NIKE, Inc. Q2 2026 earnings call

Thank you, Operator. Hello, everyone, and thank you for joining us today to discuss Nike, Inc.'s Second 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.

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'd 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. Let me start by thanking all of you for joining on the eve of a holiday week here in the United States and many parts of the world. And with that, let me also recognize a Nike team that's leaving nothing on the table right now. When you work in retail, the holidays don't mean a break. When you work in sport, you often say that sport never sleeps. So when you work at Nike, you're in the thick of an incredibly busy time. With that in mind, I want to extend a special and heartfelt thanks to my Nike teammates.

Thank you for your continued commitment, passion, and determination, and thank you for delivering another quarter of steady progress and building momentum.

Fiscal year 2026 continues to be a year of taking action to right-size our Classics business, return Nike Digital to a premium experience, diversify our product portfolio, deepen our consumer connections, strengthen our partner relationships, and realign our teams and leadership. And I'd say we're in the middle innings of our comeback. We started with the Win Now Actions, which was our immediate response to our biggest challenges and opportunities in our culture, product, storytelling, marketplace, and winning on the ground.

And now our Sport Offense is the accelerator of our Win Now Actions. It's how athlete-centered innovation travels across and through every country and channel to drive growth. Our focus on sport by brand is the engine of our growth. Our global marketplace is the amplifier, and it is our Sport Offense that connects the two.

Said another way, our growth will come from sport, athletes, product innovation, sport moments, and will be scaled through countries, channels, and accounts. Turning to the quarter, I'd frame up the results as slightly better than we had anticipated 90 days ago, and while we're driving progress through Win Now, we're nowhere near our potential. I see three themes that give a better picture of where we stand right now.

The first theme is that our sports teams are quickly finding their rhythm in the new Sport Offense. While right-sizing our Classics, we're building a more diverse product portfolio, gaining the most traction in our performance business, which validates that we've got the right structure to drive a relentless flow of innovative product across our unmatched opportunities. The second theme is that we're building a healthier base for top-line growth.

The Nike brand grew this quarter, and the mix was strong. We delivered 8% wholesale growth, elevated the experience in key Nike stores and Nike.com, and had fewer days of promotion. These are all positive signs. The third theme is that our comeback continues to move at different speeds. It won't be a straight line, but we're acting decisively to accelerate the lagging areas, with China at the top of that list. A year in, it's clear how important it is to stay closely connected to what's happening on the ground.

From intern to CEO and every role I've held in between, I've felt that way, which is why, as you likely saw this quarter, I announced a change in my leadership team. All geographies will now report directly to me.

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. The geography that is leading the way for Nike right now is North America. As our largest business, that's where much of our focus has been.

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, multi-sport, 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. This quarter, that approach led to over 20% wholesale growth in North America, with meaningful growth coming from existing partners.

Our North America marketing team is also finding the right balance of inspiring through big team moments like the Dodgers World Series campaign after their win or at the Chicago Marathon, where we supported everyone, from everyday runners chasing personal bests to Conner Mantz shattering an American marathon record that stood for 23 years. North America is driving a healthy, repeatable offense and showing us what winning looks like. It's a great signal for our future success in other geographies.

In Greater China, we highlighted last quarter that we were facing a longer road to a healthier business. We've been implementing the Win Now Actions in our key cities of Beijing and Shanghai, leading with more storytelling of our product innovations, editing our assortments, and elevating the presentation of those assortments in targeted doors.

What we've done is a start, but it's not happening at the level or the pace we need to drive wider change. The next step is to further adapt our approach to fit China's unique monobrand footprint and digital-first marketplace. The reset requires a fresh way of thinking from our Nike teammates and our Nike store partners, and it will take time. Over the years, we established our premium position and market share there because the Chinese consumer believes in our ability to innovate and inspire them through sport. I'm confident we'll get back to fulfilling that promise.

China continues to stand out as one of the most powerful long-term opportunities in sport. That has not changed. Expect to hear, see, and feel much more about how we'll manage the China marketplace differently this fiscal year and beyond.

Both EMEA and APLA are geographies that are led through distinct, influential countries and key cities. So we're moving quickly to resourcing our teams on the ground, including sales. They're the ones who deliver locally relevant assortments, elevate the presentation of those assortments, fuel product seeding and build local relationships, create meaningful stories and consumer connections, and ultimately drive profitable and sustainable revenue in both wholesale and direct.

EMEA activated their sport offense on December 1st, so they just started rehiring these critically important revenue-generating roles in key countries. I'm locking arms with the leaders of our geographies and with Matt, who now leads sales and Nike Direct to elevate the way consumers experience our brands. 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 paid off in a partner-by-partner, city-by-city, high street-by-high street, mall-by-mall approach, and every detail matters.

Thanks, Elliott, and happy holidays to everyone on the call. Our second quarter results demonstrated the resilience of our portfolio, with modest year-over-year reported top-line growth despite managing headwinds from the actions we have taken to reposition our business. As I look back on where we are, one year from Elliott joining the company and moving forward with our Win Now Actions, our business is in a better position. Sport dimensions represent a larger mix of the portfolio led by Running, and we are seeing momentum build in other sports.

The classic footwear franchises are on track to decline from peak levels by more than $4 billion by fiscal year-end. Wholesale has returned to growth, with a growing order book globally in both spring and summer. Nike Digital has reduced promotional activity and is operating more strategically in sync with our partners.

And inventory is in a healthy and clean position in North America and EMEA. While we are encouraged by all of this, as we have said, our 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.

We highlighted last quarter that it will take more time to return to healthy growth in Greater China and Converse, and we expect headwinds to continue for the balance of the fiscal year. There are also puts and takes across EMEA and APLA. Meanwhile, North America and Running stand out again this quarter, and we are growing more confident in our ability to sustain the momentum as we look forward.

Being in the middle innings, as Elliott referenced, also means it will take time for the actions we have put into place to change the trajectory on EBIT margins. We have been navigating transitory headwinds to margin due to our Win Now Actions and shifts in the business, including product and channel mix and continued inventory liquidation.

As we highlighted last quarter, we are also navigating new structural headwinds from the $1.5 billion of annualized incremental product costs due to higher U.S. tariffs. This represents a gross headwind of approximately 320 basis points to gross margin in fiscal 2026, and 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 a turnaround in a very dynamic operating environment.

All in all, we have made meaningful progress through our five Win Now Actions, yet there is more work to do, and our teams are hustling. For this quarter, revenues were up 1% on a reported basis and flat on a currency-neutral basis. Nike Direct was down 9%, with Nike Digital declining 14%, and Nike Stores down 3%. Wholesale grew 8%. This included a top-line headwind of approximately $550 million from the reduction of our classic franchises, down over 20% versus the prior year.

This means our currency-neutral revenue grew 6%, excluding the impact of this headwind. Gross margins declined 300 basis points to 40.6% on a reported basis, primarily due to increased product costs due to higher tariffs in North America, as well as inventory obsolescence in Greater China that was not contemplated 90 days ago.

SG&A was up 1% 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 the team's continued focus on disciplined cost management. Our effective tax rate was 20.7% compared to 17.9% for the same period last year, primarily due to changes in earnings mix.

Earnings per share was $0.53. Inventory decreased 3% versus the prior year, with units down high single digits. In North America and EMEA, which represent almost three-quarters of our business, we have returned to a healthy marketplace. We still have work to do in Greater China, parts of APLA, and Converse. Now I will turn to the geographies and once again focus my remarks on specific context and insights of our Win Now progress. In North America, Q2 revenue grew 9%.

Nike Direct declined 10%, with Nike Digital down 16%. Nike Stores were down 2%. Wholesale grew 24%, and EBIT declined 8% on a reported basis. As Elliott said, 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. Momentum is extending beyond Running into additional sports, including Basketball and training. As it relates to the North America marketplace, wholesale delivered strong growth in the quarter.

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. North America also made additional progress on repositioning Nike Digital to a more premium representation of the Nike brand, with fewer days of promotion, lower markdown rates, and increased demand at full price.

Thank you, Matt. This quarter, the Los Angeles Dodgers reminded us what it takes to win at the highest level: back-to-back World Series titles, something no team had done in 25 years. They gave us a game seven for the ages. They didn't take the lead until the 11th inning. Down 3-0 early, every outside voice said, "It's over." But they kept chipping away. Every setback became a lesson. They leaned on each other.

They believed when belief was hard. Manager Dave Roberts shared those insights with us at the opening of our new Nike store in Portland, just days after that win. He talked about what guided his decisions, not just analytics, but trust, feel, and sacrifice. That included putting in bench player Miggy Rojas, who hit an improbable home run in the ninth, followed by a bases-loaded throw to the plate in the bottom of the inning. With one more out to go, Roberts swapped in Pages, who immediately made a leaping, game-saving catch.

Every decision mattered, and every player was ready when called upon. But the boldest move he made was managing Yoshinobu Yamamoto's innings, our Nike guy and World Series MVP, who won a historic three games in the series. The day after throwing nearly 100 pitches, he surprised everyone to close out game seven. That wasn't just effort.

That was a statement. "I'm leaving nothing on the table." It inspired the entire team. That's what greatness looks like. It's not about perfection. It's about perseverance. It's about sticking to the plan and performing when the pressure is highest. Nike is in a similar moment. We're the industry leader. Expectations are high. And yes, we face pressure and setbacks. But like the Dodgers, we're leaning on each other, focused on the fundamentals, making the hard calls, and building for the long game.

Because in the end, greatness isn't promised. It's earned. And we're ready to earn it again and again. Thank you. And now, Matt and I will take your questions.