Nike's Q2 2026 Earnings Call: Contradictions in North America Recovery, China Strategy, and Margin Expectations

Date of Call: None provided

Financials Results

• Revenue: Up 1% reported, flat on a currency-neutral basis; Nike Direct down 9% (Nike Digital -14%, Nike Stores -3%); Wholesale +8%; by geography: North America +9%, Greater China -16%, EMEA -1%, APLA -4%
• EPS: $0.53 per diluted share
• Gross Margin: 40.6%, down 300 basis points YOY (primarily due to higher product costs from new U.S. tariffs and inventory obsolescence in Greater China); North America GM down ~330 bps despite ~520 bps gross tariff impact
• Operating Margin: EBIT under pressure with geography declines (North America EBIT -8% reported; EMEA EBIT -12%; Greater China EBIT -49%; APLA EBIT -15%); company sees path back to double-digit EBIT margins but timing unspecified

Guidance:

• Q3 revenue expected to be down low single digits, with modest growth in North America and Greater China and Converse expected similar to Q2; includes ~3-point FX benefit.
• Q3 gross margins expected down ~175-225 bps; excluding ~315 bps impact from new tariffs gross margin expansion would be positive.
• Q3 SG&A dollars expected up low single digits due to demand-creation and Sport Offense investments.
• Other expense, net of interest income, expected to be income of $0–$10 million.

Business Commentary:

* North America Revenue and Market Share Growth: - Nike's North America region reported revenue growth of 9% in Q2, with wholesale growth of 24%. - This growth was driven by strong performance in Running, Kids, basketball, and training sports, along with strategic partner engagement and marketing efforts.

• Running Segment Performance and Market Share:
• Nike's Running segment achieved over 20% growth for the second quarter in a row, with growth across all channels, including Nike Direct and wholesale.
• The growth was due to the strong performance of new stability shoes like the Structure 26 and Structure Plus, as well as enhanced marketing efforts.

• Strategic Product Diversification and Innovation:
• Nike continues to focus on diversifying its product portfolio, introducing new platforms like Nike Mind and AeroFit, which aim to enhance performance and appeal in basketball, football, and other sports.

• The company is leveraging its athletes and new platforms to drive growth and market share in various sports, with a strong order book for the back half of the year.

• China Market Challenges and Reset:

• Greater China saw a 16% decline in revenue in Q2, with Nike Direct down 18% and wholesale declining 15%.

• The decline was due to inconsistent store traffic, softer sell-through rates, and higher aged inventory. Nike is resetting its approach to fit the unique digital-first marketplace and elevate the brand's premium positioning.

• Gross Margin Pressure and Turnaround Efforts:

• Nike's gross margins declined 300 basis points to 40.6%, primarily due to higher product costs from tariffs and inventory obsolescence in Greater China.
• The company is navigating transitory and structural headwinds, but improving marketplace conditions in North America and plans to increase investment in marketing and technology integration are expected to support a return to sustainable, profitable growth.
  

  Sentiment Analysis:

  Overall Tone: Neutral

  • Mixed results: management called the quarter "slightly better than anticipated" and highlighted momentum (revenues +1% reported; Running +20%+; North America +9%), but stressed margin pressures from tariffs and China inventory obsolescence and guided Q3 revenues down low single digits and gross margins down 175–225 bps.

Q&A:

• Question from Matthew Boss (J.P. Morgan): Could you elaborate where you’ve scored runs so far versus where you have opportunity remaining and your overall confidence that you can win the game? And Matt, could you elaborate on the components of gross margin you cited and the progression excluding tariffs moving forward?
  Response: Win Now Actions + Sport Offense are working (notably Running and North America); traction is strongest in North America while China and parts of Converse/APLA lag; margins pressured by higher tariffs and China obsolescence—Q3 GM guide down 175–225 bps including ~315 bps tariff hit, and excluding tariffs GM would expand.

• Question from Ike Boruchow (Wells Fargo): When do you believe the caveat that recovery won't be linear won't be needed anymore and you'll have better visibility to hold momentum and provide clearer guidance?
  Response: No definitive timeline; recovery varies by brand, sport and geography—North America is furthest along and the immediate focus, but company will continue a 90-day cadence and provide more detail as confidence increases.

• Question from Bob Drbul (BTIG): Is there a timeline to return to double-digit EBIT margins? And how deep a reset is necessary in China—are we near a bottom in revenue or EBIT declines?
  Response: There is a clear path to double-digit EBIT (growth, operational efficiency, supply-chain leverage, cost discipline) but no timeline; China requires a structural reset (store/product/presentation/partner approach), early pilots encouraging but recovery will take time and no clear bottom was given.

• Question from Anisha Sherman (Bernstein): How do you see phasing of growth across verticals beyond Running—areas with similar conviction—and are you satisfied with the current mix of wholesale partners or will you continue to ramp distribution?
  Response: Pipeline strong beyond Running (global football, training, Skims, basketball, apparel innovations); Running and football are furthest along; North America wholesale growth is balanced between new and existing partners and the company is comfortable with partner mix—no urgent need to add distribution.

• Question from Jonathan Komp (Baird): Should we expect China to follow a North America playbook/timeline (initial pressure then recovery)? And why not provide 2–3 year targets or more specificity on timeline to double-digit margins?
  Response: China will not mirror North America exactly—requires a different structural approach and partner work; management is operating in a dynamic environment and prefers to retain flexibility, so they will provide longer-term specifics when confidence and visibility improve.

• Question from Simeon Siegel (Guggenheim Securities): What product categories drove the outsized North America revenue growth and how should we think about operating overhead leverage as wholesale penetration grows and funding demand creation?
  Response: North America growth driven by Running (market share gains), basketball, training, Skims and Jordan hits; wholesale-led unit growth delivers operating-leverage benefits across supply chain and overhead, while brand investment (~10% of revenue) remains prioritized and operating overhead will be tightly managed.

Contradiction Point 1

North America Market Recovery and Timeline

It involves differing perspectives on the recovery timeline and strategic focus in North America, which are crucial for understanding the company's regional growth strategy.

When will the recovery be linear and revenue/earnings visibility improve for investors? - Ike Boruchow (Wells Fargo)

2026Q2: North America shows increasing confidence in sustaining momentum. - Elliott Hill(CEO)

Could you achieve total growth this year given that wholesale is the largest driver? - Jonathan Komp (Baird)

2025Q4: The majority of the businesses are moving forward, and we're moving as fast as we can. - Elliott Hill(CEO)

Contradiction Point 2

China Market Strategy and Timeline

It involves the strategic approach and timeline for Nike's recovery in the China market, which is crucial for future growth.

Can the North American timeline be applied to China? Are the headwinds temporary? - Jonathan Komp (Baird)

2026Q2: China needs a fresh perspective and new capabilities. - Elliott Hill(CEO)

What is the timeline for Chinese market recovery and the current competitive and operating environment? - Brooke Roach (Goldman Sachs)

2025Q4: We are working on this now, and next quarter, you will see some of the first steps in what I will call Phase 1 of our renewal. - Elliott Hill(CEO)

Contradiction Point 3

Gross Margin and Operating Margin Expectations

It involves expectations for gross margin and operating margin performance, which are critical financial indicators for investors.

Could you explain your progress in the middle innings and confidence in success, and provide details on gross margin components and their progression? - Matthew Boss (J.P. Morgan)

2026Q2: Q3 guidance reflects underlying margin expansion excluding tariffs. - Matt Friend(CFO)

Can you discuss whether gross margin pressures will ease sequentially and if there's an opportunity to return gross margins to growth in the back half? - Lorraine Hutchinson (Bank of America)

2025Q4: We expect gross margin to moderate sequentially for the balance of the year, improving as we lap the impact of these reductions in the latter half of FY '26. - Matthew Friend(CFO)

Contradiction Point 4

North America Growth and Confidence

It involves differing levels of confidence and milestones in the expected growth and recovery in the North America market, which is a critical component of Nike's revenue and investor expectations.

When will the non-linear recovery caveat no longer apply, and when will investors gain clearer visibility on revenue and earnings? - Ike Boruchow(Wells Fargo)

2026Q2: North America shows increasing confidence in sustaining momentum. - Elliott Hill(CEO)

What are the early wins driving North America's growth and acceleration in running, and what is the structural foundation for scaling this strategy? - Matthew Boss(JPMorgan)

2026Q1: We're now seeing early signs of recovery in North America. - Elliott Hill(CEO)

Contradiction Point 5

China Market Strategy and Recovery

It highlights changes in the strategic approach and recovery timeline for the critical China market, which impacts Nike's global sales and competitive positioning.

Can the North America timeline be applied to China? Are headwinds temporary? - Jonathan Komp(Baird)

2026Q2: China needs a fresh perspective and new capabilities. - Elliott Hill(CEO)

What strategies are being used to revive the China digital business? What is the cost and timeline for the store refresh? - Lorraine Maikis(BofA Securities)

2026Q1: We are accelerating our Sportswear strategy in China, aiming our business to be more sport-centric and to be more globally recognized. - Elliott Hill(CEO)