Nike's Q1 2026: Contradictions Emerge on Digital Repositioning, Inventory Strategy, Margins, and Profitability

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 30, 2025

Financials Results

• Revenue: Up 1% reported, down 1% currency-neutral YOY
• EPS: $0.49 per diluted share (YOY comparison not provided)
• Gross Margin: 42.2%, down 320 basis points YOY

Guidance:

• Q2 revenue expected down low single digits (incl. ~+1 pt FX).
• Q2 gross margin down ~300–375 bps (incl. ~175 bps tariff headwind).
• Q2 SG&A up high single digits; operating overhead up low single digits.
• Q2 other expense $10–$20M; tax rate low-20% (Q2 and FY26).
• FY26: Wholesale to return to modest growth; NIKE Direct not expected to grow.
• North America leads recovery; Greater China and Converse remain headwinds in FY26.
• FX tailwind to reported revenue; minimal FY26 gross-margin benefit due to hedges.
• Tariffs: annualized gross incremental cost ~$1.5B; FY26 GM headwind ~120 bps.
• Expect 2H margin benefit from less clearance; lapping prior-year clearance a modest revenue headwind.

Business Commentary:

* Financial Performance and Market Dynamics: - NIKE, Inc. reported that revenues were up 1% on a reported basis and down 1% on a currency-neutral basis for Q1 Fiscal 2026. - Gross margins declined by 320 basis points to 42.2% on a reported basis, primarily due to higher wholesale discounts, increased product costs, including new tariffs, and channel mix headwinds. - The decline in revenue and gross margin was attributed to challenges in Greater China, increased promotional activity across regions, and higher product costs due to tariffs.

• Regional Performance and Market Recovery:
• North America revenue grew by 4%, with NIKE Direct down 5%, but wholesale grew by 11%.
• Greater China faced a 10% decline in revenue, with NIKE Direct down 12%, and wholesale down 9%.

• The improvement in North America was driven by increased brand activity and strategic actions, whereas in Greater China, the challenge was attributed to structural marketplace issues and aggressive marketplace actions to reduce inventory.

• Product and Brand Strategy:

• NIKE Running grew over 20% in Q1, attributed to a focus on consumer insights and innovative product offerings.
• The global football segment showed growth with new product launches, but the overall sportswear business continued to decline, indicating challenges in consumer demand and product positioning.

• The success in running was attributed to aligning product offerings with consumer needs, while the sportswear decline was due to a need for more clarity in consumer segmentation and product construction.

• Digital Business and Promotional Strategy:

• NIKE Digital experienced a 12% decline, with efforts to reposition as a full-price business impacting traffic.
• Organic traffic was down double digits due to reduced promotional activity and a strategic shift away from classic franchise focus.
• The rebranding of the digital ecosystem is aimed at increasing full-price engagement and profitability, with a focus on clear brand distinction across channels.

Sentiment Analysis:

• Revenue up 1% reported but gross margin fell 320 bps to 42.2%. Q2 revenue guided down low single digits and Q2 gross margin down 300–375 bps with tariff headwinds. Digital down 12% and Greater China revenue down 10%. Offsetting positives: spring order book up YOY, wholesale expected to return to modest growth in FY26, and North America momentum with running up >20%.

Q&A:

• Question from Michael Binetti (Evercore ISI): Please contextualize the spring order book versus the positive holiday book; and update on the path back to double-digit margins.
  Response: Spring orders are up YOY, led by sport, with NA/EMEA/APLA offsetting China; double-digit margins remain achievable long term, but FY26 margins are moderated by new tariffs, with improvement hinging on organic growth, higher full-price mix, and operating leverage; 2H should benefit from less clearance.

• Question from Piral Dadhania (RBC Capital Markets): Any evidence of August pull-forward and how is September trending?
  Response: No material pull-forward drove Q1; Q2 revenue guided down low single digits due to tougher NIKE Digital compares from reduced promos, less FX benefit, and deeper Dunk pullbacks; environment remains dynamic but product- and sport-led stories drive sell-through when aligned.

• Question from Matthew Boss (JPMorgan): What are the early wins and the foundation to scale the strategy?
  Response: Win Now actions are working in running (+20%), North America, and wholesale; the new Sport Offense reorganizes by sport/brand to speed insights and execution; still rebuilding Sportswear, NIKE Direct, and China.

• Question from Brooke Roach (Goldman Sachs): What’s driving NIKE Digital traffic pressure and the milestones to return to profitable growth?
  Response: Traffic is down due to deliberate pullback on promotions, lower classic/launch mix, and reduced paid media to shift to full price; EMEA/NA are furthest along; Direct won’t grow in FY26 but should become healthier and more profitable as wholesale momentum builds.

• Question from Lorraine Hutchinson (BofA Securities): How are you turning China digital and what are the cost/timeline for store refreshes?
  Response: China recovery will be sport-led with localized product, elevated stories, and refreshed mono-brand concepts; inventory is cleaner (NIKE down 11%), but improving sell-through is essential; store pilots show promise before scaling, and China remains a topline/margin headwind through FY26.

• Question from John Kernan (TD Cowen): Status of wholesale inventory and when do wholesale discount headwinds ease?
  Response: Inventory progress is solid with unit reductions across regions (except APLA focus); wholesale partner inventory is healthy and order books are up; expect 2H gross-margin uplift from lapping clearance, though other GM headwinds will partially mute gains.