TLDRs;
- Nike Q2 revenue grows slightly, but margins and profits remain under pressure.
- Holiday-quarter guidance disappoints investors, signaling ongoing challenges in profitability and growth.
- China sales decline for sixth consecutive quarter, prompting strategic market reset.
- Tariffs and operational costs weigh on margins, despite North America strength.
Nike, Inc. (NYSE: NKE) entered the end of 2025 with a mix of resilience and challenges.
The brand continues to perform strongly in North America and wholesale channels, yet margin pressures, tariff costs, and a persistent slump in Greater China weighed heavily on its fiscal second-quarter results. Investors reacted sharply, Nike shares closed Friday, Dec. 19, at $58.71, down about 11% following the earnings release and revised guidance.
The company’s latest report painted a picture of progress in some areas, but uncertainty in others, leaving the market grappling with a slower-than-expected recovery.
Q2 Revenue Growth Slows Amid Margin Pressure
Nike reported Q2 FY2026 revenue of $12.4 billion, up 1% year-over-year, while diluted earnings per share reached $0.53, slightly ahead of analyst estimates. Wholesale revenue showed encouraging growth at $7.5 billion, up 8%, signaling that retail partnerships and inventory management efforts are bearing fruit. However, Nike Direct revenue dropped 8%, with digital sales declining 14%, reflecting ongoing challenges in higher-margin channels.
Gross margin slipped 300 basis points to 40.6%, largely due to tariffs in North America, translating to net income of approximately $0.8 billion, down 32% year-over-year. Converse revenue fell 30%, highlighting the brand’s ongoing reset, while marketing spend rose 13% to $1.3 billion as Nike doubled down on brand visibility and sports-focused campaigns.
Holiday Guidance Sparks Investor Concern
Investors’ concerns centered on guidance for the holiday quarter. Nike expects third-quarter revenue to decline in the low-single digits, falling short of analysts’ projections. Gross margin pressures are anticipated to continue, rather than bounce back immediately, underscoring the prolonged effort required to stabilize profitability.
The December holiday season typically offers operating leverage, with stronger sales and improved margins. However, Nike’s cautious outlook indicates that while demand may remain steady in certain pockets, margin pressures remain a significant challenge.
China Recovery Remains Stalled
Greater China emerged as a key pressure point in Nike’s earnings narrative. Sales in the region declined 17% for the sixth consecutive quarter, as domestic competitors gained traction among younger consumers.
Nike’s CEO acknowledged that the company must recalibrate its strategy in China, including digital engagement and store performance. Analysts note that China is a critical driver for Nike’s global recovery, meaning delays in the region could prolong the overall turnaround.
Tariffs and Operational Challenges Persist
Tariffs remain a notable factor in Nike’s margin pressures. CFO Matthew Friend reported that high tariffs in sourcing countries cost Nike roughly $1.5 billion in 2025. Beyond immediate financial impact, tariffs influence credit ratings and investor sentiment, with Moody’s recently downgrading Nike’s debt by one notch, though maintaining a stable outlook.
Despite these challenges, North America’s wholesale momentum and Nike’s focus on core sports categories, especially running, continue to provide bright spots. Meanwhile, Nike Direct softness and underperforming legacy brands like Converse remain obstacles to near-term profitability.
Key Catalysts for 2026
As Nike moves through 2026, investors will be closely monitoring several key catalysts that could shape the company’s performance. The execution of the holiday-quarter will be critical, as the company aims to balance revenue growth with ongoing margin pressures. In Greater China, the success of strategic adjustments will be under scrutiny, with stakeholders looking for tangible improvements in sales and cultural relevance.
Tariff management remains another focal point, as effective sourcing, pricing, and cost-control strategies will be essential to recovering and protecting margins. At the same time, Nike’s emphasis on sport-driven innovation, particularly in core categories like running, could serve as a driver of both growth and brand differentiation. Additionally, major global sports events, including the 2026 World Cup, are expected to provide marketing tailwinds that may enhance visibility and engagement.
Despite these near-term challenges, Nike continues to reward shareholders, declaring a quarterly dividend of $0.41 for Q4, the 24th consecutive year of increases, signaling sustained confidence in the company’s long-term prospects.
Bottom Line
Nike’s Q2 FY2026 earnings show a company in transition: strong fundamentals in North America and wholesale channels contrast with slower recovery in China, ongoing margin pressures, and tariff costs.
While some analysts maintain optimism for the long-term brand rebound, short-term investors face a period of patience as Nike works to stabilize profitability and execute its “Win Now” turnaround strategy.
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