Nike, Inc. reported second-quarter results that ended November 30 and handily topped analyst targets, but the company also issued third-quarter guidance that was weaker than expected, as strength in North America is expected to be offset by weakness in China and Converse, as well as ongoing tariff headwinds.
Shares of Nike were down about 11 percent in pre-market trading, and the decline was said to be affecting Dow Futures, which are expected to open lower on Friday, December 19.
For the current fiscal third quarter ended February 28, 2026, Nike expects revenue to decline in the low single digits, below analysts’ consensus expectations, calling for modest growth.
Matt Friend, EVP and CFO, stated on an analyst conference call that Nike expects another sluggish performance in Greater China and Converse in Q3, similar to fiscal Q2. In the second quarter, sales on a currency-neutral basis tumbled 16 percent in China and 31 percent for the Converse brand.
The company expects the North America region to show “modest growth” in fiscal Q3 after climbing 9 percent in the second quarter. The slower growth forecast for fiscal Q3 reflects reduced liquidation activity compared with prior quarters, as the Nike brand has worked to reduce inventory of its Classic footwear styles (Air Force 1, Air Jordan 1 and Dunk).
However, CFO Friend highlighted strong progress in North America, as Nike expects Q3 gains to be supported by “great comp full price growth,” while the Q2 sales jump was fueled by liquidations.
Nike’s forecast of a low-single-digit decline in the current quarter comes despite an expected three-point benefit from foreign exchange.
Gross margins in the current fiscal third quarter are expected to decline by 175 to 225 basis points due to the impact of tariffs, while analysts had expected expansion. Friend said that, excluding the 315-basis-point impact of higher gross product costs from new tariffs, gross margin expansion is expected to be positive in the third quarter.
On the call, Friend highlighted the progress Nike made in the quarter, including wholesale, which saw healthy growth for the second straight quarter, with a growing global order book in both spring and summer. The Nike Classics footwear franchises are on track to decline from peak levels by over $4 billion by the fiscal year-end.
Promotional activity has been reduced on Nike Digital to achieve a more premium positioning, and Nike Digital is operating “more strategically in sync” with wholesale partners. Inventory is in a “healthy and clean position” in North America and EMEA.
North America and the running category, up over 20 percent, again stood out for impressive gains in the quarter and Friend said Nike is “growing more confident in our ability to sustain the momentum as we look forward.”
However, Friend cautioned that Nike management has stated that “progress will not be linear as each brand, sport and geography is recovering on a different timeline, and we continue to read and react every day in service of the long-term health of our brands.”
Headwinds in Greater China and Converse were flagged on the first-quarter analyst call, and the company now expects them to persist for the balance of the fiscal year. The EMEA and APLA regions are seeing a mixed performance among countries.
Friend also cautioned that Nike’s “Win Now” transformation actions, supported by leadership changes to drive the “Sports Offense” initiative, as well as shifts in the business, including product and channel mix and continued inventory liquidation, will take time to drive improvement in profit margins.
Friend also noted that Nike continues to take steps to offset the $1.5 billion of annualized incremental product costs due to higher U.S. tariffs, representing a gross headwind of approximately 320 basis points to gross margin in fiscal 2026. He said, “While we have begun to take actions to reduce this to a net impact of approximately 120 basis points, it is still a significant factor impacting our near-term EBIT margins amidst the turnaround in a very dynamic operating environment.”
Fiscal Q2 Results Top Analyst Targets
Earnings for the second quarter declined 32 percent, to $792 million, or 53 cents a share, but topped the consensus estimate of 37 cents.
Sales inched up 0.6 percent to $12.4 billion, exceeding analysts’ consensus target of $12.2 billion. Sales were flat on a currency-neutral basis. On a currency-neutral basis, Nike Direct was down 9 percent, while Nike Digital declined 14 percent and Nike stores were down 3 percent.
Wholesale grew 8 percent on a currency-neutral basis, including a top-line headwind of approximately $550 million from the reduction of its Classics franchises, which were down over 20 percent versus the prior year. Excluding the Classics liquidation headwind, wholesale revenues grew 6 percent on a currency-neutral basis.
Gross margins declined 300 basis points to 40.6 percent on a reported basis, primarily due to higher product costs from North American tariffs and inventory obsolescence in China that was not contemplated 90 days ago.
SG&A expense was up 1 percent on a reported basis year-over-year, driven by higher brand marketing expense, partially offset by lower operating overhead. Relative to expectations, SG&A was lower due to operating overhead savings, reflecting cost management.
Inventory decreased 3 percent versus the prior year, with units down in the high single digits.
North America Q2 Benefits from Liquidation Activity
In North America, Q2 revenue grew 9 percent to $5.63 billion. Nike Direct declined 10 percent, while Nike Digital fell 16 percent, and Nike stores were down 2 percent. Wholesale jumped 24 percent, and EBIT declined 8 percent on a reported basis, to $1.26 billion.
“North America is our best example of executing our Win Now actions, and we are taking the learnings from their playbook to execute across all other geos,” said Friend.
As it relates to the North America marketplace, wholesale delivered strong growth in the quarter. Friend added, “While the quarter certainly benefited from liquidation to value channels as we cleaned up the marketplace, we also saw a balanced contribution of growth from both new and existing partners.”
Nike Digital made progress in shifting toward “more premium” selling, with fewer days of promotion, lower markdown rates and increased demand at full price. Friend said, “Nike.com posted its ‘best Black Friday ever,’ partially driven by strong sell-through of the Jordan Black Hat launch.”
Among categories, momentum in the region has extended beyond running into additional sports, including basketball and training. Growth in the quarter was driven by running, kids, basketball, and training, with running delivering high double-digit growth across Nike-owned stores, Nike Digital and wholesale. Sportswear saw sequential improvement, up low-single digits in the quarter, while Classic footwear franchises declined approximately 20 percent year-over-year.
Inventory in the North America region declined mid-single digits versus the prior year, with units down double digits. Closeout units declined double digits, and the mix is “very healthy,” said Friend.
Friend noted that North America gross margins declined just 330 basis points versus the prior year, despite 520 basis points of impact from new U.S. tariffs. The CFO added, “This gives us confidence that our Win Now actions are working, profitability is recovering, and we are on the path back to sustainable profitable growth.”
EMEA’s Q2 Promotions Higher Than Planned
In EMEA, Q2 revenue was down 1 percent on a currency-neutral basis, to $3.39 billion. Nike Direct declined 3 percent, while Nike Digital and Nike stores declined 2 percent and 5 percent, respectively. Wholesale was flat. EBIT declined 12 percent on a reported basis, to $733 million.
Friend said, “EMEA has maintained a healthy marketplace, although promotional activity has been heavier than expected. We saw growth in Central and Eastern Europe and the Middle East, offset by slight declines in Western Europe.”
By category, the performance business in the EMEA region continued to build momentum, driven by double-digit growth in running. Growth was also seen in training and sportswear. Sportswear growth was driven by apparel, with footwear flat, as a mid-20s percent decline in Classic footwear franchises was offset by growth in Air Max and running-influenced styles. Inventory grew double digits versus the prior year with units flat and the spread primarily due to foreign exchange rates. Closeout mix in the geography is “healthy,” said Friend.
China’s Q2 Sales Slump 16 Percent as Reset Expands
In Greater China, Q2 revenue declined 16 percent to $1.42 billion. Nike Direct declined 18 percent, while Nike Digital fell 36 percent and Nike stores fell 5 percent. Wholesale fell 15 percent. EBIT declined 49 percent on a reported basis, to $191 million.
Friend said Nike has faced “consistent challenges” for several seasons in China with declining store traffic, softer in-season sell-through rates and higher levels of aged inventory across the marketplace.
“Our brands have consistently been off-price for consumers, especially in digital, affecting our premium positioning across the entire integrated marketplace,” said Friend. “These challenges resulted in a higher mix of off-price sales with higher markdowns, higher sales-related returns, higher wholesale discounts and higher obsolescence charges to clean marketplace inventory levels. This cycle has had a significant effect on the profitability of Greater China.”
To accelerate the region’s reset, Nike continued to invest in a new Nike store pilot, which has seen “encouraging results,” including stronger traffic and comp sales growth relative to the broader fleet. Nike is also focusing on performance styles, with innovation and an elevated retail presentation, as running continued to grow in China in the quarter.
The brand was less promotional during the 11.11 event, resulting in an approximate 35 percent sales decline versus the prior year, in line with plans. Nike further accelerated returns of aged inventory owned by partners and wrote off both partner and Nike inventory in the quarter, reducing inventory by mid-teens year over year and by 20 percent in units. Sell-in plans were reduced for spring, and buys for summer were reduced to improve sell-through and full-price realization.
“We will need to make further shifts in the integrated marketplace to break the cycle that we’ve been managing through,” said Friend. “There is more work ahead to scale the momentum of the initial store pilot to more doors to elevate our brands across all digital platforms and to clean up excess product in the marketplace. We expect headwinds to continue, but we are working to set the foundation for a return to growth in this important geography.”
APLA Sees Declines in Asia Pacific Countries
In APLA, Q2 revenue was down 4 percent to $1.67 billion. Nike Direct declined 5 percent, while Nike Digital fell 10 percent and Nike stores rose 1 percent. Wholesale was down 3 percent. EBIT declined 15 percent on a reported basis, to $389 million.
Positive results in Latin America were more than offset by headwinds in the Asia Pacific. Running grew double digits, and apparel increased mid-single digits overall. Inventory was up double digits versus the prior year, with units up mid-single digits. Friend said, “During the quarter, the team leveraged promotions to make progress on pockets of excess inventory in the marketplace.”
CEO Commentary
Company CEO Elliot Hill on the analyst call estimated that Nike is “in the middle innings of our comeback,” with second-quarter results “slightly better” versus expectations at the time of its first-quarter call.
He highlighted traction in performance categories, including running, which grew by over 20 percent for the second quarter in a row, with double-digit gains across every channel, including Nike Direct. Other signs of improvement seen in the quarter included 8 percent wholesale growth, investments in elevated experiences in key Nike stores, and fewer days of promotion on Nike.com. He likewise particularly highlighted the performance of North America, led by the over 20 percent wholesale growth.
“As our largest business, that’s where much of our focus has been,” said Hill. “With North America, we’re working with the most diverse wholesale landscape, which gives us several strategic partners to segment and differentiate our multi-brand, multisport and multi-price point portfolio. The team has done an excellent job of reconnecting with partners and getting sharper on the consumers we serve and those that we seek to serve.”
Hill also said its U.S. business has benefited from successful marketing activations around the Dodgers World Series win and Nike-sponsored Chicago Marathon, with an extensive campaign planned for its three brands, Nike, Jordan and Converse, around the upcoming NBA All-Star game in Los Angeles.
“North America is driving a healthy, repeatable offense and showing us what winning looks like,” said Hill. “It’s a great signal for our future success in other geographies.”
Hill also called out several innovations it sees as promising to drive sales in the coming months, including the Structure Plus running shoe, Nike Mind training shoe, ACG winter jacket, and Nike Football launches set ahead of the 2026 World Cup. NikeSkims will launch internationally in the EMEA and APLA following a “successful rollout” in North America.
On the downside, Hill said the reset in China is “not happening at the level or the pace we need to drive wider change,” with accelerated inventory clean-up efforts required. He added, “The reset requires a fresh way of thinking from our Nike teammates and our Nike store partners, and it will take time.”
Both the EMEA and APLA are just beginning to embrace the Sport Offense approach, which has found early success in North America. Hill said, “I know what it looks like when it’s successful. I can see the upside. It’s a brand-by-brand, sport-by-sport approach that paid off in a partner-by-partner, city by city, high street by high street, mall-by-mall approach and every detail matters.”
Hill also noted that Nike recently made changes to its leadership team to speed its “Win Now” actions, with all geographies reporting directly to Hill.
“I’m confident this change will result in us accelerating our Win Now actions by allowing our geography GMs to more closely shape our strategy, drive faster decisions and influence investments,” said Hill.
The changes include promoting its Chief Supply Officer, Venkatesh Alagirisamy, to chief operating officer, to “ensure technology is fully integrated across the company and how we create, plan, make, deliver and sell our world-class innovations,” and having Nike’s Global Sales team and Nike Direct report to Friend “to elevate the way consumers experience our brands.”
Hill concluded, “While it will take time, we see the path back to double-digit EBIT margins for Nike, Inc. That formula includes a multi-branded and diverse product portfolio that is constantly refreshing and bringing in newness and seeking to drive value out of every relationship we have in the marketplace. It also requires us to be bolder and more creative in how we operate.”
Image courtesy Nike Portland/Nike, Inc.
