Nike (NKE) reported stronger-than-expected first-quarter results, surprising Wall Street and lifting shares in premarket trading. While the athletic giant is gaining traction in its turnaround plan, management cautions that progress will take time as different parts of the business recover at different speeds.
Key Points
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Nike posted $11.7 billion in revenue, up 1% year over year, beating expectations of a 5% drop.
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Wholesale sales jumped 7% as relationships with key partners like Dick’s Sporting Goods (DKS
) regained momentum.
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Tariffs are expected to cost Nike $1.5 billion this year, weighing heavily on margins and profitability.
Why did Nike beat expectations this quarter?
Nike’s revenue was expected to fall nearly 5% to $11 billion, but instead it rose 1% to $11.7 billion. Earnings per share came in at $0.49, almost double Wall Street’s forecast of $0.27. The upside was largely driven by wholesale, where revenue grew 7% year over year.
CEO Elliott Hill credited the company’s renewed focus on wholesale partners and innovation in running shoes, which helped U.S. running sales jump 20%. Analysts noted that consumers responded strongly to Nike’s latest performance products, including collaborations like NikeSKIMS.
How are tariffs impacting Nike’s outlook?
Nike now expects tariffs to cost $1.5 billion this fiscal year, up from $1 billion just a quarter ago. Much of Nike’s footwear is produced in Vietnam, Indonesia, and China, making it especially exposed to trade-policy shifts.
Gross margin fell 3.2 percentage points to 42.2%, reflecting both tariff costs and discounts to clear old inventory. Executives warned that the company’s recovery “won’t be linear,” as expenses remain a headwind.
What about China and other weak spots?
While North America showed strength, China continues to struggle. Sales there fell 9% year over year due to weak foot traffic and a promotional online environment. Nike is trying to reignite demand in China with fresh performance gear, but executives admitted it will take time.
The Converse brand also weighed on results, with sales down 27%. Direct-to-consumer revenue fell 4%, as Nike shifted back toward selling at full price rather than relying on discounts.
What it means for investors
Nike’s first-quarter results show the turnaround is taking hold, with wholesale partners and innovation helping drive growth. But investors should remain cautious: tariff expenses, weakness in China, and declining digital traffic point to ongoing challenges. Management expects second-quarter revenue to decline in the low-single digits, meaning a full recovery could take several more quarters.
Conclusion
Nike’s “Win Now” strategy is showing promise, with wholesale strength and innovation boosting results. Still, the company faces significant hurdles, particularly tariffs and sluggish Chinese demand. For long-term investors, the turnaround could represent an opportunity, but patience will be key as progress unfolds unevenly.
FAQs
Is Nike’s turnaround real or just a one-quarter surprise?
Nike’s first-quarter beat shows early signs of progress, but executives stressed that recovery will not be linear. Wholesale strength and new running products are encouraging, yet China and tariff challenges remain.
How much are tariffs costing Nike?
Nike expects tariffs to add about $1.5 billion in costs this year, up from $1 billion last quarter. That increase alone is weighing down margins and could continue to pressure earnings.
Why is China such a challenge for Nike?
China sales fell 9% due to weak store traffic and heavy discounting in online channels. Nike is betting on new performance products to revive demand, but recovery in the region will likely take time.
Is Nike stock a buy right now?
Analysts remain divided. Some see long-term opportunity as Nike rebuilds wholesale relationships and launches fresh products. Others caution that near-term risks—including tariffs and slowing consumer demand—limit upside until more consistent growth is shown.
What products are driving Nike’s recovery?
Running footwear has been a standout, with U.S. sales up 20%. The company plans to release a new running shoe each season and extend innovations into basketball, training, and lifestyle categories.