Nike Crushes Earnings But Tariff Bill Looms: Is the Swoosh’s Turnaround Real or Just a Sprint?

Nike’s first fiscal quarter was the clearest sign yet that the turnaround plan is gaining traction—especially on the profitability levers investors care about. Shares are up roughly 4% pre-market to about $72 after revenue and EPS topped expectations, and while the outlook remains mixed, the quarter’s margin performance and channel execution mark real progress. The debate now shifts from “can margins recover?” to “how fast—despite tariffs and lingering promotional friction?”

Margins first. Gross margin printed 42.2%, better than feared but down 320 bps year over year. Management attributed the decline primarily to lower average selling prices (more discounting and an unfavorable channel mix as wholesale rebounds), increased product costs, and higher North America tariffs. The headline pressure is real, but beneath it are early signs of the repair work: inventory down 2% year over year (units lower), cleaner assortments, and tighter control of demand creation (brand spend down 3% in the quarter after last year’s event-heavy cycle). That combination helped Nike beat on EPS ($0.49 vs. $0.27 est.) even with gross margin headwinds.

Guidance underscores both progress and caution. For Q2, revenues are guided down low single digits, and gross margin is guided down 300–375 bps, including about 175 bps of tariff headwind. Full-year SG&A should rise low single digits, but management does not expect Nike Direct to return to growth this fiscal year. Translation: the path to margin normalization won’t be linear. The most material external swing factor is tariffs—now estimated at a $1.5 billion annualized gross cost, raising the expected FY26 gross-margin drag from about 75 bps to roughly 120 bps. The company can offset some of that through mix, pricing, and cost work, but it’s a stiff headwind that limits how quickly gross margin can climb back toward pre-reset levels.

Promotions and channel mix remain in focus. Wholesale revenues rose 7% (5% currency-neutral) as Nike “re-opened the spigot,” while Nike Direct fell 5% with double-digit declines in digital traffic. Higher factory-store discounting and wholesale allowances weighed on ASPs, and management cautioned that promotions will stay elevated in Greater China and EMEA (and at Converse) near term as inventories are right-sized to demand. The message is pragmatic: win back shelf space in wholesale now, earn it with better product and velocity, and improve full-price sell-through as newness scales. That is consistent with outside commentary noting the channel is being refilled and that future EPS power is underappreciated if execution holds.

On inventory, the setup into holiday looks more balanced. Total inventories fell 2% despite tariff-driven cost inflation, reflecting lower units and better flow discipline. Management expects a healthier inventory position in the second half to support higher full-price sales, particularly as classic franchises are trimmed and new platforms come to market. That’s the hinge of the margin story: less clearance, more newness, cleaner wholesale, and a scaled back-to-basics approach in Direct.

Regionally, North America and EMEA did the heavy lifting. North America revenue rose 4%, with wholesale up 11% as partners leaned in to refreshed assortments; EMEA grew 6%. Greater China declined 9% (footwear down 11%; apparel roughly flat), and management was candid: the operating model is expensive if sell-through doesn’t improve, and the team has “work to do” this year before the flywheel can turn. APLA rose 2%. The China tone was measured rather than rosy, which keeps a lid on near-term margin optimism but raises the stakes for execution into 2026.

Category mix favored apparel, which grew 9% globally (footwear down 1%, equipment up 4%). That’s encouraging for gross margin longer term as apparel tends to support brand heat and attach rates—provided promotions don’t eat the benefit. The most compelling proof point was running: CEO Elliott Hill said Nike Running grew over 20% in the quarter, crediting a “relentless flow of innovation” and improved marketplace execution. Sportswear, by contrast, “has work to do to get sharper on the consumer,” a reminder that the largest lifestyle engine remains mid-reset.

Expenses were disciplined but not starved. Selling and administrative costs fell 1%; demand creation declined 3% as last year’s mega-events rolled off, partially offset by higher sports marketing. Operating overhead was flat, with wage inflation offset by other savings. Net income of $727 million and pretax income of $922 million both beat, even as the effective tax rate ticked to 21.1% from 19.6%.

The bear case didn’t disappear. Digital traffic is expected to be down double digits this year; Direct likely won’t grow in FY26; China and Converse are headwinds; and tariffs are a bigger, more durable tax on margins than investors hoped three months ago. Competition from Hoka and others continues to pressure share and pricing power in performance and lifestyle.

But the bull case finally has operating evidence, not just promises: inventories cleaner, order books for spring reportedly up year over year in key regions, wholesale velocity improving, running accelerating, and apparel growth broad-based. If that product cycle sustains—and promotions bend lower as the half progresses—gross margin can expand from the Q2 trough despite tariffs, with operating leverage re-emerging as mix shifts to higher-ROI demand creation.

Bottom line: this was a good quarter where it mattered—merchandising discipline, channel repair, and early category-led momentum—tempered by realistic guidance that keeps pressure on execution. The turnaround is working, just not yet working everywhere. For now, the market is giving Nike credit for progress; the holiday season will decide how much of that credit it gets to keep.