NIKE’s fiscal Q1 2026 revenue increased modestly by 1% to $11.7 billion on a reported basis, but declined 1% on a currency-neutral basis. The NIKE Brand showed resilience with 2% reported growth (flat currency-neutral), while Converse faced significant challenges with a 27% decline. Revenue performance reflected mixed results across channels, with Wholesale growing 7% (5% currency-neutral) offsetting a 4% decline in NIKE Direct (5% currency-neutral).

The most concerning aspect of the quarter was the gross margin compression of 320 basis points to 42.2%. This significant decline was primarily driven by lower average selling prices reflecting higher promotional activity and unfavorable channel mix, as well as increased tariff costs in North America. The margin pressure demonstrates the challenging retail environment and competitive dynamics the company is navigating.

Operating performance showed relative expense discipline, with selling and administrative expenses declining 1% to $4.0 billion. Demand creation expense decreased 3% to $1.2 billion, primarily due to lower brand marketing spend as the prior year included higher investments in key sports events. Operating overhead remained flat at $2.8 billion despite wage inflation, demonstrating management’s cost control efforts.

Net income declined sharply by 31% to $727 million, with diluted earnings per share of $0.49 representing a 30% decrease from the prior year’s $0.70. The decline was more pronounced than the revenue performance due to the significant gross margin compression. The effective tax rate increased to 21.1% from 19.6%, adding further pressure on net income as decreased benefits from stock-based compensation impacted the tax rate.

The quarter’s results reflect NIKE’s transition phase as the company executes its “Win Now” strategy while managing external headwinds including tariffs, promotional pressures, and competitive dynamics. CEO Elliott Hill acknowledged that progress will not be linear as different dimensions of the business recover on varying timelines.

North America delivered 4% revenue growth to $5.0 billion, representing a key bright spot as management’s focus on this priority market showed results. Growth was broad-based with particularly strong performance in apparel (up 11%) and equipment (up 16%), while footwear remained flat. However, EBIT declined 7% to $1.1 billion, reflecting the impact of gross margin compression and increased promotional activity needed to drive the revenue growth.

Europe, Middle East & Africa (EMEA) posted solid 6% reported revenue growth to $3.3 billion, though currency-neutral growth was more modest at 1%. The region showed strength across all categories, with apparel growing 11% (6% currency-neutral). However, similar to North America, EBIT declined 7% to $735 million as margin pressures offset revenue gains. The significant currency headwinds in this region underscore NIKE’s exposure to FX volatility.

Greater China remained the most challenging market, with revenues declining 9% to $1.5 billion (10% currency-neutral). Footwear sales fell 11% while equipment plummeted 32%, partially offset by flat apparel performance. EBIT decreased 25% to $377 million, reflecting both volume declines and margin pressure. The Greater China weakness reflects ongoing consumer sentiment challenges and competitive pressures in this critical market for NIKE’s long-term growth.

Asia Pacific & Latin America showed modest 2% growth to $1.5 billion (1% currency-neutral). Performance varied across the diverse markets in this segment, with footwear growth of 1% and apparel growth of 7% offset by a 6% decline in equipment. EBIT declined 13% to $350 million, indicating margin pressure similar to other regions.

Across all geographies, the consistent theme was EBIT declining more significantly than revenues, highlighting the pervasive margin pressure from promotional activity, channel mix shifts, and tariff impacts. This demonstrates the challenging balance NIKE faces between driving volume growth and maintaining profitability.

Footwear, representing 65% of NIKE Brand revenues, declined 1% to $7.4 billion (2% currency-neutral). This represents the company’s largest category challenge, with declines in Greater China (down 11%) and modest growth in other regions. The footwear weakness reflects intense competition, shifts in consumer preferences, and the company’s ongoing product transition as it focuses on innovation and Running as a strategic priority.

Apparel emerged as a strong performer with 9% growth to $3.3 billion (7% currency-neutral). Growth was consistent across all major geographies, with particularly strong performance in North America (up 11%) and EMEA (up 11% reported, 6% currency-neutral). The apparel strength demonstrates NIKE’s diversified product portfolio and ability to capture growing athleisure trends.

Equipment showed solid growth of 4% to $630 million (3% currency-neutral), with exceptional performance in North America (up 16%). However, the category faced challenges in Greater China where equipment sales declined 32%, likely reflecting both consumer sentiment and market-specific dynamics.

The category mix shift toward apparel and away from footwear likely contributed to some of the gross margin pressure, as footwear typically carries higher margins. Management’s focus on Running as a strategic pillar aims to reignite footwear momentum, though this will take time to materialize in results.

NIKE’s channel performance showed a significant shift as the company rebalances its go-to-market strategy:

Wholesale Channel Performance

Wholesale revenues grew 7% to $6.8 billion (5% currency-neutral), representing a strategic pivot as NIKE strengthens partnerships with key wholesale accounts. This growth reflects management’s renewed focus on the Wholesale channel as a priority area in their “Win Now” strategy. The wholesale momentum is encouraging and suggests NIKE’s retail partners are seeing improved sell-through and are willing to increase orders.

NIKE Direct Performance

In contrast, NIKE Direct revenues declined 4% to $4.5 billion (5% currency-neutral), reflecting challenges in both digital and physical retail:

• Digital: NIKE Brand Digital declined 12%, representing a significant headwind as the company laps strong prior-year growth and faces increased competition in e-commerce
• Retail Stores: NIKE-owned retail stores decreased 1%, showing relative resilience but still facing traffic challenges

The channel performance divergence illustrates NIKE’s strategic recalibration. After years of emphasizing Direct-to-Consumer, the company is rebalancing toward Wholesale while maintaining its owned retail presence. This shift recognizes the important role wholesale partners play in NIKE’s ecosystem and market reach.

Management’s commentary emphasized that Wholesale is one of three priority areas alongside North America and Running, signaling a sustained commitment to this channel. The wholesale growth, combined with Direct challenges, suggests this rebalancing will continue in coming quarters.

NIKE faced significant margin pressure in Q1 FY2026, with profitability declining more sharply than revenues across key metrics:

Gross Margin Compression

The 320 basis point decline in gross margin to 42.2% represents the most significant profitability challenge. This compression was driven by multiple factors:

• Promotional Activity: Lower average selling prices reflecting higher discounts to drive volume in a competitive environment
• Channel Mix: Shift toward Wholesale (which carries lower margins than Direct) created unfavorable mix effects
• Tariff Impact: Higher tariff costs in North America added to cost pressures
• Product Costs: Inventory valuation reflected increased product costs, partially due to tariffs

Operating Expense Management

Despite revenue challenges, NIKE demonstrated expense discipline:

• Total S&A Expenses: Declined 1% to $4.0 billion (34.3% of revenues)
• Demand Creation: Decreased 3% to $1.2 billion, reflecting lower brand marketing spend as the prior year included major sports event investments
• Operating Overhead: Flat at $2.8 billion despite wage inflation, demonstrating cost control

EBIT Performance

Total NIKE, Inc. EBIT declined 28% with EBIT margin contracting to 7.7% from 10.9%. The sharp decline reflects the multiplicative effect of gross margin compression flowing through to operating profit. Segment EBIT performance showed consistent declines across all geographies, with Greater China EBIT falling 25% being the most pronounced.

The margin challenges underscore the difficult operating environment NIKE faces, balancing the need to drive volume through promotional activity while managing cost pressures from tariffs and maintaining investments in brand and innovation.

NIKE maintains a solid balance sheet despite near-term profitability pressures:

Key Balance Sheet Metrics

• Cash Position: $8.6 billion in cash, equivalents and short-term investments, down approximately $1.7 billion from the prior year
• Total Assets: $37.3 billion, down slightly from $37.9 billion year-over-year
• Shareholders’ Equity: $13.5 billion, down from $13.9 billion, primarily due to share repurchases and dividends exceeding net income
• Long-term Debt: $8.0 billion, stable compared to prior year
• Total Debt: $8.0 billion (no current portion after repaying $1.0 billion in bonds)

Working Capital Management

• Inventories: $8.1 billion, down 2% year-over-year reflecting decreased units partially offset by higher product costs from tariffs. The inventory decline demonstrates improved supply chain management
• Accounts Receivable: $5.0 billion, up 4%, reflecting wholesale revenue growth and timing of collections
• Accounts Payable: $3.8 billion, up 12%, indicating extended payment terms with suppliers

Capital Allocation & Shareholder Returns

NIKE continues its strong track record of returning capital to shareholders, including 23 consecutive years of dividend increases. In Q1 FY2026, the company returned $714 million to shareholders:

• Dividends: $591 million, up 6% from prior year, with quarterly dividend of $0.40 per share (up from $0.37)
• Share Repurchases: $123 million, retiring 1.8 million shares
• Buyback Progress: Total of 124.4 million shares repurchased for $12.1 billion under the four-year, $18 billion program approved in June 2022

The decrease in cash position of $1.7 billion reflects cash generation from operations being more than offset by shareholder returns, bond repayment, and capital expenditures. Despite the cash decline, NIKE maintains ample liquidity to fund operations and strategic initiatives.

CEO Elliott Hill articulated NIKE’s strategic direction focused on “Win Now” priorities and the new “Sport Offense” organizational alignment:

Win Now Strategic Priorities

• North America: Priority market showing 4% growth in the quarter, demonstrating early traction from focused initiatives
• Wholesale: Renewed emphasis on wholesale partners, with 7% revenue growth reflecting strengthened relationships
• Running: Key category focus to reignite innovation and competitive positioning in this foundational sport

Sport Offense Organizational Alignment

Management introduced a new organizational structure called “Sport Offense” designed to maximize NIKE, Inc.’s complete portfolio across sports categories. While details remain limited, this appears to represent a significant reorganization to improve category focus and execution.

Management Commentary on Progress

CEO Hill acknowledged: “While we’re getting wins under our belt, we still have work ahead to get all sports, geographies, and channels on a similar path as we manage a dynamic operating environment.” This realistic assessment suggests management expects continued variability in performance across the portfolio.

CFO Matthew Friend noted: “Progress will not be linear as dimensions of our business recover on different timelines.” This guidance-setting statement prepares investors for continued quarter-to-quarter volatility as the turnaround unfolds.

External Challenges

Management highlighted several headwinds the company is navigating:

• Tariff impacts on gross margins, particularly in North America
• Competitive promotional environment requiring higher discounts
• Greater China consumer sentiment challenges
• Digital channel softness after years of strong growth

The strategic pivot toward Wholesale, focus on priority markets, and emphasis on Running as a core category represent significant shifts from recent strategy. Success will depend on execution across product innovation, brand marketing, and retail partnerships.