NIKE, Inc. Q1 2026 earnings call

Thank you, operator. Hello, everyone, and thank you for joining today to discuss Nike, Inc.'s first quarter fiscal 2026 results. Joining us on today's call will be Nike, Inc. President and CEO Elliott Hill, and EVP and 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 the call 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, and I'll now turn the call over to Nike, Inc. President and CEO Elliott Hill.

Thank you, Paul. It's great to be here with everyone today. Before we begin, I want to start with a thank you. I want to thank my Nike, Inc. teammates around the world. Because of their passion, commitment, and determination, we made tangible progress from where we were 11 months ago, driven by our Win Now actions that focused our team on our culture, product, brand marketing, marketplace, and our ground game. This quarter, our Win Now actions drove momentum in the areas we prioritized first: running, North America, and wholesale partners. It showed that we're making the right choices. Consumers are responding. We're getting some wins under our belt. What you can't see in the results is the effort that I've seen in our stores, distribution centers, and offices around the world.

Since my return, not a day has gone by that I haven't asked each of my teammates to commit themselves fully to building a better Nike. That takes a lot of work. This quarter in particular, we asked even more from our teams as we realigned approximately 8,000 teammates to our Sport Offense, which I will explain shortly. It's a massive achievement for everyone involved. What I want this audience to know is that our teams also understand how much we still must do to meet our full potential. The truth is, Nike's journey back to greatness has only just begun. There is significant work ahead, especially in the areas of sportswear, Greater China, and Nike Direct. As I said to the team, progress won't be perfectly linear, but the direction is. On our last call, I said it was time to turn the page.

I believe this quarter reflects the many ways we're doing just that. As you've heard me say, it's imperative to bring our entire organization closer to the athletes we serve. That's why the Sport Offense is going to be so critical to our success. This new formation and ways of working will align our three brands, Nike, Jordan, and Converse, into more nimble, focused teams by sport. We'll gain sharper insights to fuel innovation in storytelling and connect with the communities of each sport in more meaningful ways. Collectively, we'll have a better coordinated attack with each brand forming a distinct identity and delivering a clear attention to serve different consumers. In the marketplace, organizing by sport gives us a much clearer point of view. The House of Innovation in New York is a great example where we redesigned a retail experience by sport.

I walked the floors in early September, and we're now able to take a consumer into a world of Jordan, a world of Nike running, or a world of Nike global football. It's an immersive sport experience, and the refresh has already led to double-digit revenue increases. That clarity works in small format doors as well. We recently redesigned our South Congress store in Austin to focus only on running and training, and sales have significantly increased. Ultimately, the Sport Offense will maximize Nike, Inc.'s complete portfolio. It is designed to drive growth across all our dimensions. We believe the opportunity to serve so many athletes across sports with three distinct brands in retail channels at every price point is an advantage that no one else has in our industry. Now, let's take a deeper look into where we're driving progress.

Our running business gives us an early window into the kind of impact we expect out of the Sport Offense. Our running team moved fastest into our new formation and was the first to get sharper on the insights of their athletes. It turns out runners mostly want three things from their running shoes: big cushioning, stability, or an everyday shoe that returns energy. In response, we've moved with a sense of urgency and completely redesigned the Vomero, the Structure, and the Pegasus to solve for these three insights, integrating our industry-leading innovation platforms like Nike Air, Flyknit, ZoomX, and ReactX. Having a consistent structure of silos and price points allows us to introduce at least one new major running footwear style each season. Our running business continues to be a strong proof point of progress.

We're getting back to delivering a relentless flow of innovation that serves real athlete needs, and we're pulling it all the way through the marketplace in consumer-friendly ways. The early results have been positive, with Nike running growing over 20% this quarter. Our opportunity is to quickly seize the benefits of a Sport Offense and apply them to more sport and sport culture, including global football, basketball training, and sportswear. I will remind you that each sport is in a different stage of development. Our global football team is preparing for the energy of the 2026 World Cup and is ready to move forward. We will utilize the world's biggest sports stage to debut an exciting new apparel innovation platform that will later be leveraged across other sports. We will connect with a younger consumer by launching several football streetwear collections.

As we're doing in running, football boots are also fueled by three silos at multiple price points, addressing the needs of three different styles of play. This quarter, we relaunched the revamped Phantom 6 with great sell-through and will follow that up with a new Tiempo in Q3 and a new Mercurial in Q4. Finally, we reset the football brand identity this quarter with our SCARY GOOD campaign. From a football innovation and brand standpoint, we're ready to go. In the marketplace, we're moving quickly to improve our position to tell football innovation stories in more inspiring ways at point of sale. The longer-term vision is for the impact of the Sport Offense to be felt far beyond the traditional sports where we currently compete. We now have dedicated teams to bring our creativity to additional market opportunities.

These are spaces for us to take design risks, to be innovative, and to be irreverent, which is so important to our brand's DNA. Nike ACG, for example, has brought an athletic, youthful approach to outdoor product for nearly 30 years. As more people stay active outdoors, we will invest in Nike ACG to address the opportunity. This quarter, we launched an elite ACG race team who has helped us make high-performance outdoor product. Together, we just revealed some exciting innovations: a breathable apparel innovation platform called Radical Air and a trail-tuned super shoe with the ACG Ultrafly. ACG professional racer Caleb Olson wore both innovations in his victory at the Western States 100 race, finishing with the second-fastest time in the history of the race. Our new partnership with SKIMS is another opportunity to bring something unexpected to a new consumer.

Nike's innovation expertise and SKIMS' dedication to inclusive apparel have the potential to create a performance training product with a very different look. We debuted the product line last week with 58 silhouettes, and early consumer response was very strong. The opportunity exists to create more dimension around the most established sports as well. Look at this year's U.S. Open of tennis as an example. Over the course of the three-week tournament, we celebrated the wins and encore looks of Alcaraz and Sabalenka, we designed custom dresses for Naomi's incredible comeback and for Sharapova's induction into the Tennis Hall of Fame. We excited sneaker fans with a retro launch of Agassi's Tech Challenge sneakers, and we brought it all together in New York's House of Innovation in an immersive tennis experience.

In the past 10 months alone, as part of our Win Now actions, we've activated 12 sport takeover moments that connected the inspiring performances of our athletes and teams to commercial assortments in the marketplace. This quarter, that included the England women's national team winning the European Championship, Sinner's Wimbledon title, Scottie's Open Championship title, and Chelsea winning the Club World Cup. Sport and the world's greatest moments will always be Nike's runway. Only we can bring it all together across three brands, so many sports, performance, and lifestyle. This is Nike maximizing the full power of our portfolio. While the sports performance teams are finding a higher gear, our sportswear teams have work to do to get sharper on the consumers we're serving. We see it in our results. Our business continues to decline.

Continuing to build a clear product construct in sportswear, as we're doing in our performance sports, remains a priority. We do have pockets of strength, especially in our deep vault of look-of-running footwear, but we are still in the process of putting our largest classic franchises into a healthier position for the Nike, Jordan, and Converse brands. Air Force 1 is stabilizing. Air Jordan 1 inventory levels are returning to health. The Dunk continues to be managed aggressively down in all geos, and the Chuck Taylor is in the early stages of a global market reset. With Converse, we just put new leadership in place, and we're going to take aggressive actions to better position the brand for profitable growth in the future. Of the priority Win Now actions, elevating the full marketplace is in the early innings.

The positive is that North America, where we invested first, took some big steps forward this quarter. The team continues to give more consumers access to the brand in more premium environments. We reset over 1,300 running spaces in the quarter, from DICK'S to Nordstrom to Heartbreak Hill. We were also pleased with the launch of the Nike brand store on Amazon, where we are driving stronger engagement in sales than anticipated. While our North America teams are setting the tone, we're still far from our ultimate goal of elevating an integrated marketplace, digital and physical, wholesale and Nike Direct in all geographies. Greater China, as I mentioned on the last call, is facing structural challenges in the marketplace. Our business was down 10% for the quarter. Seasonal sell-through continues to underperform our plans, requiring larger investments to keep the marketplace clean.

Thanks, Elliott, and hello to everyone on the call. 90 days ago, I said the fourth quarter of fiscal 2025 would reflect the largest financial impact from our Win Now actions, and that we expected the headwinds to revenue and gross margin to begin to moderate from there. At the end of our first quarter, we're encouraged by the progress that we have made, as reflected in our results, yet we still have much work to do. Today, I will review our financial results. I will highlight the progress we have made with our Win Now actions across the geographies. Last, I will provide guidance for Q2, as well as some additional insights to bring shape to our near-term financial performance. I'll begin with our financial results. This quarter, revenues were up 1% on a reported basis and down 1% on a currency-neutral basis.

Nike Direct was down 5%, with Nike Digital declining 12%, and Nike stores down 1%. Wholesale grew 5%. Gross margins declined 320 basis points to 42.2% on a reported basis due to higher wholesale discounts, higher discounts in our Nike factory stores, increased product costs, including new tariffs, and channel mix headwinds. SG&A was down 1% on a reported basis. This was driven by a lower brand marketing expense, reflecting prior year investment around key sports moments, partially offset by higher sports marketing expense. Operating overhead was flat compared to the prior year. Our effective tax rate was 21.1% compared to 19.6% for the same period last year, primarily due to decreased benefit from stock-based compensation. Earnings per share was $0.49.

Inventory decreased 2% versus the prior year, as we have made steady progress on our plans for a healthy marketplace by the end of the first half of fiscal 2026. As I shared last quarter, and as you just heard from Elliott, our geographies are at different stages of progress against our Win Now actions, and business recovery is trending on different timelines. Therefore, I will focus my geography remarks on the specific context and insights of our Win Now progress. In North America, Q1 revenue grew 4%. Nike Direct declined 3%, with Nike Digital down 10% and Nike stores flat. Wholesale grew 11%. EBIT declined 7% on a reported basis. North America is building momentum through sustained brand activity across sport, leveraging our leading portfolio of sports marketing assets. North America is furthest ahead in taking steps to elevate and transform the marketplace for future growth.

Running, training, and basketball each delivered double-digit growth. Sportswear grew in the quarter, but there is still work to do, with momentum in apparel and looks of running footwear, while managing a 30% decline in our classic footwear franchises. As it relates to the North America marketplace, wholesale returned to growth in the quarter, partially due to shipment timing in the prior year, as well as higher liquidation volume to value channels. Additionally, the strategic actions taken to expand distribution and reach new consumer segments contributed to growth and are showing initial promise. Headway was also made in repositioning Nike Digital, reducing the number of days of site-wide promotion by more than 50% and lowering markdown rates, as well as increasing share of demand at full price. On inventory, North America drove continued progress through the first quarter.

Units declined versus the prior year, while dollars were flat, primarily due to new U.S. tariffs. Closeout mix is approaching normalized levels. In EMEA, Q1 revenue grew 1%. Nike Direct declined 6%, with Nike Digital down 13% and Nike stores up 1%. Wholesale grew 4%. EBIT declined 7% on a reported basis. EMEA has largely cleaned the marketplace, even as promotional activity has increased across the industry. Nike's momentum is building in sport and with our wholesale partners. EMEA is furthest ahead in repositioning Nike Digital to a full-price business. However, traffic and demand remain soft. In Q1, our performance business continued to build momentum, driven by double-digit growth in running and low single-digit growth in global football and training footwear. Sportswear declined low single digits, as headwinds in our classic footwear franchises more than offset growth in apparel and new dimensions of footwear.

Over the last 90 days, we've seen promotional activity increase in key countries across EMEA. In order to stay aligned with our partners and manage marketplace inventory, we selectively leveraged additional discounts on Nike Direct. With respect to inventory, EMEA closed the quarter with units down mid-single digits versus the prior year and a normalized level of closeout mix. In Greater China, Q1 revenue declined 10%. Nike Direct declined 12%, with Nike Digital down 27% and Nike stores down 4%. Wholesale declined 9%. EBIT declined 25% on a reported basis. Greater China created energy with consumers in the quarter through new product innovation and Nike athlete activations on the ground with Ja, Sabrina, and LeBron. Aggressive marketplace actions have reduced owned and partner inventory. However, store traffic and in-season sell-through continues to be a headwind.

Running is a bright spot in China, growing high single digits in the quarter, with strong consumer response to new innovations such as the Peg Premium and the Vomero 18. In the marketplace, traffic declined versus the prior year in both Nike owned and partner stores, resulting in lower in-season sell-through rates. Digital remains a highly promotional marketplace in Greater China, with consumer shopping moments extending longer on local platforms with deeper discounts. Inventory was down 11% versus the prior year. However, closeout mix remains elevated. Our priority in Greater China is to improve seasonal sell-through trends by refreshing store concepts around sport, creating greater brand distinction at retail with more productive merchandising assortments, and reducing the mix of aged inventory with our partners. In APLA, Q1 revenue grew 1%. Nike Direct declined 6%, with Nike Digital down 8% and Nike stores down 5%. Wholesale grew 6%.

EBIT declined 13% on a reported basis. APLA continues to deliver mixed results across countries, with pockets of elevated inventory requiring higher levels of promotional activity and proactive management of supply in the marketplace. In the quarter, performance dimensions delivered strong growth, led by double-digit growth in running and high single-digit growth in training. This momentum was offset by low single-digit declines in our sportswear business. In the marketplace, Nike Digital delivered sequential improvement in markdown rates across all territories. Inventory across APLA grew high single digits this quarter, and so we are taking additional actions to rebalance inventory levels with retail sales trends in certain countries and tighten buys on Nike Direct. Next, I will spend a moment to provide an update on tariffs.

Last quarter, I shared that the newly issued tariffs represented a meaningful cost headwind for Nike, since the new reciprocal tariffs are stacked on top of the mid-teens rate Nike already paid on imports. I also outlined the actions we are taking in response, balancing impact on the consumer, our partners, our Win Now actions, as well as the long-term positioning of our brands in the marketplace. Since our last earnings call, new reciprocal tariff rates have been increased for certain countries. With the new rates in effect today, we now estimate the gross incremental cost to Nike on an annualized basis to be approximately $1.5 billion, up from the $1 billion we shared 90 days ago. Given the magnitude and timing of the most recent rate increases, we now expect the net headwind in fiscal 2026 to increase from approximately 75 basis points to 120 basis points to gross margin.

We continue to evaluate and implement the actions I described last quarter to mitigate these new costs over time. We are monitoring developments closely, and I remain confident in our ability to leverage our strengths, our scale, and the deep experience of our leadership team to navigate through this disruption. Now, I will turn to our second quarter guidance. As Elliott said, we are operating in a dynamic environment, both for consumers and our global business. We remain focused on what we can control, principally to make forward progress on our Win Now actions and to activate our Sport Offense for the long-term health of our brands. Our outlook reflects our best assessment of these factors based on the data that we have available today. We expect Q2 revenues to be down low single digits, including one point of benefit from foreign exchange.

We expect Q2 gross margins to be down approximately 300-375 basis points, including a net headwind of 175 basis points from the new incremental tariffs. We expect Q2 SG&A dollars to be up high single digits, with an acceleration of demand creation investment and low single-digit increase in operating overhead. We expect other expense, net of interest income, to be an expense of $10 million-$20 million in the second quarter. We expect the tax rate for the second quarter and the full year to be in the low 20% range due to anticipated changes in earnings mix. Finally, with an additional 90 days of execution against our Win Now actions, I'll close with some insights that should bring shape to Nike's financial performance for the balance of fiscal 2026. We see momentum building with our wholesale partners.

Our spring order book is up versus the prior year, with growth led by sport. As a result, we expect wholesale revenue to return to modest growth for fiscal 2026. At the same time, we continue taking steps to reposition Nike Digital as a full-price business. Organic traffic continues to decline double digits. With a business in the prior year that was more concentrated on classic footwear franchises and sneaker launch, as well as a higher mix of off-price sales, traffic comps will remain under pressure. We do not expect Nike Direct to return to growth for fiscal 2026. As it relates to our operating segments, we expect North America will continue to lead our global recovery, while Greater China will require more time due to the unique marketplace dynamics Elliott and I have outlined. Converse is under new leadership and resetting its marketplace and brand.

Thanks, Matt. I am going to close it out with some perspective on a special sport moment from the quarter that I believe represents the power of a unified team with a singular mission. In late July, I was at the final of the UEFA Women's European Championships in Basel, Switzerland. Defending champion England had already lived through an emotional roller coaster throughout the tournament. They lost their opener to France. They came back from a two-goal deficit to beat Sweden and scored in the final minute of extra time to beat Italy in the semifinal. Now they face Spain in the final, who beat them in the last World Cup final. I was sitting with the FA, the governing body of football in England. For the third straight knockout match, the Lionesses started slow. They were on their heels instead of attacking. They went into halftime down one-nil.

We began to question if they had anything left in the tank. Coming out of the half, something clicked. Coach Sarina Wiegman made the right substitutions, as she had all tournament. Chloe Kelly came off the bench and pace picked up instantly. Hannah Hampton made several key saves. Lauren Hemp was flying all over the pitch, and everyone contributed. England's pressure led to the equalizer in regulation, and after a draw and extra time, Chloe proved to be clutch one more time to score the winning penalty kick in the shootout. The crowd erupted. Her country erupted. There they were, champions of Europe once again, delivering England's first major football trophy on foreign soil. The Nike London team took that insight and built a campaign around the importance of home that stretched from billboards to T-shirts to the airplane that brought them back to their awaiting fans.

The national pride for the Lionesses was everywhere. Nike was right there with them. When I talk to my team about passion, commitment, and determination, we do not have to look much further than England. It is a group that embraces their roles, an experienced coaching staff who adapts in the moment, players who refuse to give up. I found out later that Lucy Bronze played the entire tournament with a fractured tibia. A fractured tibia. That is resilience. That is a team that knows what it takes to make a comeback. We were all inspired here at Nike, and you can be assured we are taking their lessons to heart. We are unified under the Sport Offense, and we are clear on what it will take to win and on the size of the prize ahead. With that, I will open it up to questions.