The sportswear company’s turnaround is beginning to take shape as wholesale improves and North America regains momentum. However, China remains a major challenge, Converse continues to deteriorate and management expects sales to stay under pressure through the first half of fiscal 2027.
In the fourth quarter, Nike significantly exceeded Wall Street’s expectations for revenue and profit. However, the sportswear company benefited substantially from a refund of nearly $1 billion in previously paid U.S. tariffs, which significantly boosted both profit and gross margin. Setting aside this one-time effect, the company, under CEO Elliott Hill, showed initial operational progress in restructuring its business.
One-time effect boosts quarterly profit
Revenue declined by 1 percent to $10.97 billion in the fourth quarter, still exceeding analysts’ expectations. Net income jumped to $1.07 billion from $211 million in the same quarter a year earlier, while diluted earnings per share rose from $0.14 to $0.72. The gross margin improved by 890 basis points to 49.2 percent, with the company estimating the positive impact of the expected refund of previously paid U.S. tariffs at approximately $986 million.
Without the expected refund of previously paid IEEPA tariffs, both the gross margin and earnings would have remained under significant pressure. According to the company, the refund of IEEPA duties alone increased the gross margin by approximately 900 basis points and earnings per share by $0.52.
Fiscal year 2026: Stabilization despite headwinds
For the full year, revenue remained nearly flat year-over-year at $46.4 billion. Net income fell 3 percent to $3.11 billion, while diluted earnings per share also declined 3 percent to $2.10. The gross margin improved slightly by 20 basis points to 42.9 percent. Meanwhile, Nike increased wholesale revenue by 6 percent to $27.5 billion, while direct-to-consumer revenue declined by 6 percent to $17.7 billion. Inventory remained stable at $7.5 billion, indicating improved management of the product portfolio.
| Nike - Income | |||
|---|---|---|---|
| 2026 | 2025 | Change | |
| Q4, ended May 31 ($ million) | |||
| Revenues | 10,972 | 11,097 | -1.1% |
| Cost of sales | 5,579 | 6,628 | -15.8% |
| Gross profit | 5,393 | 4,469 | 20.7% |
| Gross margin | 49.2% | 40.3% | |
| Selling & admininstrative expense | 4,082 | 4,148 | -1.6% |
| % of revenues | 37.2% | 37.4% | |
| Interest expense, net | -8 | -22 | 63.6% |
| Other expense, net | -10 | 25 | – |
| Pre-tax | 1,329 | 318 | 317.9% |
| Tax | 260 | 107 | 143.0% |
| Net income | 1,069 | 211 | 406.6% |
| Earnings per common share, diluted | 0.72 | 0.14 | 414.3% |
| FY, ended May 31 ($ million) | |||
| Revenues | 46,398 | 46,309 | 0.2% |
| Cost of sales | 26,487 | 26,519 | -0.1% |
| Gross profit | 19,911 | 19,790 | 0.6% |
| Gross margin | 42.9% | 42.7% | |
| Selling & admininstrative expense | 16,114 | 16,088 | 0.2% |
| % of revenues | 34.7% | 34.7% | |
| Interest expense, net | -50 | -107 | 53.3% |
| Other expense, net | -53 | -76 | 30.3% |
| Pre-tax | 3,900 | 3,885 | 0.4% |
| Tax | 792 | 666 | 18.9% |
| Net income | 3,108 | 3,219 | -3.4% |
| Earnings per common share, diluted | 2.10 | 2.16 | -2.8% |
| Source: Nike Inc. | |||
CEO sees turnaround on track
Hill believes the company is on track following its first full fiscal year under his leadership. He expressed pride in the “progress” the company had made in fiscal year 2026. Through its “Win Now” strategy, Nike has strengthened its organizational structures, accelerated innovation, and laid the foundation for long-term growth. “Win Now is making the comeback possible,” the CEO said during the earnings call. However, he emphasized that the results still fall short of the company’s own expectations. Nike Sportswear and Jordan Streetwear, in particular, have not yet fully tapped their potential and continue to weigh on sales and orders from retail partners.
Stronger wholesale, DTC continues to be scaled back
However, the annual results show initial progress in the strategic shift. While Nike strengthened its wholesale business again, direct-to-consumer sales declined as planned. The company is thus pursuing the goal of rebuilding relationships with its retail partners after years of intense focus on direct sales, streamlining its product portfolio, and improving long-term profitability. The company also kept its sales and administrative costs largely under control.
Innovation to drive growth
During the earnings call, Hill made it clear that the next phase of growth will be driven primarily by innovation. After five quarters of double-digit growth in its running business, Nike now plans to expand its innovation pipeline to basketball, training, and sportswear. In the second half of the fiscal year alone, more than a dozen new shoe models are set to hit the market. The goal is to revive the recently weak demand for Nike Sportswear and Jordan Streetwear.
Friend: North America leads the turnaround
Business performance continued to vary by region. North America returned to a growth trajectory in both the fourth quarter and for the full year. Chief Financial Officer Matthew Friend attributed this development to a healthier business. He noted that the growth was driven not only by higher shipments but also by fewer returns, lower price discounts, and fewer cancellations. Friend particularly highlighted that, for the first time in more than four years, Nike achieved both rising revenue and higher sell-through at Foot Locker. North America is currently leading the company’s turnaround.
China remains a cause for concern
Greater China remains Nike’s biggest cause for concern. In the final quarter, sales there fell by 12 percent, weighed down by double-digit declines in both the footwear and apparel businesses. Nevertheless, Hill remains committed to the long-term growth strategy for the company’s second-largest market. Going forward, Nike plans to focus more on locally developed products, a higher-quality brand image, and closer partnerships with retailers in China. CFO Friend pointed to initial progress: discounts in the digital business have decreased, premium locations such as the House of Innovation in Shanghai have achieved double-digit growth rates, and inventory adjustments are moving forward. In the short term, however, management continues to expect weak revenue growth in China, while profitability could recover sooner than revenue.
Converse continues to struggle
Business performance varied by product category. Sales in the footwear segment – by far the group’s largest division – declined by 1 percent to $7.1 billion in the fourth quarter, while apparel sales rose by 1 percent to $3.0 billion. The equipment business declined by 3 percent to $551 million. The Converse subsidiary remained under significant pressure, with sales plummeting by 32 percent to $244 million. For the full year, the brand’s revenue actually fell by 31 percent to $1.17 billion, while operating income shrank by 93 percent to just $18 million.
| Nike - Revenues | ||||
|---|---|---|---|---|
| 2026 | 2025 | Change | ||
| Q4, ended May 31 ($ million) | ||||
| North America | ||||
| Footwear | 3,230 | 3,104 | 4.1% | |
| Apparel | 1,310 | 1,303 | 0.5% | |
| Equipment | 292 | 296 | -1.4% | |
| Total | 4,832 | 4,703 | 2.7% | |
| Europe, Middle East & Africa | ||||
| Footwear | 1,821 | 1,893 | -3.8% | |
| Apparel | 982 | 929 | 5.7% | |
| Equipment | 172 | 178 | -3.4% | |
| Total | 2,975 | 3,000 | -0.8% | |
| Greater China | ||||
| Footwear | 938 | 1,074 | -12.7% | |
| Apparel | 334 | 372 | -10.2% | |
| Equipment | 25 | 30 | -16.7% | |
| Total | 1,297 | 1,476 | -12.1% | |
| Asia-Pacific & Latin America | ||||
| Footwear | 1,114 | 1,114 | 0.0% | |
| Apparel | 420 | 398 | 5.5% | |
| Equipment | 62 | 63 | -1.6% | |
| Total | 1,596 | 1,575 | 1.3% | |
| Global Brand Divisions | 24 | 9 | 166.7% | |
| Total Nike Brand | 10,724 | 10,763 | -0.4% | |
| Converse | 244 | 357 | -31.7% | |
| Corporate | 4 | -23 | – | |
| Total Nike Inc. | 10,972 | 11,097 | -1.1% | |
| Total Nike Brand | ||||
| Footwear | 7,103 | 7,185 | -1.1% | |
| Apparel | 3,046 | 3,002 | 1.5% | |
| Equipment | 551 | 567 | -2.8% | |
| Global Brand Divisions | 24 | 9 | 166.7% | |
| Total | 10,724 | 10,763 | -0.4% | |
| FY, ended May 31 ($ million) | ||||
| North America | ||||
| Footwear | 13317 | 12,684 | 5.0% | |
| Apparel | 6,075 | 5,837 | 4.1% | |
| Equipment | 1,119 | 1,051 | 6.5% | |
| Total | 20,511 | 19,572 | 4.8% | |
| Europe, Middle East & Africa | ||||
| Footwear | 7,643 | 7,569 | 1.0% | |
| Apparel | 4,210 | 3,971 | 6.0% | |
| Equipment | 719 | 717 | 0.3% | |
| Total | 12,572 | 12,257 | 2.6% | |
| Greater China | ||||
| Footwear | 4,188 | 4,805 | -12.8% | |
| Apparel | 1,535 | 1,616 | -5.0% | |
| Equipment | 124 | 165 | -24.8% | |
| Total | 5,847 | 6,586 | -11.2% | |
| Asia-Pacific & Latin America | ||||
| Footwear | 4,377 | 4,452 | -1.7% | |
| Apparel | 1,629 | 1,541 | 5.7% | |
| Equipment | 237 | 258 | -8.1% | |
| Total | 6,243 | 6,251 | -0.1% | |
| Global Brand Divisions | 49 | 48 | 2.1% | |
| Total Nike Brand | 45,222 | 44,714 | 1.1% | |
| Converse | 1,174 | 1,692 | -30.6% | |
| Corporate | 2 | -97 | – | |
| Total Nike Inc. | 46,398 | 46,309 | 0.2% | |
| Total Nike Brand | ||||
| Footwear | 29,525 | 29,510 | 0.1% | |
| Apparel | 13,449 | 12,965 | 3.7% | |
| Equipment | 2,199 | 2,191 | 0.4% | |
| Global Brand Divisions | 49 | 48 | 2.1% | |
| Total | 45,222 | 44,714 | 1.1% | |
| Source: Nike Inc. | ||||
A boost from the soccer business
By contrast, the company expects a boost from its soccer business. According to Hill, by the start of the World Cup, 2.5 times as many national team jerseys had already been sold as at the same point during the 2022 World Cup. The new Mercurial became the most successful 24-hour product launch of a soccer cleat in the history of Nike’s direct-to-consumer business. The World Cup is early evidence that the new sports strategy is increasingly taking effect.
Despite the positive signs surrounding the World Cup, management emphasized on several occasions that the turnaround would still take time. While the performance categories showed strong growth, sportswear and Jordan Streetwear in particular are expected to remain under pressure for the time being in the current fiscal year.
Cautious outlook for FY2027
Nike remains cautious about the new fiscal year. In the first quarter, the company expects revenue to decline in the low to mid-single-digit percentage range, and management also anticipates subdued revenue trends for the first half of the year. CFO Friend attributed this to persistently weak consumer demand, a more cautious ordering policy, and further measures to reduce inventory. At the same time, he pointed to uncertainties stemming from U.S. tariff policies, geopolitical tensions in the Middle East, and lower foot traffic in retail stores.
The outlook for margins, however, is more positive: The gross margin is expected to improve as early as the first quarter, while profitability is likely to recover gradually over the course of the year. Management does not, however, expect a sustained return to revenue growth until the second half of the fiscal year.
New CFO for the next turnaround phase
Nike is also realigning its leadership. Friend will leave the company in August, handing the reins to former Pfizer CFO David Denton. Hill described Denton as the right leader for the sportswear giant’s “next phase of the turnaround.” The change in financial leadership was also a topic of discussion during the earnings call. Several analysts expressly thanked Friend for his nearly 18 years of service at Nike and wished him all the best in his new role.
When will business return to “normal”?
In response to a question from a Bernstein analyst asking whether fiscal year 2028 might finally be a “normal” year again after several years of restructuring, Hill initially provided one of the few humorous moments of the earnings call. “I don’t think there’s been anything normal since I’ve been sitting in this chair,” the CEO said with a laugh, a sentiment echoed by CFO Friend.
Investor Day: Strategy update in November
Hill then reaffirmed that the “Win Now” initiative is on track to be completed by the end of the year. Nike plans to present the next phase of its growth strategy at Investor Day in November. There, management is expected to provide more concrete details for the first time on when the turnaround is expected to transition back into sustainable revenue growth. However, the CEO emphasized: “We’re not building the company for the next quarter or the next year, but for the coming decade.”
DFB partnership nears reality
Even beyond the financial results, Nike is preparing for the next chapter. In early 2027, after 77 years, the U.S. company will take over as the official outfitter of the German national soccer team from Adidas. With initial teasers of the new DFB jersey and an aggressive marketing campaign surrounding the ongoing World Cup, Nike has already demonstrated the role soccer is set to play in its brand strategy going forward. Whether this new momentum will translate into sustainable revenue and profit growth, however, will likely only become clear in the coming quarters.
