Dive Brief:
- Nike Inc. posted more “kernels of progress” in Q4, per Jefferies, but revenues continued to fall and executives flagged decelerating consumer trends starting in mid-April. Two major drags on the business, China and Converse, recorded double-digit declines in the quarter.
- A $986 million benefit from tariff refunds helped boost gross margin by 890 basis points year over year, to 49.2%. Net income was also up meaningfully in the quarter, reaching $1.1 billion.
- Overall, revenues at Nike fell 1% in Q4 to $11 billion and were roughly flat for the full fiscal year at $46 billion. The retailer cut guidance for the first half of its next fiscal year, now expecting revenue to decline by low- to mid-single-digits.
Dive Insight:
Nike’s turnaround showed some green shoots in Q4, but analysts were split on how meaningful they were.
Jefferies analysts led by Randal Konik declared that “this is the bottom” for Nike, pointing to positive signs on revenue, gross margin and inventory. They also noted progress in the performance business and in China, suggesting “the core is stabilizing.”
However, others saw the quarter as yet another sign of a slow turnaround. Telsey Advisory Group said in emailed comments that weak sales trends in sportswear, DTC and international weren’t likely to improve until fiscal year 2028, while Guggenheim said the company is “clearly not yet out of the woods.”
“We have always believed that quality of sales inflects before actual sales, and earlier-than-expected [gross margin] expansion may prove a critical leading indicator of business stabilization,” Guggenheim’s Simeon Siegel wrote.
Siegel also noted that the important North America region continues to post top-line growth.
Running was another strong point, increasing by double digits for the fifth straight quarter and adding over $1 billion in sales during that time frame. Executives on the call pointed repeatedly to the strength of its performance business as a signal of progress.
Nike CEO Elliott Hill said the retailer has refreshed its presence in more than 15,000 wholesale doors and elevated more than 150 of Nike’s DTC stores.
“Over time, we will continue to rezone and elevate our fleet and close the doors that are no longer aligned to our strategy,” Hill said.
The executive also noted that Converse “sharpened its strategy” in the quarter and is “getting clearer on the role it plays within Nike Inc.”
But with continued 30%-plus declines, some analysts think Nike might want to consider the role Converse plays outside the Nike organization.
“This is nothing short of a disaster,” GlobalData Managing Director Neil Saunders said of Converse’s 32% revenue decline, “and it raises the question of whether Nike actually has the bandwidth and will to fix the brand. If it doesn’t, it should look for an exit strategy to save Converse from becoming a drain on resources and management time.”
