Nike’s Late‑September 2025 Earnings (Fiscal Q1 2026): The Key Takeaways Investors Need Now

Nike’s fiscal Q1 2026 (quarter ended Aug. 31, reported Sept. 30) cleared a low bar on revenue and EPS. Sales rose about 1% year over year to $11.72 billion versus roughly $11.0 billion expected. EPS came in at $0.49, well ahead of the $0.27 consensus. That top- and bottom-line outperformance was notable given management’s prior guidance for a mid-single-digit revenue decline.

The quality of earnings was tempered by profitability pressure. Gross margin declined 320 basis points year over year to 42.2%, reflecting clearance activity and higher product costs tied to tariffs. Net income dropped to $727 million from $1.05 billion a year ago, down roughly 31%. Importantly, while Nike outperformed its own guidance on Q1 gross margin and SG&A relative to June commentary, it simultaneously raised the expected tariff burden for the fiscal year, implying additional pressure ahead.

The near-term outlook remains cautious. Management expects revenue in the current quarter (September through November) to decline in the low-single digits year over year, inclusive of a roughly 1 percentage point currency tailwind. Gross margin is guided down 300–375 basis points year over year for the period, and SG&A dollars are expected to rise in the high-single digits as Nike funds demand creation and rebuilds organizational capacity. That guidance suggests that while the turnaround is progressing on the demand side in specific pockets, the P&L repair will be non-linear.

Nike increased its estimate of the annualized impact of tariffs to about $1.5 billion, up from approximately $1.0 billion previously. For fiscal 2026, management now expects a gross margin headwind of roughly 120 basis points from tariffs, up from about 75 basis points indicated in June. This step-up largely explains the deeper gross margin decline guided for the current quarter.

Why are tariffs so painful? Recent academic work on tariff pass-through has shown that U.S. import tariffs tend to be absorbed primarily by domestic firms—importers and retailers—rather than being fully passed along to consumers via higher shelf prices. That dynamic compresses retail margins, especially when the macro environment constrains pricing power and when promotional clearance remains a lever to normalize inventories. Nike’s Q1 underscores that reality: the company continued to lean on clearance to make way for new styles, while also facing higher landed costs.

Mitigation is underway, but not instantaneous. Nike is optimizing sourcing, with a plan to reduce China footwear import exposure into the high-single-digit percentage by the end of fiscal 2026, and it has begun a targeted price increase this fall. The company is also working closely with suppliers and wholesale partners to absorb and offset part of the inflationary shock. The net effect in fiscal 2026 is still a margin headwind; the key is whether price architecture and sourcing shifts can narrow that drag into the back half and set up a more constructive gross margin cadence into fiscal 2027.

There is tangible momentum where Nike has re-centered around sport and wholesale. Wholesale revenue grew 7% to about $6.8 billion, and North America sales rose 4% to roughly $5.02 billion, exceeding internal and external expectations. The running category, a flagship of Nike’s sport-first strategy, delivered over 20% growth in the quarter. Management also highlighted stronger-than-expected engagement and sales from the re-engagement of Nike’s brand store on Amazon, which is emerging as a scaled distribution node for select product flows.

Organizationally, Nike is realigning teams by sport across Nike, Jordan, and Converse, aiming to speed the innovation cycle, create sharper consumer narratives, and improve the end-to-end pull-through from product creation to retail storytelling. The company has begun implementing the structure, affecting around 8,000 employees (with roughly 1% of roles eliminated), and expects the new operating model to improve category focus and execution velocity through fiscal 2026.

However, several areas remain under repair. Nike Direct declined 4%, consistent with a pivot back to wholesale partners and an intentional de-emphasis of some lower-margin DTC flows during clearance. Converse sales fell 27%, and Greater China revenue declined 9%, with management calling out structural marketplace challenges and the need for incremental investments to keep channels clean. Notably, Nike does not expect its direct business to return to growth in fiscal 2026, and it anticipates continued revenue and margin headwinds in China and at Converse throughout the year.

For the current quarter that spans most of the holiday season, Nike expects revenue to decline low single digits year over year despite a roughly one-point tailwind from foreign exchange. That framing implies underlying demand remains choppy, particularly where product resets and inventory actions still weigh on the mix. The gross margin guide—down 300–375 basis points—bakes in incremental tariff impact, with partial offset from a moderation in clearance intensity as the half progresses.

Inventory execution continues to be a critical swing factor. Total inventory dollars declined about 2% year over year in Q1, with lower units offset by higher unit costs reflecting tariffs. Management reiterated that the second half should benefit from less clearance, a necessary precondition for gross margin progression. The company is betting that a tighter, sport-led assortment paired with cleaner channels will improve sell-through and pricing power into the spring and beyond.

The wholesale order book is a relative bright spot. Management said the spring order book is up versus last year, led by sport categories, and Nike expects wholesale to return to modest growth for the full fiscal year. If reorders hold and cancellation rates remain contained, wholesale momentum could counteract ongoing DTC softness and help stabilize overall revenue trajectory as product innovation and reset cycles mature.

The bull case is straightforward: Nike delivered a clean beat versus the Street and outperformed its own conservative guidance. Early signs of re-acceleration are visible where the company has refocused—wholesale, North America, and running—with Amazon re-engagement and sport-first merchandising supporting better engagement and sell-through. The leadership cadence under Hill has been credible to date, and the announced price and sourcing actions, if executed well, can shrink the tariff drag over time.

The bear case hinges on margin math and execution risk. The tariff headwind is larger than previously contemplated, DTC is contracting this fiscal year by management’s own admission, and both China and Converse likely require sustained investment and time before returning to healthier growth and profitability. Near-term gross margin pressure and a step-up in SG&A to fund demand creation mean operating leverage is unlikely to materialize until the back half at best.

Key monitors over the next 90–180 days: (i) China sell-through and inventory health as seasonal resets cycle; (ii) the wholesale reorder curve into spring and any signs of cancellations; (iii) realized tariff mitigation via sourcing and targeted pricing; (iv) stabilization in DTC traffic and conversion despite lower emphasis; (v) the gross margin cadence versus reliance on clearance; and (vi) category innovation velocity, especially in running, basketball, and women’s, including the early traction from the SKIMS partnership.

Risks include tariff and broader trade-policy volatility, consumer demand softness, foreign-exchange swings, and competitive share shifts from Adidas, Lululemon, On, and Deckers. There is also execution risk in the ongoing reorganization and product pipeline, particularly as Nike attempts to balance wholesale momentum with selective DTC positioning and a cleaner marketplace.

Catalysts center on product and channel execution. New drops in running, basketball, and women’s; tangible operational wins from the sport-first organizational model; early normalization signals in China; successful price architecture and sourcing shifts; and incremental traction from the SKIMS collaboration could all provide upside to sentiment. Conversely, any deterioration in the wholesale order book, elevated cancellations, or weaker-than-expected holiday sell-through would reinforce the bear case and extend the margin recovery timeline.