Analysts had written off Nike heading into its latest earnings report. The previous quarter was a mess, sales fell 10%, inventories piled up, and the brand that once defined performance and style looked a little out of step with both.
Yet this quarter, Nike did something investors didn’t expect by starting to look like Nike again.
Key Points
-
New CEO Elliott Hill’s back-to-basics strategy, rebuilding wholesale ties, clearing excess inventory, and refocusing on performance, lifted revenue to $11.7 billion, topping expectations.
-
Revamped running shoes like the Pegasus drove 20%+ sales growth, while North America returned to 4% growth as wholesale revenue surged 11%.
-
Tariffs and markdowns are weighing on margins now, but Nike’s reset sets the stage for stronger earnings and brand momentum ahead.
A Return to the Roots That Built an Empire
Under former CEO John Donahoe, the company leaned heavily into digital and direct-to-consumer sales.
In theory, cutting out middlemen like Foot Locker should have boosted margins. In practice, it alienated long-time partners, flooded Nike’s own online store with discount inventory, and dulled the edge of a brand that built its mystique by being everywhere elite athletes wanted to be seen.
When Elliott Hill stepped in as CEO about a year ago, his message was that Nike needed to get back to its roots, partnerships, performance, and passion.
The Numbers Tell a Turnaround Story
Revenue came in just shy of $12 billion, far better than the $10.99 billion the Street expected. On a currency-neutral basis, sales were down 1%, yet that’s a big step up from the 5% drop analysts had penciled in.
Margins still took a hit, gross margin fell to around 42%, as Nike leaned on markdowns to clear older stock and rebalanced toward wholesale partners, which carry lower margins. But even that’s a healthy sign in disguise, inventories fell to just north of $8 billion, showing that the worst of the excess stock glut is likely behind it.
Earnings per share dropped 30%, mainly due to those slimmer margins, but that still crushed expectations. Investors noticed and the stock jumped 4% in after-hours trading.
Running Toward Growth Again
Nike’s rebound is being driven by something old and something new: its running business and its rediscovered discipline.
The company’s running segment, once its soul, later neglected, is thriving again. Nike listened to what runners actually wanted, more cushioning, stability, and energy return.
It then reengineered legacy models like the Vomero, Structure, and Pegasus. The result is running sales spiked more than 20% this quarter.
Nike even turned one of its Austin stores into a running-only concept, complete with gait-analysis stations and coaching sessions. According to executives, the store’s performance has been “well above expectations,” a small test that could turn into a new retail blueprint.
A North American Revival
If running was the heartbeat, North America was the pulse and that pulse is quickening. After an 11% decline last quarter, sales in the region grew 4%.
Wholesale revenue surged 11% as Hill reopened doors to key partners, including an expanded partnership with Amazon, a move many insiders once thought Nike would never make again.
It’s part of a subtle shift back to Nike’s proven playbook, let wholesale partners absorb distribution costs, while Nike’s own stores focus on brand storytelling and premium launches. For investors, this could restore the balance that historically powered Nike’s best profit cycles.
Why Long-Term Investors Shouldn’t Miss the Signal
Short-term investors see the profit drop and shrug. But seasoned ones know that margin pain in a turnaround can be the price of long-term health.
Nike is rebuilding trust with partners, refreshing its product pipeline, and cleaning out the last of its old inventory, all painful but necessary steps. Once that reset finishes, gross margins tend to snap back sharply. Historically, Nike’s gross margins have averaged close to 45%, meaning there’s room for a rebound once markdowns normalize.
Another under-appreciated point is Nike still spends nearly $4 billion a year on R&D and marketing combined, more than any athletic brand on earth. That scale gives it a long-term edge in innovation and cultural influence.
So, Now What?
Nike isn’t out of the woods, but it’s clearly running in the right direction again. CEO Elliott Hill’s plan to rebuild the brand from the ground up is showing early traction, especially in running, basketball, and training.
Yes, the stock still isn’t cheap but that’s the market signaling belief that Nike will get back to peak form. Once the inventory cleanup and tariff overhang fade, earnings power could look very different by 2026.
For investors willing to lace up and stay patient, the swoosh may be gearing up for another long run higher.