NIKE, Inc. (NKE) Earnings

Management highlights

### New Operating Model and Organizational Changes - Rolled out the new "Sport Offense" operating model, moving ~8,000 teammates into vertical sport-focused cross-functional teams to sharpen consumer and product focus. - CFO Matthew Friend will depart after nearly 18 years at Nike, with a planned seamless leadership transition in the coming months. ### Brand and Product Progress - Nike Running delivered 5 consecutive quarters of double-digit growth, adding ~$1 billion in revenue over that period and gaining 5 percentage points of running footwear market share in Western Europe and North America. - Global football saw strong early momentum from the 2026 Men's World Cup activation: the connected multi-phase marketing campaign generated 1.5 billion views in the first week of the tournament, national team kit sales hit 2.5x the volume of the 2022 World Cup comparable period, and the new Mercurial cleat became the fastest-selling 24-hour cleat launch in Nike Direct history. - Cut $2 billion of underperforming classic footwear from the portfolio in FY26 to rebalance toward higher-demand performance products. - Shai Gilgeous-Alexander moved to the Nike basketball roster, allowing Converse to refocus fully on its creator-focused lifestyle business centered on the Chuck Taylor and Jack Purcell franchises. ### Integrated Marketplace Transformation - Wholesale revenue grew 4% full year FY26, led by 10% Q4 growth in North America; Nike revenue and retail sales comps with partner Foot Locker turned positive for the first time in 4 years. Refreshed more than 15,000 wholesale partner retail spaces globally. - For Nike Direct: Elevated more than 150 stores with sport-focused experiences, reduced discounting on Nike Digital, and plans to close underperforming locations that do not align with the new premium strategy. The company targets elevating 50% of its owned Nike Direct store fleet by the end of FY27. ### Local Consumer Engagement - Expanded local grassroots and community activations globally: TOMA grassroots football tournaments reached over 10,000 kids across 25 cities, the Chinese High School Basketball League partnership covers 600 teams, Jordan's The 1 tournament operates in 20 global cities, and the Shanghai After Dark running tour will expand to 7 Chinese cities in fall 2026. ### Supply Chain and Cost Optimization - Streamlined supply chain operations, redeployed Nike Direct technology resources to support end-to-end value chain improvement, and invested in advanced manufacturing and planning tools to improve speed, cost efficiency, and reliability. Took initial severance charges (~$400 million total in FY26) for workforce and facility restructuring to drive longer-term operating leverage. ### Greater China Reset - Executing a comprehensive market reset focused on returning to sport, increasing local product development, deepening cultural relevance, and cleaning up excess inventory. Near-term investments in premium reset retail locations have delivered high single-digit same-store sales growth, and full price realization on digital platforms has improved after aggressive promotion cuts over the past two quarters. Local designed/developed product will launch in China in holiday 2027.

Guidance

- The company reaffirms its prior expectation for adjusted earnings (excluding the one-time 2026 tariff recovery benefit) to be flattish on a cumulative basis from Q4 FY26 through Q2 FY27. - Revenue is now expected to decline low to mid single digits over this period, revised from the prior guidance of a low single digit decline, as the company tightens buy plans and reduces future sell-in to manage inventory and improve full price sales. - Gross margin expansion is now expected to begin in Q1 FY27, earlier than the prior expectation of inflecting positive in Q2 FY27. - Q1 FY27 specific guidance: Reported revenue is expected to decline low to mid single digits with no foreign exchange tailwind, gross margin is expected to expand slightly, and SG&A expense is expected to be flat year-over-year, with operating overhead declining even as demand creation investment grows high single digits to support World Cup activations. Full year FY27 effective tax rate is projected to be in the low-20% range. - Q2 FY27 is expected to see a sequential revenue deceleration relative to Q1, creating a multi-point headwind from tough year-over-year comparables: driven by high digital promotion levels in EMEA Q2 FY26 and anomalously high North America wholesale shipment timing in Q2 FY26. - Nike Sportswear and Jordan Streetwear are expected to remain negative year-over-year for full year FY27, with performance improvement expected in the second half of the fiscal year. Together the two categories represent approximately half of Nike's total revenue. - The company does not expect the broader macro environment to improve meaningfully over the next 6 months.

Segment performance

This summary organizes performance by geographic segment, as product segment revenue breakdowns by absolute value and contribution percentage were not explicitly provided in the call: 1. **North America (Q4 FY26):** Revenue grew 3% year-over-year. Nike Direct revenue declined 6% (Nike Digital -5%, Nike Stores -7%), while wholesale revenue grew 10%. Reported EBIT increased 91% (down 1% excluding the one-time tariff refund benefit). Performance categories (global football, running, kids, golf) grew, while sportswear declined high single digits. Inventory grew mid single digits in line with company plans. 2. **EMEA (Q4 FY26):** Revenue declined 6% year-over-year. Nike Direct revenue declined 16% (Nike Digital -24%, Nike Stores -9%), while wholesale revenue declined 1%. Reported EBIT increased 8%. Performance categories (running, global football, golf) grew double digits, while sportswear declined double digits with challenged sell-through. Total inventory was up low double digits. 3. **Greater China (Q4 FY26):** Revenue declined 7% year-over-year. Nike Direct revenue declined 14% (Nike Digital -25%, Nike Stores -9%), while wholesale revenue declined 19%. Reported EBIT declined 20%. Running grew mid single digits, global football and tennis grew double digits. Inventory was down double digits in both dollar value and units. 4. **APLA (Q4 FY26):** Revenue declined 1% year-over-year. Nike Direct revenue declined 3% (Nike Digital -8%, Nike Stores +2%), while wholesale revenue grew 1%. Reported EBIT declined 1%. Running and global football grew double digits, tennis and ACG grew high single digits, while sportswear faced ongoing pressure. Inventory grew high single digits. 5. **Converse (Q4 FY26):** Revenue declined, offsetting North America's modest growth alongside declines in EMEA and Greater China. Full year FY26 results: Total revenue was flat on a reported basis (down 2% currency neutral). Gross margin was 42.9% (up 20 basis points year-over-year, or 40.8% excluding the one-time tariff benefit). Diluted EPS was $2.10 (down 3% year-over-year, or $1.58 excluding the tariff benefit).

Risks & headwinds

- The overall macroeconomic environment remains volatile, with continued pressure on consumer discretionary spending and retail store traffic globally, which caused a mid-quarter sales deceleration in Q4 FY26 after a stronger start in March. - Sell-through remains challenged for Nike Sportswear and Jordan Streetwear, leading to higher discounting and pressure on future order books. - Tariff policy remains uncertain: The company assumes current 10% incremental tariffs will continue through the end of July 2026, then increase to 15% thereafter, creating an ongoing cost headwind. - Ongoing geopolitical disruption in the Middle East has negatively impacted EMEA operations, contributing to weaker regional results and higher inventory levels. - The transformation and repositioning of the sportswear and streetwear businesses will take time to scale, and growth progress across the portfolio is expected to remain uneven in FY27.

Analyst Q&A

• Q: How much R&D and innovation investment is going to sportswear to drive full price sell-through growth, and how will the performance category halo translate to sportswear?

  A: Nike's Sport Offense model prioritizes authentic sport leadership to create a halo for sportswear and differentiate Nike from pure fashion brands. The company has already cut $2 billion of underperforming classic footwear from the portfolio, and the second half of FY27 will see more than a dozen new innovative footwear silhouettes (not just retro designs) supported by community-focused, local storytelling. The innovation pipeline from performance categories will also be leveraged in new sportswear products. Repositioning will take time to scale, but management is confident in the new strategy.

• Q: Can you elaborate on the timeline for scaling new innovation like MindShoe across the portfolio, and what innovation areas management is most optimistic about over the next 6-18 months?

  A: The new cross-functional Sport Offense teams now own end-to-end innovation development for each sport, with the first full set of product from this new structure launching in Spring 2027. Key upcoming high-excitement innovations include: Airofit technology from football expanding to running apparel, Caitlin Clark's signature basketball line launching holiday 2026, scaled customization via Nike By You rolling out Spring 2027, and innovative new styles across running, ACG, football, and training, with new sportswear products already launching successfully such as the Moon Shoe.

• Q: How is Nike approaching the Greater China digital direct-to-consumer business as part of its market reset strategy?

  A: Nike remains fully committed to Greater China, its second largest market, with a core strategy of being more premium, culturally relevant, and sport-led. The company is aggressively aligning the online and offline consumer experience, building a consistent premium brand across both channels, and has already reduced digital promotions over the past two quarters leading to recovered full price realization. The company is also building a local product creation team that will launch locally designed, developed, and manufactured product in China in holiday 2027 and continues to partner closely with local online and offline retail partners to clean up excess inventory and elevate the consumer experience.

• Q: Aside from operating leverage from sales growth, what is driving the earlier-than-expected margin inflection, and what gives management confidence this trajectory is sustainable?

  A: The biggest driver of improving margins outside of sales growth is better discount discipline, particularly in North America, where the company has seen lower sales reserves, fewer cancellations, and lower discounting than expected, leading to better-than-projected margin performance in Q4 FY26. Nike also delivered four consecutive quarters of sequential margin improvement in FY26. Additionally, structural supply chain cost reduction actions (facility and workforce restructuring) completed in FY26 will start delivering full margin benefits in FY27, and tighter buy plans and reduced sell-in will create a more full-price business across geographies that still have depressed margins.