Nike Earnings Beat on Costs, Sales Slump Persists

Nike's fiscal first-quarter earnings topped Wall Street estimates thanks to cost reductions rather than revenue growth. However, CEO Elliott Hill's recovery strategy includes a forecast of a high-single-digit revenue drop for fiscal 2027.

Earnings per share came in at $0.48, exceeding the $0.43 consensus. Revenue of $11.21 billion fell short of the $11.32 billion forecast, and net income declined 2%.

Where Do Nike Earnings Hide the Sales Problem?

Revenue decreased 4% to $11.2 billion, according to Nike. The decline was led by the Greater China and Europe, Middle East and Africa regions.

In Greater China, revenue dropped 22% to $1.18 billion, or 26% on a currency-neutral basis. EBIT for that region fell 34% to $248 million.

Elsewhere, Nike informed analysts that Sportswear, which accounts for just under half of revenue, posted a low double-digit percentage decline. The decline was partly due to planned cuts to the Dunk sneaker, whose revenue dropped nearly 50%.

Jordan Brand, representing 13% of Nike's business, also saw revenue decline by a mid-teens percentage.

CFRA Research analyst Zachary Warring expects Jordan to stabilize in the next few quarters, which is later than the firm had anticipated.

“I think Jordan is an operating issue right now.”

Zachary Warring, Equity Analyst at CFRA Research, speaking on Bloomberg

Can Cost Cuts Substitute for Growth at Nike?

Nike's Pace restructuring, expanding on a cost-cutting round from March, aims for roughly $2.5 billion in total savings by fiscal 2031.

According to CNBC, layoffs will begin in 2027, representing the company's third round of job cuts this year. The plan entails approximately $1 billion in pretax charges through fiscal 2031.

Lower warehousing and logistics costs boosted gross margin by 0.6 percentage points to 42.8%. By comparison, the previous quarter's earnings beat had relied on a one-time tariff refund.

However, Nike provided guidance for adjusted earnings of $1.15 to $1.35 per share for the fiscal year ending in May. That guidance excludes roughly $0.15 per share in Pace restructuring costs.

Warring, who maintains a buy rating, said the guidance was disappointing but described Pace as a good start before he had reviewed its details.

“Nike can earn north of $3 a share pretty easily if they really focus on operating efficiencies.”

Zachary Warring, Equity Analyst at CFRA Research, speaking on Bloomberg

Who Captures the Sales Nike Is Losing?

Hill became CEO in October 2024. Warring commented that the current quarter resembled what he might have expected two or three quarters into the plan, rather than two years in.

Shares dropped approximately 8% in after-hours trading on Thursday, according to Investing.com. The stock had already declined by roughly 40% this year, making Nike the worst performer on the Dow by mid-September.

Warring noted that running competitors Hoka and On are performing well in the US. In China, however, he said Nike might need to compete on price with local brands, which could pressure margins.

Nike's $2.5 billion savings estimate is prior to any reinvestment. The company's investor day in November could reveal how much of that will be directed toward competing with Hoka, On, and Chinese local brands.