Core Insights - Nike reported a 1% year-over-year revenue growth to $12.4 billion in its fiscal 2026 second quarter, marking a recovery from a 10% decline in fiscal 2025 [5][2] - However, earnings per share fell by 32% year-over-year, with gross margin decreasing by 300 basis points to 40.6% [6][5] - The company faces significant challenges, particularly in the Chinese market, where sales in Greater China dropped 17%, worsening from a 9% decline in the previous quarter [8][9] Revenue and Profitability - The slight revenue growth in the second quarter follows a similar 1% increase in the first quarter, indicating potential progress in Nike's turnaround efforts [5] - Despite revenue growth, profit margins are under pressure due to increased "demand creation" spending, which rose 13% year-over-year, primarily from marketing expenses [7][6] - Direct-to-consumer sales fell 8% to $4.6 billion, with digital sales down 14%, negatively impacting profit margins as this channel typically offers higher margins [10] Market Challenges - The decline in sales in China is a major concern, as the region was previously a strong growth driver for Nike, contrasting with competitors like Lululemon who are seeing growth [9][8] - Management's guidance indicates a slight revenue decline expected in the third quarter, which includes the critical holiday season, reinforcing the notion that fiscal 2026 is a transition year rather than a rebound [11][12] - Overall challenges include tariffs, weak demand in China, and a shift away from higher-margin direct sales, which investors should consider seriously [12]