Nike (NKE.N) shares saw a relief bounce in extended trading Tuesday after the sportswear behemoth reported a surprise rise in first-quarter revenue and handily beat profit expectations. The results offered the first concrete sign that CEO Elliott Hill’s turnaround strategy is gaining traction, despite persistent market pressures from tariffs and deep softness in its crucial Greater China market.
| Financial Snapshot (Q1 Ended August 31) | Reported | Analyst Estimate (LSEG) | Surprise |
| Revenue | $11.72 Billion (up 1% YoY) | $11.0 Billion (down 5.1% YoY) | Beat |
| EPS | 49 Cents | 27 Cents | Beat |
| Gross Margin | 42.2% (down 320 bps YoY) | N/A | Pressure Persists |
The company’s top-line of $11.72 billion (up 1% year-over-year) crushed the LSEG consensus estimate for a decline to $11.0 billion. Diluted earnings per share of 49 cents nearly doubled the forecast of 27 cents, partially driven by early success in clearing some of its bloated inventory.
Wholesale Rebounds Amid Cautious Outlook
A key element of the surprise was the return to growth in the wholesale channel, which saw a 5% rise on a currency-neutral basis. This suggests CEO Hill’s plan to re-engage with retail partners, after years of prioritizing the Direct-to-Consumer (DTC) channel, is bearing fruit. Furthermore, Nike managed to reduce its inventory levels, a crucial operational win.
However, the path to full recovery remains steep. CFO Matthew Friend warned that the company’s own DTC business will not return to growth in the current fiscal year (fiscal 2026), with North America leading the recovery and China continuing to lag.
Looking ahead, Nike forecasts second-quarter revenue to fall in the low-single digits, which is still a better outlook compared to analysts’ estimates of a 3.1% drop.
Tariffs & China Drag on Profitability
While the top-line performance was a positive signal, underlying profitability remains under duress. The company’s gross margin decreased 320 basis points to 42.2%, following a 440-basis-point drop in the preceding quarter. This margin contraction is largely a result of higher product costs driven by U.S. tariffs.
Executives delivered a significant warning on the tariff front, raising the expected cost hit for this year to an eye-watering $1.5 billion, up from the earlier $1 billion estimate. The sportswear giant makes nearly all its shoes in countries, like Vietnam, that have been impacted by steep U.S. duties.
The China Challenge
Greater China, Nike’s third-largest market and historically a high-growth engine, remains a significant drag. Sales in the region, which accounted for 15% of overall fiscal 2025 sales, fell for the fifth consecutive quarter for the three months ended August 31.
The company is struggling to fend off stiff competition from domestic rivals, including Anta and Li-Ning, and has also lost market share globally to upstart performance brands like On and Deckers’ (DECK.N) Hoka. Hill acknowledged the pain, stating that recovery in China “would take longer,” though he cited brand initiatives like sending U.S. basketball stars LeBron James and Ja Morant as ambassadors to drive growth in core sports like running and basketball.
Turnaround is ‘Non-Linear’
CEO Hill, a Nike veteran who took the reins last year, has vowed to refocus the brand around core sports like running and a return to cutting-edge product innovation. This initial beat is an early success for that “sports offense” plan.
Nevertheless, the leadership team maintained a cautious tone. “We’re also realistic that we are turning our business around in the face of a cautious consumer, tariffs uncertainty and teams that are still settling into this sports offense,” Hill noted. In his earnings statement, he admitted there was still “work ahead to get all sports, geographies, and channels on a similar path.”
As Zacks Investment Research stock strategist David Bartosiak summarized: “Nike beat the low bar set for EPS and showed some wholesale strength, but the underlying fundamentals are still shaky. DTC weakness, margin pressure, and China softness are flashing yellow lights.”
For investors, the first-quarter results provide an initial dose of confidence that the turnaround strategy is working, particularly in addressing inventory and wholesale relationships. However, the escalating tariff burden and sustained weakness in China underscore the management’s warning: the recovery will be a long and non-linear process.
