Nike Inc - The Turn

Nike, Inc. (NKE) – Sell-Side Research Note (for publication)
Date: January 1, 2026
Disclaimer: This note is for informational purposes only and does not constitute investment advice or a recommendation.

Nike is in the middle of a real-time reset. The core question for investors is no longer whether Nike is a great brand. It is whether Nike can restore premium momentum and mix while navigating tariff pressure, a weaker digital channel, and a prolonged slowdown in Greater China. The latest quarter shows the shape of the turnaround: wholesale is working, digital is still the drag, and margins are paying the bill.

What the latest quarter tells us
For Q2 FY26 (quarter ended November 30, 2025), Nike reported revenue of $12.4bn, up 1% reported and roughly flat on a currency-neutral basis. The composition matters. Wholesale revenue was $7.5bn, up 8%, while NIKE Direct declined 8% to $4.6bn. Within Direct, NIKE Brand Digital was down 14% and NIKE-owned stores were down 3%. Converse declined sharply to $0.3bn, down 30%.

Profitability moved the wrong way. Gross margin fell 300 bps to 40.6%. Management attributed the majority of the decline to higher tariffs in North America. Net income was $0.8bn, down 32%, and diluted EPS was $0.53. Nike increased “demand creation” spend by 13% to $1.3bn, signaling a deliberate choice to reinvest in brand and sport marketing while the company reshapes the product and channel portfolio. Inventories ended the quarter at $7.7bn, down 3%, with fewer units but higher product costs linked to tariffs. Cash and short-term investments were $8.3bn.

The takeaway is straightforward: revenue is holding up because wholesale is recovering, but the margin structure is under pressure due to tariffs, channel mix, and the costs of rebuilding demand.

The strategic reset: “Win Now” and sport offense
Nike is positioning FY26 as an execution year. Management describes the plan as “Win Now,” supported by a shift to a more sport-driven operating approach (“sport offense”). In practical terms, this means cleaning up reliance on mature “classics,” rebuilding a more premium posture in digital, improving marketplace execution with wholesale partners, and leaning harder into performance categories where Nike can win with innovation and marketing.

Nike is also reorganizing decision-making. The CEO has stated that all geographies now report directly to him, explicitly to speed up execution. The message is that the turnaround is not just product; it is organizational tempo and accountability.

What is working: North America and Running
Nike highlighted North America as the region “leading the way.” Wholesale momentum is a central feature of that narrative, with management calling out strong growth in the region. This matters because it signals that partner relationships and product assortments are improving and that Nike is willing to use wholesale as a growth engine again, not just a distribution channel.

On the product side, Running is the clearest positive data point. Management stated that Running grew more than 20% in Q2, the second consecutive quarter at that pace, and that growth was double-digit across all channels, including NIKE Direct. In a market where competitors like On and Hoka have taken mindshare, Nike showing traction in Running is a meaningful sign that product and storytelling can still move the needle.

What is not working yet: Greater China
China remains the biggest swing factor in the model. Nike has been explicit that the recovery is moving at different speeds by geography and that China is at the top of the priority list. Management described China as a mono-brand, digital-first market where the company needs a reset: clearing aged inventory, improving retail execution, tightening assortments, and working through partner dynamics. Until China stabilizes, it is difficult for the equity story to fully re-rate, even if North America and parts of EMEA improve.

Margins: tariffs are the headline, but mix is the story
Gross margin is the key battleground for 2026. Nike pointed to higher tariffs in North America as the primary driver of the 300 bps decline in Q2. At the same time, the company is spending more on demand creation to rebuild brand heat and accelerate sport-driven growth. That combination creates a near-term squeeze: higher costs and reinvestment, while the channel mix shifts and digital is being repositioned away from heavy promotions.

 

 

Management has reiterated that margin expansion is a top priority and has stated that Nike sees a path back to double-digit EBIT margins over time. The issue is timing. The near-term margin outcome will depend on how quickly Nike can offset tariffs through pricing and mix, reduce promotional intensity without losing volume, and re-accelerate higher-margin Direct demand.

How to model the next few quarters
The cleanest way to track Nike’s progress is through a small set of indicators.

First, watch channel mix and quality. Wholesale growth is helpful only if it is not driven by excessive discounting or clearance activity. Direct must stabilize, and digital must show improving demand quality as Nike reduces promotions and rebuilds premium positioning. Second, track product momentum. Running is the early signal. The next question is whether Nike can broaden that strength across Training, Basketball, and Football with consistent “newness” and narrative. Third, keep a separate scorecard for China. Look for signs that the inventory and retail reset is working and that digital execution improves. China does not need to become a growth engine overnight, but it needs to stop being a persistent drag. Finally, monitor gross margin and inventory discipline. Tariffs are not just a one-quarter issue. They flow into product cost, pricing strategy, inventory valuation, and ultimately the earnings power investors pay for.

Structural risk: supply chain concentration
Nike’s footwear production remains heavily concentrated in Asia. For FY25, Nike disclosed that Vietnam represented roughly 51% of NIKE Brand footwear production, Indonesia about 28%, and China about 17%. That concentration makes trade policy, tariffs, and regional manufacturing shifts persistent variables in the margin model, not one-off noise.

Bottom line
Nike’s turnaround is visible in the numbers: wholesale is recovering and Running is working, while digital and China remain the pressure points. The biggest investor debate is whether the current margin compression is temporary, reflecting a deliberate reset, or whether tariffs and competitive intensity create a longer period of structurally lower profitability. The next quarters should answer that through one lens: does Nike regain premium demand without leaning on promotions, and can it stabilize China while protecting gross margin.