TLDR
- Nike reported Q1 revenue of $11.7 billion, up 1% year-over-year, though currency-neutral revenue declined 1% as the wholesale channel grew 7% while direct sales dropped 4%.
- Net income fell 31% and diluted earnings per share dropped from $0.70 to $0.49, driven by gross margin compression of 320 basis points to 42.2% due to discounting and tariff costs.
- CEO Elliott Hill acknowledged the turnaround “will take a while” and is not linear, as the company works to reverse predecessor John Donahoe’s digital-first strategy by rebuilding wholesale relationships.
- Greater China revenues declined 9% with footwear down 11%, while North America showed relative strength with apparel up 11% and footwear flat.
- Nike expects tariff costs of $1.5 billion in the current fiscal year and projects second quarter sales to decline by a low-single-digit percentage through the holiday season.
Nike posted its first quarter fiscal 2026 results last week. The numbers tell a story of a company trying to find its footing.
The sportswear company reported $11.7 billion in revenue for the quarter. That’s a 1% increase from last year on paper.
But when you strip out currency effects, revenue actually fell 1%. This gap between reported and currency-neutral numbers highlights the challenge Nike faces in international markets.
The wholesale business performed well with 7% growth to $6.8 billion. This channel now carries more weight for Nike as it rebuilds relationships with retail partners.
Direct sales through Nike’s own stores and website dropped 4%. On a currency-neutral basis, that decline was 5%.
CEO Elliott Hill sat down with CNBC at Nike’s Beaverton, Oregon headquarters. He didn’t sugarcoat the situation.
“It’s gonna take a while,” Hill said when asked about returning to mid-to-high single digit revenue growth. “It’s not linear.”
Profits Take a Hit
The revenue picture is just part of the story. Profits fell hard in the quarter.
Net income dropped 31% year-over-year. Earnings per share fell from $0.70 to $0.49, a 30% decline.
Gross margin compressed by 320 basis points to 42.2%. The company cited increased discounting, unfavorable channel mix, and tariff pressures in North America.
Nike’s effective tax rate also climbed to 21.1% from 19.6% a year ago. This reduced benefits from stock-based compensation.
The company expects tariff costs to reach $1.5 billion for the fiscal year. That’s up from the $1 billion projection made in June.
These costs will impact gross margin by 1.2 percentage points. Nike originally forecast 0.75 percentage points.
Regional Performance Varies
North America showed some bright spots. Footwear revenue held flat while apparel jumped 11%.
Greater China presented problems. Total China revenues fell 9%, or 10% when adjusting for currency.
Footwear in China dropped 11%. Equipment sales in the region plunged 32%.
Hill explained that each geography and sport category sits at different stages of recovery. Some parts of the portfolio are moving faster than others.
Strategic Shift Under New Leadership
Hill took over as CEO last October. He’s been busy reversing strategies put in place by his predecessor John Donahoe.
Donahoe focused on direct-to-consumer sales during the pandemic. Digital revenue doubled along with margins during that period.
“When Covid hit, supply got constrained, demand goes up and I think the team did what I think anybody would do,” Hill said. “Shift product over to digital commerce and all of a sudden that takes off.”
But the strategy didn’t adapt when physical retail reopened. Nike kept pushing digital while competitors grabbed shelf space at wholesale partners.
“I think over time it ended up hurting the brand because there’s a certain set of consumers that want to shop choice,” Hill said. They want access across different channels.
Nike is now working to reclaim lost shelf space. The company is also testing new partnerships like Aritzia to reach female shoppers.
Hill is restructuring the company too. Instead of dividing by demographics like men’s, women’s, and kids’, Nike is organizing around individual sports.
Each sport gets small cross-functional teams. These teams can focus on specific athlete needs and competitive dynamics in their category.
The old structure under Donahoe emphasized lifestyle sales. Critics said this led Nike to lean too hard on classic styles like Air Force 1 and Nike Dunks while falling behind on innovation.
Looking Ahead to Holiday Season
Nike warned investors about the upcoming quarter. The company expects second quarter sales to decline by a low-single-digit percentage.
That quarter includes much of the holiday shopping season. It’s a crucial period for retailers.
Hill is working to offset tariff costs by negotiating with suppliers, factories and retail partners. Nike recently implemented some price increases as well.
The company continues returning cash to shareholders. Nike paid $591 million in dividends during Q1, a 6% increase from last year.
It bought back $123 million worth of shares, retiring 1.8 million shares. Nike maintains an $18 billion share repurchase authorization with 124.4 million shares already repurchased.
The company has raised its dividend for 23 consecutive years. Cash and equivalents stood at $8.6 billion, down from a year ago.
Nike stock has fallen about 12% over the past year. The stock gained 6% immediately after earnings were released but has since given back those gains.
