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Nike, Inc. (NKE) – Sell-Side Research Note (for publication)
Date: January 1, 2026
Disclaimer: This note is for informational purposes only and does not constitute investment advice or a recommendation.
Nike is in the middle of a real-time reset. The core question for investors is no longer whether Nike is a great brand. It is whether Nike can restore premium momentum and mix while navigating tariff pressure, a weaker digital channel, and a prolonged slowdown in Greater China. The latest quarter shows the shape of the turnaround: wholesale is working, digital is still the drag, and margins are paying the bill.
**What the latest quarter tells us**
For Q2 FY26 (quarter ended November 30, 2025), Nike reported revenue of $12.4bn, up 1% reported and roughly flat on a currency-neutral basis. The composition matters. Wholesale revenue was $7.5bn, up 8%, while NIKE Direct declined 8% to $4.6bn. Within Direct, NIKE Brand Digital was down 14% and NIKE-owned stores were down 3%. Converse declined sharply to $0.3bn, down 30%.
Profitability moved the wrong way. Gross margin fell 300 bps to 40.6%. Management attributed the majority of the decline to higher tariffs in North America. Net income was $0.8bn, down 32%, and diluted EPS was $0.53. Nike increased “demand creation” spend by 13% to $1.3bn, signaling a deliberate choice to reinvest in brand and sport marketing while the company reshapes the product and channel portfolio. Inventories ended the quarter at $7.7bn, down 3%, with fewer units but higher product costs linked to tariffs. Cash and short-term investments were $8.3bn.
The takeaway is straightforward: revenue is holding up because wholesale is recovering, but the margin structure is under pressure due to tariffs, channel mix, and the costs of rebuilding demand.
**The strategic reset: “Win Now” and sport offense**
Nike is positioning FY26 as an execution year. Management describes the plan as “Win Now,” supported by a shift to a more sport-driven operating approach (“sport offense”). In practical terms, this means cleaning up reliance on mature “classics,” rebuilding a more premium posture in digital, improving marketplace execution with wholesale partners, and leaning harder into performance categories where Nike can win with innovation and marketing.
Nike is also reorganizing decision-making. The CEO has stated that all geographies now report directly to him, explicitly to speed up execution. The message is that the turnaround is not just product; it is organizational tempo and accountability.
**What is working: North America and Running**
Nike highlighted North America as the region “leading the way.” Wholesale momentum is a central feature of that narrative, with management calling out strong growth in the region. This matters because it signals that partner relationships and product assortments are improving and that Nike is willing to use wholesale as a growth engine again, not just a distribution channel.
On the product side, Running is the clearest positive data point. Management stated that Running grew more than 20% in Q2, the second consecutive quarter at that pace, and that growth was double-digit across all channels, including NIKE Direct. In a market where competitors like On and Hoka have taken mindshare, Nike showing traction in Running is a meaningful sign that product and storytelling can still move the needle.
**What is not working yet: Greater China**
China remains the biggest swing factor in the model. Nike has been explicit that the recovery is moving at different speeds by geography and that China is at the top of the priority list. Management described China as a mono-brand, digital-first market where the company needs a reset: clearing aged inventory, improving retail execution, tightening assortments, and working through partner dynamics. Until China stabilizes, it is difficult for the equity story to fully re-rate, even if North America and parts of EMEA improve.
**Margins: tariffs are the headline, but mix is the story**
Gross margin is the key battleground for 2026. Nike pointed to higher tariffs in North America as the primary driver of the 300 bps decline in Q2. At the same time, the company is spending more on demand creation to rebuild brand heat and accelerate sport-driven growth. That combination creates a near-term squeeze: higher costs and reinvestment, while the channel mix shifts and digital is being repositioned away from heavy promotions