Nike's 2025-2026 Earnings Calls: Contradictions Emerge on China Market Recovery, Revenue Visibility, Margins, and North America Growth Strategy

Date of Call: None provided

Financials Results

• Revenue: Revenues up 1% reported, flat on a currency-neutral basis; NIKE Direct down 9% (NIKE Digital -14%, NIKE stores -3%); Wholesale up 8%; Classics franchise reduction ~ $550M headwind, >20% decline vs prior year — excluding that headwind, currency-neutral revenue grew ~6%.
• EPS: $0.53 per diluted share.
• Gross Margin: 40.6%, down 300 basis points year-over-year; company cites ~$320 bps gross headwind from new U.S. tariffs in FY'26 (net ~120 bps after mitigation actions); Q3 guidance excludes/isolates ~315 bps tariff impact when discussing underlying expansion.

Guidance:

• Q3 revenue expected down low single-digits; modest growth in North America; Greater China and Converse expected similar to Q2; ~3-point FX tailwind.
• Q3 gross margin expected down ~175–225 bps; excluding ~315 bps of tariff-related higher product costs, gross margin would be expanding.
• Q3 SG&A dollars expected up low single-digits driven by demand-creation and sport-offense investments.
• Other expense, net of interest income, expected to be an income of $0 to $10 million.

Business Commentary:

• Revenue Growth and Brand Performance:
• NIKE, Inc. reported revenue up 1% on a reported basis, and flat on a currency-neutral basis for Q2 2026.

• The growth was driven by an 8% increase in wholesale sales, despite a significant 20% decline in Classics footwear franchises.

• North America Market Success:

• North America reported a revenue growth of 9%, with wholesale sales up 24%.
• This success was attributed to effective partner segmentation, product realignment, and strong marketing efforts.

• Greater China experienced a 16% decline in revenue, with NIKE Direct declining 18%.

• The region faces challenges due to promotional activity, aged inventory, and weaker consumer demand, prompting a reset strategy to improve product presentation and consumer engagement.

• Sport Dimensions and Product Innovation:

• The Running category grew over 20% for the second consecutive quarter, driven by new products like the Structure 26 and Structure Plus.
• Successful product launches and diversification efforts in sportswear and football are contributing to revenue growth.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management repeatedly framed the quarter as 'steady progress' and 'middle innings' of a comeback, citing: revenue up 1% reported, North America +9% with wholesale +24%, Running >20% growth, improving order book and a stated path back to double-digit EBIT margins despite tariff headwinds.

Q&A:

• Question from Matthew Boss (JPMorgan): Could you elaborate where you've scored runs so far versus remaining opportunities and the components/progression of gross margin excluding tariffs?
  Response: Sport offense and Win Now actions are driving diversification and momentum (notably Running and North America); tariffs are a material headwind but, excluding tariff impact, underlying gross margin is beginning to expand.

• Question from Irwin Boruchow (Wells Fargo): When will the recovery stop being non-linear and provide better visibility for investors?
  Response: No firm timeline — recovery timing varies by brand, sport and geography; focus is on North America first and managing the business quarter-by-quarter while building confidence to give more visibility.

• Question from Robert Drbul (BTIG): Is there a timeline to return to double-digit EBIT margin and how deep a reset is needed in China; are we near a bottom there?
  Response: No specific timing for double-digit EBIT provided — path depends on growth, mix improvement and cost/operational efficiencies; China requires a structural reset (store investment, assortment, clean-up) and will take time, with actions underway but no sign that the reset is complete.

• Question from Aneesha Sherman (Bernstein): How do you see phasing of growth across verticals beyond Running and is the North America partner mix right?
  Response: Running and Football are most advanced with strong pipelines across other sports (training, SKIMS, basketball); North America wholesale growth is balanced between new and existing partners and the current partner mix is viewed as healthy.

• Question from Jonathan Komp (Baird): Is China likely to follow the North America playbook/timeline and why not provide multi-year margin targets?
  Response: China may take longer than North America due to structural and partner-driven complexities; management needs ongoing flexibility to trade the business and will disclose longer-term targets as confidence and visibility improve.

• Question from Simeon Siegel (Guggenheim Securities): What products drove North America growth and how should we think about operating overhead leverage?
  Response: North America growth driven by Running, football, training, SKIMS and strong Jordan sell-through; wholesale-led unit growth should provide structural cost leverage while marketing investment remains roughly targeted around 10% of revenue.

Contradiction Point 1

Confidence in China Market Recovery

It shows differing levels of confidence in the company's ability to recover and stabilize the China market, which is significant for investors and strategic planning.

Can the North America experience of returning to growth in 2-3 quarters serve as a timeline/playbook for China? Why not provide 2-3 year targets or more specifics on the timeline to restore double-digit margins? - Jonathan Komp (Baird)

20251219-2026 Q2: China is a long-term opportunity, but the current approach isn't working, and we're adapting. We're cleaning up marketplace excess, investing in key regions, and expecting success but at a different pace. - Elliott Hill(CEO)

Can you share when you expect the recovery to become linear, allowing clearer visibility for investors on the reset revenue and earnings base? - Irwin Boruchow (Wells Fargo)

2026Q2: Greater China and Converse remain challenging but are being managed in real-time. - Matthew Friend(CFO)

Contradiction Point 2

Revenue and Earnings Visibility

It involves changes in financial forecasts, specifically regarding revenue and earnings visibility, which are critical indicators for investors.

When do you expect the reset of the revenue and earnings base to become sustainable, and when will investor visibility improve? - Irwin Boruchow (Wells Fargo)

20251219-2026 Q2: Each brand, geography, and channel has different timelines. North America is doing well, and EMEA just started the sport offense. Expectations are that the marketplace will elevate consumer experience but it's a multi-year plan. - Elliott Hill(CEO)

Can North America's 2-3 quarter growth recovery serve as a timeline/playbook for China, and why not provide 2-3 year targets for returning to double-digit margins? - Jonathan Komp (Baird)

2026Q2: We are operating in a dynamic environment and are focused on managing transitory headwinds and making the right decisions to establish long-term health. - Matthew Friend(CFO)

Contradiction Point 3

Gross Margin Expansion

It involves financial performance expectations, specifically regarding gross margin expansion, which affects investor expectations and strategic planning.

Can you share the key achievements so far in the turnaround and your confidence in its success? Also, Matt, can you detail the gross margin components contributing to the Q3 guidance? - Matthew Boss (JPMorgan)

20251219-2026 Q2: The focus is on recovery of full-price mix, leveraging supply chain costs, and disciplined cost management. - Matthew Friend(CFO)

Elliott, you mentioned the turnaround is in the middle innings—could you elaborate on progress made vs. remaining opportunities and your confidence in achieving success? Matt, could you break down the gross margin components, including the underlying expansion excluding tariffs for Q3 and the expected progression moving forward? - Matthew Boss (JPMorgan Chase & Co, Research Division)

2026Q2: Business is still in transition with transitory and structural headwinds. North America's gross margins show improvement despite tariff impacts. Expansion, excluding tariffs, is expected to be positive in Q3, reflecting progress beyond tariff impacts. - Matthew Friend(CFO)

Contradiction Point 4

North America Growth and Marketplace Strategy

It involves the consistency of growth expectations and strategies for the North American market, which is a critical region for NIKE's overall performance.

What components of gross margin contributed to the third quarter guidance? - Matthew Boss (JPMorgan)

20251219-2026 Q2: North America's gross margins were down 330 basis points despite tariffs. Q3 margins are expected to decrease by 175-225 basis points, but excluding tariffs, there's potential for expansion. - Matthew Friend(CFO)

How does the spring order book compare to the positive holiday order book from last quarter? - Michael Binetti (Evercore ISI Institutional Equities, Research Division)

2026Q1: North America's gross margins were down 330 basis points despite tariffs. Q3 margins are expected to decrease by 175-225 basis points, but excluding tariffs, there's potential for expansion. - Matthew Friend(CFO)