Nike posted surprise sales growth in its fiscal first quarter but said it still has work ahead to execute its turnaround as it warned it expects sales to fall again during most of the holiday shopping season. Nike’s reported net income in the three months ended Aug. 31 was $727 million, or 49 cents per share, compared with earnings of $1.05 billion, or 70 cents per share, in the year-ago quarter.
Sales rose to $11.72 billion, up about 1% from $11.59 billion a year earlier. Still, Nike’s profits fell 31% while gross margin dropped 3.2 percentage points to 42.2% during the quarter — another warning sign to investors that its efforts to clear through old inventory are still ongoing.
During the quarter, wholesale revenue rose 7% to about $6.8 billion, while sales in North America climbed 4% to $5.02 billion. However, beyond those three areas, Nike direct sales fell 4% to about $4.5 billion, while Converse sales dropped 27%. Revenue in China, one of the company’s most important markets, was down 9%.
Note: Nike's FY'25 ended on May 31, 2025. Q1 FY'26 refers to the quarter that ended on August 31, 2025.
Higher tariff costs are hampering Nike’s efforts to turn around its business. The company now expects tariffs to cost it $1.5 billion and hit its gross margin by 1.2 percentage points in its current fiscal year 2026. That’s up from the $1 billion and 0.75 percentage point gross margin impact it projected in June.
Nike expects sales during its current quarter, which generally runs from early September to early December, to decline by a low single-digit percentage, in line with expectations of a 3% decline, according to LSEG. Without favorable foreign exchange rates, sales could come in even lower, as the company said its guidance includes a 1 percentage point of positive impact from exchange rates. Nike said it expects its gross margin to fall between 3 and 3.75 percentage points.
Nike has made progress in its turnaround plan, but the expected decline during most of the holiday shopping months would follow an 8% drop in revenue in the year-ago period. It’s a sign to investors that Nike’s recovery is moving slowly, even during the busiest time of the year for retailers.
The company also said it expects revenue and gross margin headwinds to continue throughout fiscal 2026 in both China and at Converse. Nike does not expect its direct business to return to growth in fiscal 2026.
Below are key drivers of Nike's value that present opportunities for upside or downside to the current Trefis price estimate for Nike:
For additional details, select a driver above or select a division from the interactive Trefis split for Nike at the top of the page.
Nike specializes in designing, manufacturing, and marketing athletic footwear, apparel, and equipment. Its brands include Converse, Hurley, and Nike Golf, and its proprietary technologies include Nike Air, Zoom, and Flyknit. Nike typically outsources the manufacturing of its products to Asia and focuses on innovation and product design.
Recently, Nike has focused on product innovation and enhancing its digital engagement platforms. Its strategic emphasis has been on bolstering its brand strength and consumer connection - key competitive factors in a highly dynamic retail landscape.
The primary sources of Nike's value are footwear and apparel sold under the Nike brand, and together they contribute about 90% of Nike's value. Nike Brand Footwear is more valuable than Nike Brand Apparel and Converse Brand Footwear for the following reasons:
Nike's footwear revenues stood at $33.4 billion in FY 2024, more than double that of its apparel revenues which were around $14 billion. As the economy improves in the U.S. and Europe, and demand increases in China and emerging markets, we expect footwear revenues to continue to rise. With aggressive marketing and innovation, Nike branded footwear has been able to capture a significant chunk of the global sports footwear market.
In the last few years, demand for low-performance footwear in the U.S. and Europe has grown significantly. Low-performance footwear refers to footwear that is not intended for athletic use. In this segment, Nike faces competition from low-cost manufacturers that are trying to establish a foothold in the U.S. and other international markets. Nike has gradually increased its focus on selling low-performance footwear through its Converse and Hurley brands. However, the brand is facing stiff competition from competitors like Adidas that threaten to level the playing field.
The company has highlighted the need to accelerate the pace in China, a major growth market that has weighed on sales for more than two years. China sales have seen a substantial sales decline amid weaker discretionary spending in the country. The new CEO's 'Win Now' strategy aims to recover lost market share, but results are yet to materialize, signaling a prolonged turnaround effort. The strategy includes boosting on-the-ground presence in five key cities such as Shanghai and Beijing. Of all the geographies, product innovation is the most important in China. So, the key for them to start to see stabilization is still going to be product newness. Hill has fast-tracked certain sneaker launches such as Pegasus Premium and Vomero 18 that helped the company post a smaller-than-expected drop in quarterly revenue and profit in Q3 2025.
Both the SNKRs app - which sells limited-edition shoes using collaborations with athletes, celebrities, and universities - and the NIKE app resonate strongly with consumers. NIKE Direct drove the majority of Nike's incremental revenue growth, with Nike Direct constituting approximately 44% in FY 2024. While the company is seeking weaker digital sales in FY 2025 so far, we expect growth momentum in Nike Digital to pick up steam once the turnaround efforts are in place.
In the footwear business, producers and distributors jointly earn a profit per shoe of about 12%, while retailers earn a profit of 13%. By selling through its retail stores, Nike can capture both margins. The total number of Retail stores for Nike in the U.S. has increased from about 344 at the end of the fiscal year 2022 to around 377 stores at the end of FY 2024. Just by looking at the numbers, one can see how much Nike is focused on growing its DTC networks and increasing sales in the stream.
