Key Points:
- Nike beats earnings but profits drop.
- Shifts focus to wholesale and Amazon.
- China demand and tariffs hurt outlook.
Nike’s Turnaround opened fiscal 2026 with better-than-expected results, offering a glimmer of progress in its ongoing turnaround efforts. For the quarter ending August 31, revenue rose 1 % to $11.7 billion, surpassing Wall Street projections. Diluted earnings per share came in at $0.49, beating analyst estimates, though down from $0.70 last year. Net income slipped 31 % to $727 million, reflecting broader pressure on profitability.
Margins remained a key concern, with gross margin contracting to 42.2% — a decline of 320 basis points from the prior year — largely due to tariff costs, heavier discounting, and continued pricing pressure. Within Nike’s business mix, the core Nike brand posted a modest 2% revenue increase to $11.4 billion, while Converse plunged 27%. Direct-to-consumer sales fell 4%, including a 12% drop in digital performance, though wholesale revenue offset some of the weakness with a 7% gain. Regionally, North America grew by 4%, but Greater China weighed heavily with a 10% decline.
Strategic Shifts Under the “Win Now” Plan
Nike’s Turnaround leadership framed the quarter as an encouraging step forward, even as they cautioned that the recovery will not be straightforward. CEO Elliott Hill emphasised that while North America, wholesale, and performance running are showing positive momentum, other areas are moving at different paces. The company is in the midst of rebalancing its strategy, with a renewed push into wholesale distribution, a stronger emphasis on women’s and performance categories, and selective use of platforms such as Amazon to broaden reach.
Inventory cleanup and tighter channel management remain central to the turnaround. Yet, external headwinds continue to weigh heavily: Nike now expects annual tariff costs of roughly $1.5 billion, higher than its earlier forecast. China remains a particular weak spot, with consumer demand taking longer than anticipated to recover. Executives noted that while some markets are stabilising, the growth path will be uneven and dependent on strengthening global retail conditions.
Market Outlook and Investor Sentiment
The market reacted positively to Nike’s Turnaround earnings beat, with shares edging higher after the announcement. Analysts welcomed the upside surprise but maintained a cautious tone, citing ongoing structural challenges — including weaker digital sales, pressured margins, and lingering uncertainty in China. For the second quarter, Nike anticipates revenue will decline in the low single digits, underscoring the near-term volatility the company faces.
Long-term, executives remain confident in Nike’s ability to regain its footing. The company expects its direct-to-consumer business to recover later in fiscal 2026, with North America leading the rebound. Additionally, major sporting events such as the 2026 FIFA World Cup are seen as potential catalysts to reignite performance sports sales and brand momentum.
Overall, Nike’s Turnaround first-quarter performance reflects cautious progress: earnings outpaced expectations and core markets are stabilising, yet deeper issues persist. The turnaround is underway, but the brand still faces significant hurdles before it can claim a full recovery.
