Nike’s Surprising Increase in Income
Nike reported a surprising increase in income in the first quarter, exceeding winning expectations despite weakness in China and tariffs that put margins under pressure. The company’s turnaround efforts, led by CEO Elliott Hill, gained traction, resulting in a rise of over 3% in Nike’s shares on Wednesday.
Turnaround Efforts
The company attributed some of its inflated inventory and wholesale revenue to growth in an early success for Hill’s plan to bring Nike back to its earlier fame. However, managers warned that recovery was still a long way away. Nike now expects the tariffs to cost around $1.5 billion this year, compared to the previously expected $1 billion.
Challenges in China
China, the third-largest market for Nike, was a special problem, and managers said that recovery would take longer. The country accounted for 15% of total sales in the 2025 financial year. The turnover in the Greater China area fell back for the fifth quarter in a row, as Nike fought against demand in the face of hard competition from domestic brands such as Anta and Li-Ning.
Market Share and Competition
The company has also lost market share to younger competitors such as On and Deckers’ Hoka. Hill said Nike recently sent basketball stars LeBron James and Ja Morant to China as ambassadors, and added that he was expecting sports such as running and basketball to drive growth in the region.
Financial Performance
The company’s revenue from wholesalers on a currency-neutral basis rose by 5%, but the margins still looked pressured due to tariffs. The company’s turnover in the first quarter rose 1% to a reported basis to $11.72 billion, beating analysts’ expectations of a decline of 5.1% to $11 billion. The CFO of Nike, Matthew Friend, said that the company’s direct business would not return to growth in the 2026 financial year, with North America leading the recovery and China lagging.
Earnings and Margins
Nike reported earnings per share of 49 cents, beating an estimated 27 cents, as it achieved a certain reason to reduce inventory in the quarter. However, the company’s gross margin decreased by 320 basis points to 42.2%, after a decrease of 440 basis points in the previous three-month period. According to David Bartosiak, a stock strategist at Zacks Investment Research, "Nike beats the low bar defined for EPS and showed some wholesale strength, but the underlying fundamentals are still shaky. DTC weakness, marginal pressure, and China – soft yellow lights flash."
