Nike Q4 Earnings Beat Low Expectations; Stock Rises on Outlook

Nike reported its fiscal fourth-quarter results after the market closed, revealing significant impacts from its ongoing turnaround plan but managing to surpass Wall Street’s lowered expectations. While sales and profit saw steep year-over-year declines, the sneaker giant indicated that the worst financial hit from its restructuring is behind it, leading to a rebound in its stock price during the subsequent conference call.

Here’s a look at Nike’s performance for the three months ended May 31, compared to analyst estimates polled by LSEG:

Revenue: $11.10 billion reported vs. $10.72 billion expected. This represents a decline of approximately 12% from $12.61 billion in the prior year period.
Adjusted Earnings Per Share (EPS): $0.14 reported vs. $0.13 expected. This was a sharp drop from $0.99 (or $1.01 adjusted) per share a year earlier.
Net Income: $211 million, an 86% collapse compared to $1.5 billion in the same quarter last year.
Gross Margin: Fell by 440 basis points (4.4%) year-over-year.

Turnaround Takes a Toll, Q4 Marks the Low Point

Nike acknowledged that the fiscal fourth quarter represented the “largest financial impact” from its turnaround efforts aimed at clearing stale inventory and resetting its business, particularly its digital operations and relationship with wholesale partners. The drastic drop in profitability was largely driven by using discounts and clearance channels to move excess product and a strategic shift back towards wholesale – a less profitable channel compared to selling directly to consumers via its website and stores.

Nike Direct revenue, which includes owned stores, digital, and wholesale, fell 14% overall. Digital sales saw a steep decline of 26%, and wholesale revenue was down 9% to $6.4 billion.

Finance chief Matt Friend confirmed that Q4 was the expected low point, with headwinds anticipated to moderate moving forward.

Navigating Headwinds: Tariffs, Competition, and Market Shifts

Beyond the planned costs of the turnaround, Nike faces significant external challenges:

Tariffs: New US tariffs on imports, particularly from China, are a “new and meaningful cost.” Nike estimates a gross incremental cost increase of approximately $1 billion in the current fiscal year (FY26), expected to negatively impact gross margins by about 100 basis points in Q1. Nike plans to mitigate this through supply chain adjustments (reducing China reliance from 16% to high single digits), price increases, and partner collaboration.
Competition: Nike is contending with a “secular shift” in consumer preference towards smaller, agile brands like Lululemon, On, and Hoka. These competitors have gained market share, particularly among female shoppers, a segment Nike aims to grow (currently about 40% of its business).
China Market: Once a major growth engine, revenue in Greater China fell 20% in Q4, coming in slightly below expectations, impacted by rising local competition and weakened consumer spending.
Operational Costs: The previous aggressive push towards a Direct-to-Consumer (DTC) model led to increased logistics costs and operational complexity. Part of the current strategy involves repairing and strengthening relationships with major wholesale partners like Dick’s Sporting Goods and Macy’s.
Innovation: Analysts note a perceived reliance on established legacy franchises (like Air Jordan, Air Force 1) rather than significant, tech-driven new product launches, contributing to challenges in attracting consumers.

Bright Spots and Future Focus

Despite the overall declines, Nike’s physical stores were a positive exception, with sales rising 2% in the quarter. Foot traffic data from Placer.ai also suggested improving trends, with the year-over-year decline narrowing significantly from April to May. Regionally, North America revenue ($4.70 billion, down 11%) performed better than analyst expectations.

Looking ahead, Nike’s guidance for moderating sales and profit declines in the current quarter (expecting a mid-single-digit sales decline) was key to the stock’s rebound. The company is focused on several initiatives to return to growth:

Cost Cutting: Plans to cut $2 billion in costs over the next three years.
Strategic Partnerships: Rebuilding wholesale channels and launching new products, including anticipated collaborations (like the delayed Skims line).
Targeting Female Shoppers: Specific efforts are underway to win over more women.

Apparel Growth: Apparel remains a key growth area, representing about 28% of Nike brand revenue in fiscal 2024.

While analysts believe Nike is making the “right moves” to stabilize the business by managing inventory and prioritizing new products and wholesale, they caution that the company is likely “several quarters away from reaching stabilization.” However, beating lowered expectations and providing a forecast for moderation signaled potential progress to investors, leading to the stock’s post-earnings rebound despite the challenging financial quarter.