Nike’s Recovery Stumbles: Profit Slumps Despite Surprise Revenue Lift in Q1 2026

Core Insights - Nike's Q1 2026 performance was mixed, with revenue slightly exceeding expectations at $11.7 billion, but profits fell sharply as earnings per share dropped nearly 30% year-over-year [1][4][8] - The company faces challenges including compressed margins due to higher discounting and tariff costs, which are now expected to reach $1.5 billion for the year [1][6][8] - Management indicated that the recovery will not be linear, with varying momentum across regions and sales channels [1][6][8] Revenue & Earnings - Reported revenue of $11.7 billion represents a ~1% year-over-year increase, but is roughly flat on a currency-neutral basis [4] - Diluted earnings per share fell to $0.49, down ~30% from the previous year [4] - Wholesale revenues increased by ~7% to approximately $6.8 billion, while Nike Direct sales declined by ~4%, driven by a 12% drop in digital sales [4] Segment & Channel Performance - North America saw ~4% growth, while Greater China experienced a ~10% decline in sales [4] - Converse brand revenue declined by ~27%, contributing to overall performance challenges [4] Margins & Costs - Gross margin contracted by 320 basis points to ~42.2%, attributed to higher discounting and unfavorable channel mix [6] - Nike's inventory decreased by ~2% year-over-year [6] Balance Sheet & Returns to Shareholders - The company returned $591 million in dividends (up ~6%) and repurchased $123 million in shares during the quarter [6] - Nike has a dividend yield of 2.20% with a payout ratio of 82.14%, having raised its dividend for 23 consecutive years [7] Outlook & Challenges - Nike expects Q2 revenue to decline in the low single digits due to ongoing headwinds [6] - Direct-to-consumer sales are not anticipated to return to growth until fiscal 2026, with North America expected to lead the recovery [6] Stock Performance & Wall Street Forecast - Nike Inc. (NKE) stock is currently trading at $72.75, reflecting a 0.98% decline this year and an 11.14% loss over the past year [5] - Wall Street analysts have an average price target of $82.96, indicating a potential upside of 13.72%, with JP Morgan upgrading its target to $100 [5]