Nike (NKE.US) reported its fiscal 2026 second-quarter results after Thursday's market close. While both revenue and earnings exceeded market expectations, net profit declined year-over-year due to margin compression and ongoing pressure on its direct-to-consumer (DTC) business.
The Oregon-based company posted a net profit of $792 million, down 32% from $1.16 billion a year earlier. Diluted earnings per share fell to $0.53 from $0.78, though this beat analysts’ estimate of $0.38. Net sales edged up 1% to $12.43 billion from $12.35 billion, slightly above the consensus forecast of $12.22 billion. On a constant-currency basis, revenue was flat.
By segment, Nike brand revenue rose 1% to $12.1 billion, driven by North America but offset by declines in Greater China and the Asia-Pacific & Latin America (APLA) regions. Challenges in China remained pronounced, with Greater China revenue dropping 17% to $1.7 billion and EBIT plunging 49%.
DTC revenue fell 8% to $4.6 billion, with Nike-branded digital sales down 14% and owned-store sales declining 3%. Meanwhile, wholesale channel revenue—part of Nike’s rebuilding efforts—grew 8% to $7.5 billion. Converse revenue plummeted 30% to $300 million due to broad-based regional weakness.
Footwear revenue was flat at $7.7 billion, while apparel sales climbed 4% to $3.9 billion. Gross margin contracted by 3 percentage points to 40.6%, primarily due to higher tariffs in North America. Inventories improved, declining 3% to $7.7 billion. Cash and short-term investments fell by $1.4 billion to $8.3 billion, weighed down by dividends, share buybacks, debt repayments, and capital expenditures.
The company did not provide Q3 or full-year guidance.
**DTC Struggles Prompt Wholesale Revival** After years of aggressively pushing its DTC strategy to reduce reliance on traditional wholesalers, Nike is now re-engaging with wholesale partners amid operational challenges. While the company is focusing on key sports and core cities while mending retail relationships, investors seek clearer progress in troubled areas.
“The DTC performance and China results are disappointing. We need more clarity on the timeline for recovery,” said Poonam Goyal, senior analyst at Bloomberg Intelligence. “Otherwise, the overall performance is solid.”
Nike has also prioritized resetting Converse’s market and brand strategy. The subsidiary, long dependent on Chuck Taylor sneakers, has struggled to ignite consumer interest in other categories.
CEO Elliott Hill stated, “Nike is in the middle innings of our comeback,” emphasizing ongoing execution of the “Win Now” strategy—including workforce realignment and retail partnership repairs. He added, “We’re making progress in priority areas and remain confident in initiatives driving long-term growth and profitability. Fiscal 2026 is about action: realigning teams, strengthening partnerships, rebalancing our portfolio, and winning in the marketplace.”
CFO Matthew Friend noted Q2 demonstrated “the resilience of our product portfolio” amid headwinds, adding that adjustments are being made to position Nike for recovery.
Year-to-date, Nike shares have fallen 13.1%, underperforming the S&P 500’s 15.4% gain. After the earnings release, the stock tumbled over 10% in after-hours trading to $58.60.