Sportswear giant Nike is set to release its financial results for the first quarter of fiscal year 2026 (Q1 FY2026) after the U.S. stock market closes on September 30. According to analysts' expectations compiled by Bloomberg, Nike is projected to record $11 billion in revenue for Q1, with adjusted net profit of $414 million and adjusted earnings per share (EPS) of $0.28.

Review of the Previous Quarter's Performance

Financial data for the fourth quarter of fiscal year 2025 (Q4 FY2025) showed that Nike achieved $11.1 billion in revenue during the quarter, representing a 12% year-on-year (YoY) decline. However, this figure still exceeded the market forecast of $10.72 billion by 3.8%. Adjusted EPS stood at $0.14, a sharp 86% YoY drop, yet it outperformed expectations by 2 cents.

Gross margin narrowed by 440 basis points, a performance slightly better than analysts' anticipated contraction of 40.3%. Although sales in the North American, Greater China, and Europe, Middle East, and Africa (EMEA) markets all witnessed double-digit declines, the actual drops were kept within the expected ranges. Nike stated that the downward trend in its full-year sales has begun to ease, indicating that the strategic initiatives led by CEO Elliott Hill are yielding results.

Forecast for the Current Quarter's Performance

Earnings Expectations

Nike's management has taken the lead in signaling its earnings outlook, projecting that the YoY decline in Q1 FY2026 revenue will narrow to a mid-single-digit rate. Compared to the significant 11% YoY drop in Q4 FY2025, this is undoubtedly a positive sign, suggesting that Nike is gradually regaining its footing amid market adjustments. Based on the revenue forecasts from 22 analysts, the consensus estimate for Q1 FY2026 revenue is $10.9572 billion, a figure that reflects the market's initial assessment of Nike's business recovery.

In terms of gross margin, Nike faces considerable pressure, with an expected decline of 350-425 basis points. Among the contributing factors, tariffs alone will account for a 100-basis-point negative impact. This means that beyond raw material costs, production and operational expenses, and pricing strategy adjustments driven by market competition, tariffs have emerged as a key external variable eroding Nike's profit margins.

Analysis of Current Market Conditions

1. Inventory Situation

Inventory management has always been a core issue in the retail industry, and Nike is no exception. While reports indicate that inventory remained flat YoY (compared to a 2% YoY decrease in Q3 FY2025), the overall inventory level remains persistently high—like the Sword of Damocles, constantly affecting the company's operational efficiency and cash flow. To address this challenge, Nike has formulated a clear plan: it will continue to aggressively reduce inventory over the next two quarters, striving to restore healthy inventory turnover through optimized supply chain processes, enhance capital utilization efficiency, and better respond to changes in market demand.

2. Performance by Product Category

From a segmented product category perspective, Q4 FY2025 showed distinct differentiated performance. Apparel products recorded a 9% YoY decline (compared to -1% in Q3 FY2025), which was relatively smaller than the 12% YoY drop in footwear products (compared to -9% in Q3 FY2025). Behind this phenomenon lies not only the dynamic shifts in consumer fashion preferences but also the varied challenges and opportunities faced by different products in market competition. For instance, with the popularization of sports lifestyles, consumer demand for apparel that combines functionality and design sensibilities has remained relatively stable. In contrast, the footwear market faces more intense competition due to rapid style iterations and significant influences from trend cycles.

3. Performance by Regional Market

Greater China Market

Once a crucial growth engine for Nike, the Greater China market has now become a heavy burden on its performance growth. In Q4 FY2025, revenue from Nike's direct operations in Greater China fell by 15% YoY (compared to -11% in Q3 FY2025). Among this, digital business and store-based business declined by 31% and 6% YoY, respectively (compared to -20% and -6% in Q3 FY2025). The in-depth market reset has led to increasing discount intensity and a corresponding reduction in product supply, with Nike's inventory in China dropping by 11% YoY. These figures indicate that in Greater China, Nike not only has to contend with market share erosion from the rise of local sports brands but also adapt to complex market changes—such as consumers' shift toward online shopping habits and growing demands for product cost-effectiveness and personalization.

Other Regional Markets

In sharp contrast to Greater China, holiday orders in North America, Europe-Middle East-Africa (EMEA), and Asia Pacific-Latin America regions showed growth, demonstrating the resilience and vitality of demand in these markets. Consumer enthusiasm for sportswear remains high in these regions, injecting a degree of positive momentum into Nike's performance. However, the lackluster performance in Greater China, like a heavy stone, has largely offset the growth gains from other regions, leaving Nike's global performance growth still struggling.

Tariff Impact and Response Strategies

Tariffs have emerged as a major, unavoidable challenge for Nike in FY2026. Nike's Chief Financial Officer, Matt Friend, clearly stated that based on the currently implemented new tariff rates, the company expects its total incremental costs in FY2026 to increase by approximately $1 billion. To address this cost crisis, Nike is proactively formulating a multi-faceted strategy.

Optimizing Procurement Mix and Production Allocation

Nike plans to reduce the proportion of imports from China to the U.S. from the current 16% to a high single-digit level by the end of FY2026. By adjusting its global production layout and diversifying procurement sources, Nike aims to mitigate the impact of tariffs on costs, seek production bases with greater cost advantages and policy stability worldwide, and reshape supply chain resilience.

Collaborating to Mitigate the Impact of Rising Costs

Facing tariff pressures alone is difficult, so Nike has chosen to join hands with suppliers and retail partners. Through in-depth collaboration, the parties will jointly optimize all links in the supply chain, cut unnecessary expenses, and negotiate reasonable cost-sharing mechanisms. This will minimize the impact of rising costs on end consumers, striving to maintain the market competitiveness of products while preserving reasonable profit margins for all stakeholders.

Phased Price Increases

Starting from the fall of 2025, Nike has implemented a phased price increase strategy, attempting to pass on part of the tariff costs to consumers. However, this strategy must be executed cautiously: the magnitude and timing of price increases are crucial. If prices exceed consumers' psychological tolerance, it may lead to a further contraction in market demand, affecting sales performance and brand image.

Views from Wall Street Investment Banks

Piper Sandler holds an optimistic stance on Nike, raising its target price from $70.00 to $80.00 while maintaining an "Overweight" rating. The firm astutely noted that Nike's Q1 FY2026 sales guidance—projecting a mid-single-digit decline—is far better than Wall Street's previous expectation of a high-single-digit drop, a positive deviation that has undoubtedly boosted market confidence. Meanwhile, the upward trend in Nike's holiday wholesale orders serves as a strong signal of bottoming-out demand. On the product front, Nike's active launch of innovative products and optimization of its classic product portfolio have yielded significant results: running category sales grew by a high single-digit percentage in Q4 FY2025, and the Air Force 1 series has gradually stabilized. These factors provide strong support for Piper Sandler's positive outlook on Nike.

Citigroup increased Nike's target price from $57.00 to $68.00 and maintained a "Neutral" rating. The bank referenced Nike's Q4 sales performance, which exceeded expectations; although gross margin was slightly below forecasts, the overall performance was still commendable. Management expects reported sales to decline by a mid-single-digit percentage in Q1. Considering the 100-basis-point foreign exchange tailwind, Citigroup believes this performance is better than market concerns. The increase in Nike's holiday orders and the positive feedback from wholesale customers regarding new products and innovation efforts are all viewed by Citigroup as positive factors. However, Citigroup also soberly pointed out that Nike's direct-to-consumer sales are expected to remain weak during the holiday season and throughout FY2026, though the most severe headwinds from classic product lines have eased somewhat.

J.P. Morgan noted that management's guidance for Q1 FY2026 calls for a mid-single-digit decline in reported revenue, a 350-425 basis point contraction in gross margin, and a slight increase in selling, general, and administrative (SG&A) expenses. After precise calculations by the bank, Q1 EPS is estimated to be approximately $0.25, which is about 19% lower than the market consensus of $0.31. This forecast reflects J.P. Morgan's in-depth insight into the challenges Nike faces in cost control and revenue growth, and also suggests that the market's expectations for Nike's Q1 performance may be somewhat overestimated.

Following Nike's announcement of EPS of $0.14 (slightly above expectations) despite an 11% revenue decline, Needham raised its target price from $66.00 to $78.00 while maintaining a "Buy" rating. This indicates that Needham places greater emphasis on Nike's better-than-expected profitability, believing that the company has demonstrated resilience in cost control and profitability amid a complex market environment. It is expected to achieve a performance turnaround in the future through product innovation and adjustments to market strategies.

Based on the fact that Nike's inventory levels have improved, UBS raised its target price from $56.00 to $63.00. However, due to ongoing concerns about potential tariff impacts, it still maintained a "Neutral" rating. This reflects UBS's balanced consideration of two key factors—inventory and tariffs—when evaluating Nike's performance. While inventory improvement is a positive development, tariff uncertainty, like a hanging sword, limits further upgrades to Nike's rating.

Morgan Stanley increased its target price from $61.00 to $64.00, suggesting that Nike's fundamentals may be stabilizing. Nevertheless, due to numerous uncertainties surrounding long-term growth—such as the clearance of classic product lines and potential tariff impacts—it maintained an "Equal Weight" rating. Morgan Stanley believes that while Nike shows signs of improvement in the short term, it still needs to overcome numerous obstacles to achieve sustainable long-term growth, including resolving issues such as inventory backlogs in classic product lines and the impact of tariff costs.

In summary, Wall Street investment banks hold divergent views on Nike's Q1 FY2026 performance and future development. The positive signs demonstrated by Nike in certain regional markets and product categories—such as growing holiday orders and a recovery in sales of some product lines—have instilled a degree of confidence in the market. However, the continued sluggishness in the Greater China market and the heavy pressure of tariff costs remain "dark clouds" hanging over Nike. Looking ahead, as Nike unswervingly advances core strategies such as inventory clearance, product innovation, and supply chain optimization, its performance in FY2026 is fraught with uncertainties and will undoubtedly remain a key focus of the market.

This content is generated based on Tiger AI and Bloomberg data, for reference only.