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

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

Date of Call: None provided

Financials Results

• Revenue: Up 1% reported and down 1% currency-neutral YOY
• EPS: $0.49; YOY comparison not provided
• Gross Margin: 42.2% on a reported basis, down 320 bps YOY

Guidance:

• Q2 revenue 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; other expense $10–$20M.
• Tax rate in low-20% range for Q2 and FY26.
• FY26 wholesale to grow modestly; Nike Direct not returning to growth.
• North America leads recovery; Greater China and Converse remain FY26 headwinds.
• FY26 gross margin net tariff headwind ~120 bps.
• FX tailwind to reported revenue; minimal FY26 gross-margin benefit.
• SG&A to grow low single digits in FY26.
• Lapping prior-year clearance creates modest revenue headwind in 2H.

Business Commentary:

* Revenue and Gross Margin Trends: - Nike reported revenues up 1% on a reported basis and down 1% on a currency-neutral basis for Q1. Gross margins declined 320 basis points to 42.2%. - The decline in gross margins was attributed to higher wholesale discounts, increased product costs due to new tariffs, and channel mix headwinds.

• North America Performance:
• North America revenue grew 4%, with Nike Direct declining 3% while wholesale grew 11%.

• The growth in wholesale was driven by shipment timing in the prior year and higher liquidation volumes to value channels.

• Digital Commerce Challenges:

• Nike Digital experienced a 12% decline, influenced by a significant reduction in promotional activity and lower markdown rates.

• The strategy aims to reposition digital commerce as a full-price business, focusing on reducing classic and launch shares of its business.

• Greater China Market Dynamics:

• Greater China revenue declined 10%, with Nike Digital down 27% and owned stores down 4%.
• The decline was due to lower consumer traffic, underperforming seasonal sell-through, and a more promotional digital marketplace.

Sentiment Analysis:

• Progress cited: revenue up 1% reported, running grew >20%, North America revenue up 4%, spring order book up. Headwinds: gross margin down 320 bps to 42.2%; Q2 revenue guided down low single digits and gross margin down ~300–375 bps; tariffs now ~120 bps FY26 GM headwind; Nike Direct traffic down double digits and not expected to grow in FY26; Greater China down 10% and remains a headwind.

Q&A:

• Question from Michael Binetti (Evercore ISI): How does the spring order book compare to the positive holiday book, and what’s the path/milestones to medium-term margin recovery back toward double digits?
  Response: Spring order book is up YoY and led by sport across regions (excluding China); double-digit margins remain achievable longer term, though FY26 is moderated by tariffs—recovery depends on reigniting growth, restoring full-price mix, and driving operating leverage.

• Question from Pearl Dhanani (RBC): Any evidence of pull-forward into August and how is September trending?
  Response: No material pull-forward; Q1 wholesale benefited from shipment timing. Q2 revenue down low single digits due to tougher Nike Digital comps, lower FX benefit, and a larger Dunk reset versus last year.

• Question from Matthew Boss (J.P. Morgan): What early wins underpin North America’s return to growth and running acceleration, and how does the new structure scale to other areas?
  Response: Win-now actions drove >20% running growth, North America growth, and wholesale momentum; the new sport offense organizes by sport/brand/channel to speed insights and execution, scaling successes to football, training, basketball, and sportswear.

• Question from Brooke Roach (Goldman Sachs): What’s driving Digital traffic pressure and key milestones to restore profitable growth?
  Response: Traffic declines stem from deliberate pullback on promos, launches, classic franchises, and paid media to reset Direct as full-price; progress shows in healthier mix and wholesale momentum; Direct won’t grow in FY26 but is being positioned for higher profitability.

• Question from Lorraine Hutchinson (Bank of America): How will you turn around Greater China Digital and what are the costs/timeline for store refreshes?
  Response: China recovery focuses on sport-led innovation, localized product, better storytelling, and refreshed mono-brand concepts; digital remains highly promotional. Investments have cleaned inventory, but sell-through must improve; pilots are encouraging yet need refinement, so FY26 remains a top-line and margin headwind.

• Question from John Kernan (TD Cowen): Status of inventory in wholesale and when do wholesale discount headwinds abate?
  Response: Inventory health improved (units down in most regions); expect 2H gross margin lift as clearance laps; partner inventories are healthy and the order book is up, supporting reduced discounting over time.