NIKE, Inc. Q4 2025 earnings call

Thank you, Operator. Hello, everyone, and thank you for joining us today to discuss NIKE Inc's fiscal 2025 fourth quarter results. Joining us on today's call will be NIKE Inc's President and CEO, Elliott Hill, and our CFO, Matt Friend. Before we begin, let me remind you that participants on this call will make forward-looking statements based on current expectations, and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in NIKE's reports filed with the SEC. In addition, participants may discuss non-GAAP financial measures and non-public financial and statistical information. Please refer to NIKE's earnings press release or NIKE's website, investors.nike.com, for comparable GAAP measures and quantitative reconciliations. All growth comparisons on the call today are presented on a year-over-year basis and are currency neutral unless otherwise noted.

We will start with prepared remarks and then open up for questions. We would like to allow as many of you to ask questions as possible in our allotted time, so we would appreciate you limiting your initial question to one. Thank you for your cooperation on this. I'll now turn the call over to NIKE Inc President and CEO, Elliott Hill.

Thank you, Paul, and hello, everyone. I'll kick it off with a reflection on Faith Kipyegon's attempt to run the mile in under four minutes today, called Breaking4. While she crossed the line at a personal best of 4:06, today's attempt will always represent more than the pursuit of a specific singular time. We're super proud of Faith, our teams, and everyone who supported her, and we were all inspired by her effort. The Breaking4 journey will live on as a symbol of courage and ambition. You have to dare to try, and I deeply admire the monumental effort. What it showed is that no other brand offers athletes the depth of expertise that we can. No other brand dreams as big as we can. More than anything, no other brand inspires eight billion potential athletes to believe.

Faith's historic attempt comes at a unique moment for NIKE and our consumers as the sportswear industry continues to operate under geopolitical volatility and tariff uncertainty. Specifically to our business, the results we're reporting today in Q4 and in FY25 are not up to the NIKE standard. As we said 90 days ago, the work we're doing to reposition the business through our win now actions is having an impact. From here, we expect our business results to improve. It's time to turn the page. Just look at the pace of change we've embraced and the progress we've made over the last eight months.

It all started on October 14, my first day back at NIKE with an all-employee meeting and a declaration to our teammates that we are a sport and a growth company and that we will put the athlete at the center of everything that we do and every decision that we make. In December, we aligned our teams against the five win now actions: culture, product, marketing, marketplace, and our ground game with a sharp focus on five key sports, three key countries, and five key cities. We also set out to aggressively right-size three very important franchises: Air Force 1, Dunk, and the AJ1, and to return NIKE Digital to a premium destination. With our teams executing against our actions, I flattened my leadership structure and made changes to 11 of my 15 direct reports.

We pulled the lever we could pull the fastest, investing heavily in big sport moments and key product launches to win back our brand voice. That energy has ignited NIKE's performance product with consumers, which is helping us to better balance our portfolio. Reclaiming our voice in sports has turned out to be the jumpstart we needed for our team culture too. I see the fight in our teams. We believe and we're competing. A sharp sport point of view and a less promotional NIKE marketplace is helping us gain the confidence of wholesale partners. I'm personally meeting with our partners to reaffirm that we're prioritizing and investing in their businesses. We're also strategically adding more points of distribution to be in the path of a wider range of consumers.

NIKE Direct is showing early signs of being a more premium destination, especially when tied to a sport moment, a key product launch, or a NIKE-created on-the-ground activation. To accelerate our win now actions, the next step is to realign into dedicated cross-functional teams by sport. We're organizing into a sport offense to have deeper relationships with the athletes we serve, to gain better insights, to drive sport-specific innovation, telling inspiring stories, and differentiating ourselves in the marketplace. Instead of a men's, women's, and kids' construct, NIKE, Jordan, and Converse teams will now come to work every day with a mission to create the most innovative and coveted product: footwear, apparel, and accessories for the specific athletes they serve. These sport-obsessed teams will create greater dimension and distinction for our three brands, will make us more competitive, and will accelerate our growth.

We'll pay it off in an integrated marketplace of our own design. We'll invest in NIKE Direct digitally and physically and thoughtfully segment wholesale partners to serve sport-specific consumers across channels and up and down price points. Strategically, sharper marketplace segmentation in a sport offense allows us to deliver unique assortments and storytelling opportunities across different channels and partners to better serve our consumers and to help drive profitable, sustainable growth for our partners. We're already moving on a number of these fronts to better serve wholesale partners. We're in the process of hiring retail marketing, visual merchandising, and account management teammates. In NIKE Direct, we're getting into the rhythm of lining up against sport moments and key product launches. Two wholesale partnership examples this quarter were with DICK's through our 24/7 training collection and with JD through the Air Max 95.

The result: elevated presentations, better consumer connections, and increased sell-throughs. Earlier this month, our NIKE L.A. door at The Grove was home base for a highly successful global After Dark Run series. Hosting thousands of women runners in Los Angeles created energy throughout the week. The day before the race, we captured our best sales day at The Grove in three years. At the conclusion of the inspiring French Open finals, NIKE Digital posted the pre, during, and post-game looks of Carlos Alcaraz and Jannik Sinner with a 30% bump in day-to-day sell-through. Consumer right, sport-led assortments, in-the-moment storytelling, and elevated presentations in a segmented and differentiated marketplace, these are some of the many ways we will compete: brand by brand, sport by sport, geo by geo. The truth is, we're in a fight in every sport we're in, and each sport has different competitors.

As we begin to align our iconic brands by sport, we'll have a closer line of sight so we can develop targeted plans to match up against each one of them. We're approaching every opportunity with an athlete mindset, passion, commitment, and determination. Our teams are also making strong progress in expanding our distribution with strategic partners. I'll focus briefly on North America, who in this quarter led a Gen Z targeted experience with Urban Outfitters, becoming the number one brand in select doors on the opening weekend. We entered over 200 women's-led doors, including boutiques like Aritzia. We hosted 30 running specialty accounts from around the world at the NIKE campus for a four-day immersion in our upcoming running innovations. We leveraged two of our iconic brands, NIKE and Jordan, to create meaningful product activation with key city specialty partners along the I-95 corridor.

Finally, we announced a new partnership with Amazon. This fall, they'll carry a select assortment of footwear, apparel, and accessories, and NIKE will have a featured brand store on the platform focused on running, training, basketball, and sportswear. The NIKE integrated marketplace is beginning to take shape. Along with NIKE Direct, these partners will play an important role in serving a wider range of consumers. This is NIKE at its best, leveraging our portfolio of brands and sport-led product offerings across multiple channels and up and down price points. Q4 was also filled with a number of sport moments for NIKE, Jordan, and Converse. All three brands showed up with louder brand statements to leverage the emotion of epic storylines.

At the Golf Majors with Rory and Scottie, with A'ja to kick off a new WNBA season, at the Champions League final with PSG and Inter Milan, with Shai for both his MVP and the Thunder's NBA Championship, and at Roland Garros with Alcaraz and Sinner. All of that is in 90 days. It's a reminder of the strength of NIKE's athlete relationship and our brand's far-reaching influence across all sports. Shifting to our product portfolio, we made progress this quarter in rebalancing sportswear and performance. We're getting back to executing our formula more consistently to create innovative and coveted product, accelerate demand through emotional storytelling, and then scale at an unmatched level to meet the growing demand in the marketplace. Take NIKE running as an example, which grew high single digits overall for the quarter.

The energy was led by Vomero 18, which in just over 90 days has already become a $100 million-plus franchise with strong sell-through. In basketball, our women's business expanded more than 50% this fiscal year, proving that product demand is catching up to the spike in energy surrounding the women's game. The biggest basketball headline this quarter was the retail release of A'ja Wilson's signature collection and her first shoe, the A'One. It showed how effective we are when we line everything up for a thoughtful journey closely planned with the athlete. The first launch sold out in three minutes on NIKE Digital in North America and will double the amount of A'ja pairs in coming seasons.

In sportswear, the look of running footwear saw continued strength through products like P-6000, Vomero 5, and Shox, and we're reintroducing the Air Max 95 to a new generation of consumers through a more thoughtful seeding journey of high-energy driving models through different channels, account by account, and through early adopters like athletes and creative partners in our key cities. While we have a ways to go to return to a truly diversified sportswear lineup at scale, I'm pleased with the progress the team is making. I'll close by saying a few words on fiscal year 2026. As we put the sport offense in place, we're building a full pipeline of innovative product and driving momentum in the marketplace. I see a clear path to recovery ahead.

Thanks, Elliott, and hello to everyone on the call. In fiscal 2025, we reclaimed our identity through sport and implemented the win now actions to reposition our brands and business for future growth. While in line with our expectations, we are not pleased with our financial performance.

However, as I said last quarter, the fourth quarter reflected the largest financial impact from our win now actions. We expect the headwinds to revenue and gross margin to begin to moderate from here. Today, I will review our financial results, highlighting progress made against our win now actions. Then, I will explain our approach to the newly issued tariffs. Last, I will provide guidance for the first quarter of fiscal 2026, as well as additional insight for how we expect win now to shape our financial performance over the next fiscal year. I'll begin with our financial results. For the fourth quarter, revenues were down 12% on a reported basis and down 11% on a currency-neutral basis. NIKE Direct was down 14%, with NIKE Digital declining 26% and NIKE Stores increasing 2%. Wholesale was down 9%.

Gross margins declined 440 basis points to 40.3% on a reported basis due to higher wholesale discounts, higher discounts in our NIKE factory stores, supply chain cost deleverage, and channel mix headwinds. SG&A was up 1% on a reported basis. This was driven by increased investment in demand creation, up 15%, partially offset by a 3% decline in operating overhead. Our effective tax rate was 33.6% compared to 13.1% for the same period last year due primarily to decreased benefits from stock-based compensation and one-time items. Earnings per share was $0.14. For the full year, revenue was down 10% on a reported basis and 9% on a currency-neutral basis. Diluted earnings per share was $2.16. Inventory was flat versus the prior year and down 1% versus the prior quarter. Inventory remains elevated, but we are making progress.

We closed the year in line with our plans and remain on track to exit the first half of fiscal 2026 in a healthy and clean position. Now, let me go deeper into our performance over the last 90 days. As I shared last quarter, our geographies are at different stages of progress against our win now actions. As a result, business recovery is trending on different timelines. Today, I will focus my geography remarks on the specific context and insights of our win now progress. In North America, Q4 revenue declined 11%. NIKE Direct declined 14%, with NIKE Digital down 25% and NIKE Stores up 3%. Wholesale declined 8%. EBIT declined 29% on a reported basis. North America made meaningful progress cleaning up the marketplace and repositioning NIKE Digital as a full-price model. Momentum is building in wholesale with newness in the product portfolio.

Sportswear declined in the quarter, driven by a near 40% reduction in our classic footwear franchises. Performance also declined. However, we saw strong sell-through for new products offered in running and training. North America inventory actions continued with higher sales-related returns and higher discounts to liquidate aged inventory. Inventory dollars and units increased due partially to investment to support new distribution, unfavorable shipment timing, and new tariffs. On Digital, we saw a meaningful improvement in markdown rates, as well as a higher share of demand at full price in the quarter. In EMEA, Q4 revenue declined 10%. NIKE Direct declined 19%, with NIKE Digital down 36% and NIKE Stores up 5%. Wholesale declined 4%. EBIT declined 41% on a reported basis. EMEA is furthest along in cleaning up the marketplace and repositioning NIKE Digital within an integrated marketplace.

The team has demonstrated progress by delivering growth in key dimensions, key performance dimensions of our portfolio, and diversifying sportswear with new product journeys. In Q4, running and training delivered growth, offset by declines in our sportswear business. Within sportswear, we have taken meaningful steps forward to diversify our portfolio. In fact, sportswear grew overall in wholesale in Q4, and women's sportswear footwear returned to growth in the quarter. As it relates to inventory in EMEA, we ended the quarter slightly ahead of our target, with inventory dollars flat and units down mid-single digits versus the prior year. NIKE Digital also delivered improvements in markdown rates, as well as a double-digit increase in the share of demand at full price. In Greater China, Q4 revenue declined 20%, largely in line with our plan. NIKE Direct declined 15%, with NIKE Digital down 31% and NIKE Stores down 6%. Wholesale declined 24%.

EBIT declined 45% on a reported basis. Greater China executed a deeper reset of inventory relative to our other geographies, with higher sales-related reserves, higher discounts, and supply reductions. Traffic remains challenged, and our priority is to refresh local monobrand store concepts and elevate brand presentation through sport. On product, we saw bright spots this quarter when we launched sport-led innovation like Vomero 18 or utilized our geography express lane to tell hyperlocal stories. Consumers continue to have strong reaction to brand activations in the marketplace. Running returned to growth in the quarter, offset by declines in sportswear and Jordan. Inventory was down 11% versus the prior year, driven by aggressive actions to clean and reset the marketplace. Digital remains highly promotional across the marketplace, and we have taken initial steps to reposition our own platform with plans to extend our efforts to the broader ecosystem in fiscal 2026.

Our priority in Greater China is to refresh the monobrand marketplace, creating greater brand distinction through sport-led consumer concepts and full-price growth. We have launched a pilot across select doors. However, our actions to energize and reset this marketplace will take time. In APLA, Q4 revenue declined 3%. NIKE Direct declined 1%, with NIKE Digital down 6% and NIKE Stores up 4%. Wholesale declined 5%. EBIT declined 33% on a reported basis. APLA delivered mixed results across countries, with further work required to clean up inventory. The team has also taken initial steps to reposition NIKE Digital. In the fourth quarter, our performance business returned to growth, driven by running and training. This momentum was more than offset by declines in sportswear and Jordan. Our teams took aggressive actions to clean up the marketplace and further tighten the buys on NIKE Digital. However, inventory remains elevated. Okay.

Let me spend a few minutes talking through our approach to the newly issued tariffs. Over the past 50 years, NIKE has built a globally expansive supply chain that is responsive and resilient. We have strong relationships with our factory partners, and our leadership team is experienced in managing through disruption. NIKE has consistently been a top payer of U.S. duties, with an average duty rate on footwear imported into the United States in the mid-teens range. Therefore, these tariffs represent a new and meaningful cost headwind, and we are taking actions that balance the consumer, our partners, our Win Now actions, as well as the long-term positioning of our brands in the marketplace. First, we will optimize our sourcing mix and allocate production differently across countries to mitigate the new cost headwind into the United States.

Despite the current elevated tariffs for Chinese products imported into the United States, manufacturing capacity and capability in China remains important to our global source base. Currently, China represents roughly 16% of the footwear we import into the United States, and we expect this to reduce to the high single-digit range by the end of fiscal 2026, with supply from China reallocated to other countries around the world. Second, we are partnering with our suppliers and our retail partners to mitigate this structural cost increase in order to minimize the overall impact to the consumer. These partner arrangements will come into effect at different times throughout fiscal 2026. Third, as part of our regular approach to seasonal planning, we have implemented a surgical price increase in the United States, with phased implementation beginning in fall 2025. Last, we will evaluate corporate cost reduction as appropriate.

However, our highest priority right now continues to be reigniting brand momentum through sport and stabilizing our business. With the new tariff rates in place today, we estimate a gross incremental cost increase to NIKE of approximately $1 billion. We intend to fully mitigate the impact of these headwinds over time as we implement and annualize the actions I've outlined. For fiscal 2026, we expect the financial impact net of the actions described earlier to be approximately 75 basis points to gross margin, with a greater impact in the first half. We will continue to monitor developments closely, and I am confident in our ability to lean on our strengths, our experience, and our scale to navigate through this disruption. Looking forward, we intend to continue to provide specific quarterly guidance during this period of transition.

Today, I will also share some additional insights for how we expect our win now actions to shape elements of our financial performance throughout fiscal 2026. Momentum is building in our new product franchises. With the holiday order book in hand, we are beginning to see more clearly around the corner of our product portfolio transition. In fiscal 2025, we made significant progress managing down our classic footwear franchises, with year-over-year declines of more than 20%. In Q4, these declines accelerated to more than 30%, representing almost a $1 billion headwind to revenue. We also finished Q4 down approximately 10 percentage points from the peak as a percent of our total footwear mix. We expect these headwinds to continue through the first half of fiscal 2026, with signals that the Air Force 1 is stabilizing while we plan for larger reductions for the Dunk.

Before taking questions, I want to share some final thoughts on another historic sports moment this past quarter: Rory McIlroy's Masters win. I was lucky enough to be at Augusta earlier that week, and I could not help but relate Rory's experience to NIKE's recent journey. To me, his final round performance was a masterclass on the power of the athlete mindset. I have been asking my NIKE teammates to hold on to some of the lessons he taught us. For those of you that do not know, Rory has been chasing a Masters victory for 14 years. It would complete his career grand slam, the Holy Grail of golf, something only five others have ever accomplished. He was also battling a decade-long drought of winning a major. He has had his share of close calls and heartbreaks and more than enough doubters. Sunday's final round at Augusta was no different.

What made it so fun to watch was how aggressive Rory was playing. He was taking the shots that others would not, putting the pressure on the rest of the field. One time he did play it safe. He laid it up on the 13th and rolled it into Rae's Creek for a double bogey. Lesson learned. He played better when he was attacking. Despite another up-and-down round, the win was still in his grasp. All he needed to do was sink a five-foot putt on the 18th. He stepped up and missed wide left. He was heading to a playoff. His caddie, Harry Diamond, his lifelong friend and biggest supporter, knew just what to say. You would have given your right arm to be in the playoff at the start of the week. That was it. The mindset shift Rory needed. He did not have to play a playoff.

He got to play a playoff. It was his for the taking. An amazing reminder for NIKE that no matter the situation we face, we're the leader in an exciting industry. It's a privilege to get to compete every day. With all of our advantages we have, we're in control of our own destiny here. Rory went back to the 18th, stuck his second shot four feet from the pin. This time, he sank the putt. Dead center. Rory finally had his green jacket and his career grand slam. We were all treated to one of the most memorable Sundays in golf. For over a decade, his patience was tested, but he stayed the course. Whether it was Rory, Alcaraz, Shai, or Faith these past 90 days, we worked alongside some of the most mentally tough human beings on the planet.

Lately, I've been talking a lot about the athlete mindset. That special ability to keep believing, to keep competing. I'm asking my teammates at NIKE to do just that. To show up with passion, commitment, and determination, and to compete every day. I think we're on our way.

We ready for questions?