NIKE Q2 Earnings & Revenues Beat Estimates, Digital Revenues Down 14%

NIKE Inc. NKE reported second-quarter fiscal 2026 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. While the revenues improved on a year-over-year basis, earnings per share (EPS) declined. 

The company’s EPS of 53 cents plunged 32% from the year-ago level but beat the Zacks Consensus Estimate of 37 cents. Revenues of the Swoosh brand owner improved 1% year over year to $12.43 billion and surpassed the consensus estimate of $12.14 billion. On a currency-neutral basis, revenues were flat year over year.

Revenues at NIKE Direct were down 8% on a reported basis and 9% on a currency-neutral basis to $4.6 billion. The decline resulted from a 14% decrease in NIKE Brand Digital and a 3% drop in NIKE-owned stores. Wholesale revenues were $7.5 billion, up 8% on a reported and currency-neutral basis, mainly due to growth in North America.

NIKE’s shares have fallen more than 10% in after-hours trading yesterday. This might be due to sluggishness in the Greater China region and persistent weakness at NIKE Digital. This Zacks Rank #3 (Hold) company’s shares have lost 12.7% over the past three months compared with the industry’s 6.9% decline.

NIKE, Inc. Price, Consensus and EPS Surprise

NIKE, Inc. price-consensus-eps-surprise-chart | NIKE, Inc. Quote

Nevertheless, it is focused on advancing the sport offense, elevating the marketplace and rebuilding its core city teams. These efforts are central to restoring sustainable growth across all brands, sports and geographies. For fiscal 2026, it will continue to rightsize its classics business, return Nike Digital to a premium experience, diversify its product portfolio, deepen consumer connections, bolster partner relationships and realign teams and leadership.

NKE’s Operating Segment Synopsis for Q2

Revenues for the NIKE Brand were $12.1 billion, up 1% on a reported and currency-neutral basis, mainly owing to growth in North America, somewhat offset by declines in Greater China and APLA. We estimated total NIKE Brand revenues to dip 1.4% year over year to $11.78 billion in the fiscal second quarter due to a 6.9% decline in Direct-to-Consumer, offset by a 2.7% rise in the Wholesale business.

Within the NIKE Brand, revenues in North America rose 9% year over year to $5.63 billion. Sales at NIKE Direct were down 10% in the region, including a 16% decrease at NIKE Digital and 2% drop at NIKE Stores. The company is likely to execute its Win Now efforts in North America and take the learnings from their playbook to execute in all other geographies. The momentum is expanding beyond running into other sports like basketball and training. North America continues to build momentum, fueled by consistent brand activity across Sport and the strength of its premier sports marketing portfolio. Wholesale sales rose 24% year over year in North America. Wholesale exhibited strength in this quarter as well, aided by increased liquidation volume to value channels. The company is also making progress on repositioning NIKE Digital to a highly premium representation of the NIKE brand, with fewer days of promotion, reduced markdown rates and increased demand at full price.

In EMEA, the company’s revenues were up 3% year over year on a reported basis but down 1% on a currency-neutral basis to $3.39 billion. Wholesale business revenues were flat year over year. NIKE Direct revenues for the segment declined 3%, with a 2% drop at NIKE Digital and 5% decrease in NIKE Stores.

In Greater China, revenues plunged 17% year over year on a reported basis and 16% on a currency-neutral basis to $1.42 billion. NIKE Direct fell 18%. NIKE Digital revenues dropped 36% year over year, and NIKE stores decreased 5%. Wholesale revenues for the region tumbled 15% year over year.

In APLA, revenues slipped 4% year over year both on a reported basis and on a currency-neutral basis to $1.67 billion. NIKE Direct dipped 5% due to a 10% decline in NIKE Digital, offset by a 1% rise in NIKE stores. Wholesale revenues declined 3% in the region.

Revenues at the Converse brand fell 30% on a reported basis and 31% on a currency-neutral basis to $300 million.

A Look at NIKE’s Costs & Margins

NIKE’s gross profit dipped 6.3% year over year to $5.05 billion, while the gross margin contracted 300 basis points (bps) to 40.6%. The gross margin decline was caused by elevated product costs, including higher tariffs in North America and inventory obsolescence in Greater China that was not anticipated ninety days ago. We anticipated the gross margin to decline 300 bps to 40.6%.

Selling and administrative expenses edged up 1% to $4.04 billion, driven by increased brand marketing expenses, partly offset by lower operating overhead. The metric was lower owing to operating overhead savings, which highlights the teams’ ongoing focus on disciplined cost management. As a percentage of sales, the metric rose 10 bps year over year to 32.5%. Our model predicted selling and administrative expenses of $4.25 billion, indicating a rise of 6.2% year over year.

Demand creation expenses were up 13% year over year to $1.27 billion. Operating overhead expenses were down 4% year over year at $2.77 billion, owing to lower wage-related expenses and other administrative costs. Our model predicted demand creation expenses of $1.33 billion, indicating a year-over-year rise of 18.4%. Operating overhead expenses were anticipated to decline 1.5% year over year to $2.93 billion.

NKE’s Balance Sheet & Shareholder-Friendly Moves

NIKE ended second-quarter fiscal 2026 with cash and cash equivalents of $7 billion, down nearly 13% year over year. Short-term investments totaled $1.37 billion, down 23% year over year. As of Nov. 30, 2025, the company had a long-term debt (excluding current maturities) of $7.02 billion and shareholders’ equity of $14.09 billion.

As of Nov. 30, inventories totaled $7.7 billion, down 3% year over year. In the fiscal second quarter, the company returned $598 million to shareholders.

NKE’s Outlook

Although the company is firmly focused on strengthening the long-term health of its brands, it continues to operate in a dynamic consumer and global business landscape. Management projects Q3 revenues to decline low single digits, with modest growth in North America on lower liquidation activity compared with the previous quarters. Performance in Greater China and Converse is expected to be broadly in line with the second quarter, while foreign exchange is anticipated to provide a roughly three-point tailwind.

It expects the Q3 gross margin to decrease roughly 175-225 bps. Excluding roughly 315 bps impacts of elevated gross product costs with respect to new tariffs, gross margin would be positive in the fiscal third quarter. SG&A dollars are expected to increase in low single digits, reflecting elevated demand-creation spending and continued investment in the company’s sport offense. Other expense, net of interest income, is likely to be income of roughly $0-$10 million in the fiscal third quarter.

Key Picks in the Consumer Discretionary Space

Crocs, Inc. CROX, which is a leading footwear company, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. 

CROX delivered a trailing four-quarter earnings surprise of 14.3%, on average. The Zacks Consensus Estimate for Crocs’ current financial-year EPS indicates a decline of 7.9% from the year-ago number. 

Guess?, Inc. GES, which is a designer and marketer of casual apparel and accessories, currently carries a Zacks Rank #2 (Buy). 

GES delivered a trailing four-quarter earnings surprise of 45%, on average. The Zacks Consensus Estimate for GES’ current financial-year sales indicates growth of 8% from the year-ago number. 

Kontoor Brands, Inc. KTB, which is an apparel company, currently carries a Zacks Rank of 2.

The Zacks Consensus Estimate for KTB’s current financial-year EPS is expected to rise 12.5% from the corresponding year-ago reported figure. KTB delivered a trailing four-quarter earnings surprise of 14%, on average.

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This article originally published on Zacks Investment Research (zacks.com).

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