tomorrow but decades into the future. I'm confident that this extraordinary team and our vision as we look forward to continuing to serve our athletes, our consumers and our shareholders, in fiscal year '19 and beyond.
And with that, I'd like to invite our Chief Financial Officer, Andy Campion on stage to join me for Q&A session.
Okay, this is interesting. Who do you think will play Phil Knight in the Shoe Dog movie? I do not know. I’m actually very curious about that myself. That might be a hard casting call. But Frank Marshall, who’s, we know at NIKE, one of the top producers is producing that film and I’m sure you will make some great judgment on that one, I do not know, the answer to that question. What specific actions are being taken to address the recent culture issues?
Well, NIKE, I will say right up front, we have a bright future. The actions that we’re taking as the Company, I think, we’ll ultimately make us stronger. I want to say upfront too that I am grateful for all our employees, for their courage in speaking up, and making sure that we are focused on our biggest opportunities as a company. We are driving the change that we want to see as a company. And that includes increasing diversity, particularly in our leadership ranks, executive training that focuses on diversity and inclusion, dedicated diversity recruiting efforts. And the team that’s totally focused on that, so the focus on increasing representation, particularly with people of color and women and leadership level positions.
We have Nike networks, which represent our diverse population as employees. We’ve been accelerating our commitment to our networks, engaging with the networks in the movement to try to move forward into a more inclusive environment. We are changing our HR processes, which includes being more aware of sensing issues and making sure that employees are fairly free to speak up and gather insights and use those insights to drive change.
And then we’re establishing more tangible programs and leadership training for all managers. I think this month, we’re at 7,500 managers, who’ve gone through leadership training, and we should be at 10,000 by the end of the month. We are, I’ll just say, committed, absolutely committed and focused to creating an environment of exclusivity, of diversity, of empowerment and respect. And that is something I personally as CEO and Chairman have as a top priority. And I feel like we are making incredible progress along those lines. So I feel good about where we are.
Thank you for that. What are your thoughts on all the U.S.- China rhetoric, and how do you think this will impact NIKE’s international business?
Okay, that’s a big one. Well, let me just say I mentioned it in my remarks on the business. China, as you know, is an incredibly important growth market for NIKE. We are leading in the marketplace. A lot of that is the connection that we’re making with the consumer, the work that we’re doing around digital transformation, the innovation that’s resonating with consumers in China as well. So we are focused on continuing that growth.
We see we see tremendous opportunity in this fiscal year. And actually, moving forward, I think we’ve had 16 straight consecutive quarters of double-digit growth. So China is a big opportunity and a big business for NIKE. We are, as a company, committed to free and fair trade. I think that’s important. We hope that the government sections are sensitive to the pressure that tariffs that place on consumers, retailers, workers. And all I can say is that we’re monitoring the developments closely to make sure that we’re in the best possible position we can be.
Yes. And Mark, I’ll just add that in the midst of this uncertainty over the long-term, global trade uncertainty and geopolitical dynamics can have an impact on NIKE in the short-term from a financial perspective. We are seeing increased foreign exchange volatility as a result of some of these dynamics. And as many of you know as shareholders, today, over 55% of our business is derived in international markets. So, from an exposure perspective, we are exposed to foreign exchange. We do have a robust hedging program and that is particularly true with respect to develop markets, such as in the Euro, The Sterling and The Yen where we tend to delay the impact, almost entirely for a 12 month to 24 month period. And in some cases, we have laid the volatility altogether, especially if the short-term in nature.
There are other markets, emerging markets in particular, which have certainly been a focus for all of us over the last several months. Those markets include markets like Turkey, Argentina Brazil. And in those markets the currencies frankly aren’t economical to hedge. And so even in a period where we have extraordinary momentum like we do now and we assess that momentum, primarily by looking at our currency neutral results to see the quality of our growth and earnings. Even in those periods, foreign exchange can have an impact on several of the line items within our P&L, within any given quarter.
But that said, we’ve got a long track record at Nike, a management team many of which are here today, who have experience managing all of the operating levers within our business to stay focused on creating value for the brand and creating value in the brand and ultimately, growth, profitability and returns to you, our shareholders over the long-term.
Okay. Next question, why would Nike launch a campaign featuring Colin Kaepernick, who could be polarizing to some consumers? Well, I will say that first off that we are incredibly proud of the Just Do It Campaign, introducing it to the new generation after it was introduced 30 years ago. I think it’s a fantastic example of the aspiration many athletes, we celebrate in that spot. They have chased their dreams just like many challenges and difficult odds. We all know Colin's roll in the ad, but I would call out also some of the other athletes Serena, Libran, Odell Beckham Jr. Lacy Baker, Shakeem. These are athletes who represent inspiration, chasing a dream and doing what it takes to reach their potential and that’s for and that they would Nike is all about.
We are Sports Company, sports and social issues do intercept occasionally. We’ve had a history here of -- from supporting women in sports with Title 9, Women’s participation in sports very important ratio and the quality, stand-up speak-up, HIV Aids, the quality. So, there is a number of places where there is a natural intersection between sports and social issues. We are a sports company, first and foremost. But we believe that this communication this campaign is inspirational to many people, not just here in the United States but around the world and I'm proud of the work. Colleen is one of the most inspirational athletes of our time, as well as the other athletes featured in the spot. And together, I think they're good example of leveraging the power of sport to help move the world forward. And we are very proud to be a part of that.
Okay, final question I think is it is. You are going through a significant transformation as a company. Is this going to have an impact on your approach to investments and remaining -- returning capital to shareholders?
I'll take that one. Mark just said NIKE is a sports company. First and foremost, we're also a growth company. We've always been focused on growth. It's in our DNA. And our top priority in terms of our use of capital always has been and will continue to be to invest to fuel that growth over the long term. Our growth agenda today requires transformational change at NIKE to deliver on the growth that we aspire to and the connections that we intend to create leveraging digital with our consumers around the world.
Driving that change requires setting a clear vision and direction for our teams around the world. And earlier mark spoke about the consumer direct offense, which we shared in a very immersive way with our shareholders at our Investor Day earlier this year. It also requires making sure that we put resources and investment against the capabilities that are required to drive that change. So from a prioritization perspective, we are over-indexing our investment around digital capabilities from a consumer connection and commerce perspective, around product innovation and within our supply chain.
We're prioritizing those investments. And at the same time, we are seeking and seizing upon, opportunities within the rest of our spending and our investment to gain productivity and leverage. And obviously, that's a formula that we believe ultimately creates the right level of investment to drive growth and drive it in a profitable and capital efficient way so that we continue to deliver the extraordinary returns for shareholders that you've become accustom to over the long term.
Thank you. Okay. And I see you have received the report of the Inspector of Elections. Will you please give me the results?
Yes Mr. Chairman. The 12 nominees have been duly elected as directors of the company for this ensuing year. The compensation of the named executive officers has been approved the shareholder proposal did not pass. And PricewaterhouseCoopers' selection as the independent registered public account firm for the current fiscal year has been ratified. Thank you.
Thank you, Ann. Since we have not received notice of any of the business to come before this meeting, the meeting is now adjourned. Shareholders who would like a brief tour of Nike World Campus can join the tour as you exit the meeting room after the closing the video. I want to point out one more thing that I think is the tremendous when you leave the room if you haven't seen it coming in, you can see the shoes that Eliud Kipchoge ran at Berlin on Sunday to smash the Marathon world record. They were delivered last night.
And it's an amazing example of athlete driving technology and innovation that improves performance. Elliott and NIKE have been in inspiring relationship working together, and his performance is absolutely amazing. So the shoes they actually wore in the race are out in the lobby. One thing I'll says is the pace that he ran -- [indiscernible] for going is about 68 seconds per 400 meters, so just try running that for 200 meters and you get a sense of --. So anyway, thank you all. Please take a look. And I think that, that ends the meeting. And we'll show you a video. And thank you for your attendance.
End of Q&A