Nike, Inc. reported results in the fiscal fourth quarter ended May 31 that exceeded analyst targets, driven by ongoing momentum in the run category, a boost from the World Cup and growth in North America. However, the sports giant slightly lowered its sales guidance for the year, citing continued weakness in China and worsening trends in its Sportswear and Jordan businesses.
On a Tuesday, June 29 conference call with analysts and investors, Nike, Inc. EVP and CFO Matt Friend said: “The fourth quarter financial performance was in line with expectations, led by performance categories continuing to perform well, highlighted by the Nike running category delivering its fifth consecutive quarter of double-digit growth.” The World Cup was seen as providing a boost to sales.
The fourth quarter also included a massive credit related to tariff refund recovery that led to a significant jump in earnings. However, Friend said the operating environment became “more challenging” as Nike moved through the quarter.
“After a strong start in March, especially in North America, by mid-April we began to see a deceleration in retail sales trends,” said Friend. “Our consumer is under pressure around the world, and we can particularly see it having a larger impact on Sportswear, which declined double-digits in the quarter, with a similar decline in retail sales. At the same time, momentum in performance sports continued to build, growing mid-single digits and delivering positive year-over-year retail sales comps across Running, Training, and Global Football, as well as other sports. We are monitoring marketplace inventory and promotions closely and adjusting buy plans to manage future supply and sell-in with demand and improvement in full-price sales.”
Fiscal 2007 Outlook
Looking ahead, Friend said, “Nike does not expect the macro environment, marked by disruption from the Middle East and volatile oil prices, to improve meaningfully” over the next six months. Given the current macro environment and recent sell-through trends, he said Nike is “taking actions to tighten buys, reduce future sell-in, and manage inventory,” resulting in “revenue moderating, but also higher gross margins.”
On the positive side, Nike’s inventory discipline is projected to lead to gross margin expansion beginning in fiscal Q1, ahead of its prior guidance, which called for margin expansion to begin in fiscal Q2. The last time Nike expanded gross margins year over year in a quarter without a nonrecurring credit was the fiscal first quarter ended August 31, 2023.
On the downside, sales are now expected to be lower than previous guidance. When releasing third-quarter results, Nike officials had indicated they expect revenues to be down in the low single digits from the fiscal fourth quarter through the first two quarters of the current fiscal year. Now, Nike expects sales to decline in the low- to mid-single digits over that timeframe.
Earnings are still expected to be flattish over the period, excluding the benefit from tariff recovery, as the gross margin gains offset the sales shortfall.
Nike’s shares were trading slightly up in mid-day trading on Wednesday. July 1, as earnings guidance was confirmed, and the sales outlook adjustment was better than feared. Shares had fallen about 14 percent on the day after Nike released third-quarter results that included the disappointing guidance and have lost about a third of their value since the year’s start.
For the first quarter of the current fiscal year 2027, Nike’s revenues are expected to be down low- to mid-single-digits with no expected benefit from foreign exchange, with currency-neutral revenue growth consistent with recent performance. Gross margins are expected to be slightly positive.
For the fiscal second quarter, Nike sees a sequential deceleration from the first quarter due to “some unique factors equating to a multi-point headwind,” including higher digital promotions in the prior year in the EMEA region and timing of North America Wholesale shipments, according to Friend.
On the call, CEO Elliot Hill highlighted several areas of progress resulting from the company’s “Win Now” restructuring actions and “Sports Offense” strategy, including Nike’s performance business growing in mid-single digits in the last fiscal year. However, he also pointed to several shortcomings, including the China business that showed a 17 percent decline on a currency-neutral basis in the fiscal fourth quarter, and weakness in lifestyle offerings. He noted that Nike Sportswear and Jordan account for about half of the business.
“Overall, the results aren’t there yet,” said Hill. “We know we’re not living up to our full potential, particularly in Nike Sportswear and Jordan Streetwear, where sell-through remains challenged, impacting both current discounting and the future order books. We’re operating in a more complex macro environment, where we’re seeing added pressure on traffic and discretionary spending across our geographies. But we’re focused on what we control, bringing each sport together across product, brand, marketplace and operations and deepening our connections with athletes, consumers and partners.”
He added, “When those dimensions connect, they create the Nike multiplier. It’s repeatable and sustainable. That’s why I’m confident we’re building Nike the right way, not for the next quarter, but for the next decade.”
Hill also confirmed that Nike plans to share the “next phase of our growth strategy” at an investor day this fall, specifically on November 16th and 17th, despite the hiring, announced last week, of Pfizer CFO David Denton to replace Friend in August.
Fourth-Quarter Performance
In the fiscal fourth quarter ended May 31, sales of $11.0 billion declined 1 percent on a reported basis and 4 percent on a currency-neutral basis. Results slightly exceeded analysts’ consensus target of $10.86 billion.
Revenues for the Nike Brand were $10.7 billion, flat on a reported basis and down 3 percent on a currency-neutral basis, primarily due to declines in Greater China and EMEA, partially offset by growth in North America.
Revenues for Converse were $244 million, down 32 percent on a reported basis and down 34 percent on a currency-neutral basis, due to declines across all territories.
Among channels, Wholesale revenues were $6.6 billion in the quarter, up 4 percent on a reported basis and up 1 percent on a currency-neutral basis, primarily due to growth in North America, partially offset by declines in Greater China. Nike Direct revenues were $4.1 billion, down 7 percent on a reported basis and off 9 percent on a currency-neutral basis, due to a 12 percent decrease in Nike Brand Digital and a 7 percent decrease in Nike-owned stores.
Profitability & Expenses
Gross margin was 49.2 percent, up 890 basis points versus the prior year, driven by a 900-basis-point benefit related to the recovery of IEEPA tariffs. Excluding this benefit, gross margin would have been 40.2 percent, down 10 basis points versus the prior year, which included additional severance costs related to supply chain and technology functions disclosed during Nike’s third-quarter analyst call. The severance actions are expected to deliver positive operating leverage in gross margin in fiscal 2027.
SG&A was down 2 percent on a reported basis versus the prior year, reflecting continued cost discipline that offset accelerated investments in the World Cup.
Full-year net income was $1.1 billion, or 72 cents a share, up 407 percent year-over-year, including a 52-cent benefit related to the expected recovery of the IEEPA tariffs. Excluding the benefit, EPS was 20 cents a share, ahead of analysts’ consensus target of 12 cents.
For the full year, revenue was flat on a reported basis and down 2 percent on a currency-neutral basis. Gross margin was 42.9 percent, up 20 basis points versus the prior year, including a 210-basis-point benefit related to the recovery of IEEPA tariffs. Excluding the benefit, the gross margin would have been 40.8 percent.
Diluted earnings per share for the year were $2.10, down 3 percent versus the prior year. Excluding the benefit of tariff recovery, earnings per share would have been $1.58, down 26.5 percent from $2.16 a year ago. Friend noted that the slight expansion in gross margins and decline in earnings came amid “significant investment and nearly $400 million of severance charges made to reposition and create a healthier foundation for our business.”
Regional Summary
North America
Region North America Q4 revenue grew 3 percent on a currency-neutral basis (-2.7 percent reported), to $4.83 billion. Nike Direct was down 6 percent, with declines of 5 percent in Nike Digital and 7 percent at Nike Stores. Wholesale grew 10 percent. EBIT vaulted 91 percent on a reported basis to $2 billion due to tariff refunds. Excluding the tariff’s refund benefit, EBIT would have declined 1 percent.
“North America continues to drive momentum in performance, including strong double-digit growth in Global Football and Running, as well as growth in Kids and Golf; Sportswear was down high-single digits,” said Friend. “Retail sales grew over the first six weeks of the quarter; however, we did see a deceleration in late April, which we continue to monitor closely, particularly in Sportswear and Jordan Streetwear.”
Wholesale revenue growth was driven by new and existing distribution. Friend said “one highlight” in the quarter was revenue growth and comps with Foot Locker turned positive for the first time in four years. The CFO said, “We continue to be encouraged about the path ahead.”
Inventory in North America grew mid-single digits, in line with plans, with a healthy closeout mix. Excluding the tariff’s refund benefit, underlying gross margin profitability continued to improve year-over-year.
Europe, Middle East & Africa (EMEA)
Region EMEA Q4 revenue was down 6 percent on a currency-neutral basis (-0.8 percent reported), to $12.6 billion. Nike Direct slumped 16 percent, with declines of 24 percent at Nike Digital and 9 percent at Nike Stores. Wholesale was down 1 percent. EBIT declined 8 percent on a reported basis to $434 million.
“EMEA continues to work through heightened inventory and promotional levels, disruption in the Middle East, and a higher portfolio mix of Sportswear than the other geographies,” said Friend. “Continued momentum” was seen across performance categories, with Running, Global Football and Golf all growing by double digits. Although Digital revenue declined, off-price was down by more than 50 percent following aggressive actions to reduce promotions, resulting in a 15-point improvement in full-price realization.
Sportswear in the EMEA region declined double-digits and sell-through “continues to be challenging. Nike has “tightened buys and moderated sell-in plans for the near-term” in Sportswear in EMEA, said Friend. Total inventory dollars were up low double digits, with actions in place to reduce supply and accelerate liquidation to improve marketplace health.
Greater China
Region Greater China, which includes Hong Kong and Macau, saw Q4 revenue decline 17 percent on a currency-neutral basis (-12 percent reported), to $1.3 billion. Nike had forecast a 20 percent decline in sales.
Nike Direct declined 14 percent in China, while Nike Digital and Nike Stores declined 25 percent and 9 percent, respectively. Wholesale declined by 19 percent. EBIT was down 20 percent on a reported basis, to $243 million.
In-season sell-through has improved sequentially, and average retail discounts are down. Friend said, “We are seeing recovery in full price realization on Digital, after more aggressive actions to reduce promotions over the last two quarters.”
Among the positives, Running grew mid-single digits, and Global Football and Tennis were up double digits. Nike’s House of Innovation in Shanghai store posted double-digit growth for the quarter. Sales growth was seen in doors in China; the brand has reset, and “encouraging initial results” were seen at its newest ACG door in Nanjing. Inventory was down double digits, with units also down double digits.
Friend concluded on China, “We continue to take actions with partners to clean up the marketplace and expect revenue trends in Greater China over the near-term to be in line with recent performance.”
Asia Pacific Latin America (APLA)
Region APLA Q4 revenue was down 1 percent on a currency-neutral basis (+1 percent reported), to $1.6 billion. Nike Direct declined 3 percent, with an 8 percent drop at Nike Digital, offsetting a 2 percent gain at Nike Stores. Wholesale was up 1 percent. EBIT declined 1 percent on a reported basis, to $316 million.
Said Friend, “The business across the geography continues to be mixed, with strength in select territories in Performance sports offset by ongoing pressure in Sportswear.” Running and Global Football grew double digits, with high single-digit growth in Tennis and ACG.
APLA’s inventory grew in high single digits versus the prior year, with a sequential improvement in closeout mix as inventory actions continue across the geography.
CEO Elliot Hill Commentary
In his prepared comments, Hill called out several signs that Nike’s turnaround steps are gaining traction over the last fiscal year, including shifting marketing, social outreach, and overall communications to focus on “sport-specific communities” as part of its Sports Offense strategy. Hill said, ‘When we lead sport authentically, consumers respond. And we see that in both internal and external brand tracking. Our focus now is translating that brand strength into healthier demand, cleaner marketplaces and sustainable growth.”
He cited the benefits of a “broader product pipeline” across key categories, noting that the five consecutive quarters of double-digit growth in Nike Running added $1 billion in sales to the running business.
He noted that Wholesale revenue grew 4 percent on a currency-neutral basis in the fiscal year, led by double-digit growth in North America, and benefited from the refreshing of more than 15,000 Wholesale doors. Hill said, “We’ve been rebuilding our Wholesale relationships, expanding our reach and improving how we show up across channels.”
Nike Direct was down 8 percent on a currency-neutral basis in the fiscal year as Nike focused on “elevating the user experience by leading with performance, celebrating sport moments, and discounting less on Nike Digital.” Nike also upgraded more than 150 of its doors, focusing on sports. Said Hill, “Over time, we will continue to rezone and elevate our fleet and close doors that are no longer aligned with our strategy.”
In marketing, Hill highlighted the benefits of several activations, including the grassroots soccer tournament TOMA; Nike’s partnership with the Chinese High School Basketball League; Jordan’s “The One” basketball tournament; and the After Dark Tour targeting runners in Shanghai. He said, ‘Being more local matters. It deepens the connection. It builds loyalty. And it creates a pull market for our brands and products.”
Hill cited actions taken “across our supply chain to lower costs, streamline operations, and right-size our distribution network to match the demand ahead,” referring to a few rounds of layoffs to realign its management structure. The CEO said, “We’ve redeployed resources from our Nike Direct technology teams to better support the company end-to-end, across the entire value chain.”
He also cited investments in tools and capabilities to “improve speed, precision, and reliability in everything we create, from Air Manufacturing and Materials innovation to how we plan, make, and move product to the marketplace.”
On China, Hill said Nike is undergoing “a comprehensive reset” with a focus on sport, innovation, taking a more local approach to product creation, and working with wholesale partners to establish a “more premium, more culturally connected” positioning.
Hill said, “In the near term, we’re executing, cleaning up inventory, investing in must-win doors. And when we invest, we’re seeing sales increase in the high single digits. I’m confident in our leaders and our plans to restore long-term marketplace health in Greater China.
Converse, where sales declined 32 percent on a currency-neutral basis in the fiscal year, “sharpened its strategy” in the quarter, especially in better differentiating the Chuck Taylor and Jack Purcell franchises. He said the move to shift the endorsement deal for Shai Gilgeous-Alexander, star guard of the Oklahoma Thunder, to the Nike brand from Converse will allow Converse to “fully focus on serving creators through its lifestyle business.”
Hill also called out many successes Nike is seeing around the World Cup, including its marketing efforts led by the “Rip the Script” campaign, which delivered 1.5 million views in the first week of the World Cup. Supported by its Aero-FIT launch, Nike has already sold 2.5 times as many soccer jerseys and shorts as it did in the same period during the World Cup ’22. In footwear, Mercurial became the fastest-selling 24-hour launch in Nike Direct’s history for cleated footwear. Hill further noted that the World Cup gains were supported by “significant investments” in physical retail, including the refresh of over 15,000 wholesale doors. Said Hill, “We’re leading the conversation and shaping football culture, a strong early proof point for the Sport Offense.”
Looking to the current fiscal year 2027, Hill said Nike plans to continue to seek to capitalize on “local sport moments” and continue to invest in “how we show up as a premium brand in both digital and physical retail,” including planning to refurbish half of Nike-owned stores by the end of the fiscal year. Hill said, “Across the enterprise, we’ll operate with even greater discipline to improve planning accuracy, strengthen inventory management, and expand margins over time.”
Nike’s growth is also expected to expand beyond the Running category to Training, Basketball and its ACG outdoor range, although he noted that “progress will continue to be uneven.” Nike Sportswear and Jordan Streetwear are projected to remain negative this fiscal year, with improvement expected in the second half.
He added, “We know changing their trajectory is critical to restoring sustainable top-line growth because, together, they represent approximately half of our revenue. We are moving quickly to reposition both businesses. In the second half, Nike Sportswear will introduce more than a dozen new footwear styles, each with its own distinct consumer journey. But this work will take time to scale and translate into consistent results.”
Image courtesy Nike, inc.
