3 Key Takeaways From Nike's Earnings. Is This a Buying Opportunity?

Nike (NYSE: NKE) gained a quick 6% after reporting fiscal Q1 2026 earnings. The sportswear Goliath is in the process of trying to reinvigorate top-line growth after a tough fiscal 2025.

The fiscal first quarter showed an improvement in revenue, but not by much. Despite better results, this still might not be time to hop back on the Nike train. There's still plenty of work to be done here.

Here are three key takeaways from Nike's latest earnings release.

1. Revenue growth masks internal unevenness

On the surface, Nike managed to eke out $11.7 billion in revenue for Q1, a 1% reported gain over last year. But that headline hides a more nuanced picture. On a currency-neutral basis, revenue was actually down about 1%.

Digging deeper, the split between its Direct and Wholesale channels tells a story of divergence. Nike Direct (which includes Nike's own digital sales and owned retail) declined 4% reported and 5% on a currency-neutral basis. In contrast, the wholesale business delivered 7% growth (5% ex-currency) to $6.8 billion. That suggests Nike is leaning more heavily on third-party partners and perhaps recalibrating its direct efforts.

Regionally, Nike saw strength in North America, where footwear held flat and apparel jumped 11%. But weakness in Greater China dragged. Total China revenues fell 9% (or 10% ex-currency changes), particularly in footwear, which was down 11% and equipment, which declined 32%.

Takeaway

The modest top-line gain is propped up by wholesale strength and selective regional pockets. But Nike will need to stem declines in China and reinvigorate its Direct channel if it wants more balance and resilience.

Image source: Getty Images.

2. Margin pressure and earnings declines are serious red flags

Revenue alone isn't enough. Profits are what matter at the end of the day, and Nike's profits slid sharply this past quarter. Net income dropped 31%, and diluted EPS fell from $0.70 to $0.49 per share, a 30% decline.

Why? Margins took a beating. Gross margin contracted by 320 basis points to 42.2%, largely due to increased discounting, less favorable channel mix, and elevated tariff pressures in North America.

Meanwhile, operating expenses held relatively steady. Selling and general and administrative costs edged down 1%, but weren't enough to offset the margin slide. Another drag was taxes. Nike's effective tax rate climbed to 21.1% versus 19.6% a year ago, due to reduced benefits from stock-based compensation.

Takeaway

Earnings are under real stress. For Nike to restore investor confidence, future quarters will need margin stabilization, and not just revenue growth.

3. Shareholder returns remain a bright spot, but may be tested

Despite the headwinds, Nike continues to return capital to shareholders. In Q1, it paid $591 million in dividends (a 6% increase year over year) and bought back $123 million of shares (retiring 1.8 million shares).

You can also point to Nike's long history of dividend growth. It has had 23 consecutive years of increases. And it's in the midst of an $18 billion share repurchase authorization, with 124.4 million shares already repurchased to date.

That said, the ability to sustain buybacks and dividends could come under pressure if earnings remain weak or capital is needed for more aggressive investments in digital, supply chain, or product innovation. Nike's cash and equivalents fell to about $8.6 billion, down from a year ago.

Takeaway

The capital return policy is a differentiator and helps support the valuation, but it's not immune to stress. Investors should watch how aggressive Nike remains if margins or cash generation are challenged.

Final thoughts: Cautious optimism

Nike's Q1 earnings show a company in transition. On one hand, wholesale growth and continued capital returns offer some ballast. On the other, weakness in China, a declining Direct channel, and sharp margin erosion raise red flags for the path ahead.

Looking to the holidays, things seem like they will continue to be weak. The company noted that it expects the second fiscal quarter, which includes much of the holiday season, to be "sluggish." CNBC noted that the company expects sales to decline by a low-single-digit percentage, so we're likely not going to see the fruits of the attempted turnaround until next year.

For investors, the next few quarters are critical. Can Nike right the margin ship? Can it reinvigorate direct sales? These are questions that could weigh on the stock in coming quarters if not addressed.

If it can navigate those, the long-term story remains intact, but there might not be much room for error in terms of the stock's performance. It has significantly underperformed the S&P 500, and is in an increasingly competitive and volatile retail landscape.

To consider the company's lower price a buying opportunity, you really have to believe in the ability to make long-term gains from here. On Nike's website, they go so far as to call themselves a growth company. Given the maturity and size of the business, I'm not sure if that is still the case.

David Butler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool has a disclosure policy.