Nike’s Turnaround Progress Shows Promise but Holiday Sales Challenges Loom

Nike surprised Wall Street with modest sales growth in its fiscal first quarter, signaling early progress in its turnaround plan. However, the sportswear giant cautioned that the road to recovery remains bumpy, forecasting a decline in sales for most of the upcoming holiday shopping season.

According to company guidance, Nike expects revenue for the current quarter — which runs from early September to early December — to drop by a low single-digit percentage, consistent with LSEG’s estimate of a 3% decline. The company noted that favorable foreign exchange rates are adding roughly one percentage point to that forecast, suggesting sales could fall even further without the currency boost.

Despite showing early signs of recovery, Nike continues to face significant challenges. The expected drop in holiday season sales follows an 8% decline during the same period last year, underscoring the slow pace of its rebound.

A major factor weighing on Nike’s profitability is the rising cost of tariffs. The company now estimates that tariffs will cost $1.5 billion and reduce its gross margin by 1.2 percentage points in fiscal 2026 — an increase from its previous estimate of $1 billion and 0.75 percentage points. For the current quarter, Nike projects a further decline in gross margin of between 3% and 3.75 percentage points.

Chief Financial Officer Matt Friend emphasized that the recovery process will take time. “I’m encouraged by the momentum we generated this quarter, but progress will not be linear,” he said. “While we continue to face several external challenges, our teams are focused on executing the elements we can control.”

In the first quarter ending August 31, Nike reported earnings of $727 million, or 49 cents per share — topping analyst expectations of 27 cents per share, but well below the $1.05 billion, or 70 cents per share, recorded in the same quarter a year ago. Revenue rose slightly to $11.72 billion, up 1% from $11.59 billion last year, beating projections of $11 billion.

However, the company’s profits still fell 31%, and gross margin decreased 3.2 percentage points to 42.2%, reflecting the continued impact of discounting and efforts to clear old inventory.

CEO Elliott Hill, who took over nearly a year ago, said Nike’s performance improved notably in three areas: wholesale, running, and North America. Wholesale revenue rose 7% to $6.8 billion, and North America sales climbed 4% to $5.02 billion — exceeding analyst expectations of $4.55 billion.

Despite these gains, other parts of the business remain under pressure. Sales in Greater China dropped 9%, Converse revenue plunged 27%, and Nike’s direct-to-consumer business — which includes its stores and online sales — fell 4% to $4.5 billion.

“Greater China continues to face structural challenges,” Hill told analysts. “Seasonal sell-through remains weak, and we need larger investments to stabilize the marketplace.” The company warned that revenue and margin challenges in China and Converse would likely persist through fiscal 2026, and that its direct-to-consumer division would not return to growth during that period.

Hill’s broader turnaround strategy focuses on reigniting innovation and refreshing Nike’s product lineup by clearing out outdated inventory — a move that, while necessary for long-term growth, has temporarily pressured profits. Inventories fell 2% from the prior year, though higher product costs due to tariffs offset some of that progress. Nike expects its margins to improve in the second half of the fiscal year as clearance activity decreases.

Beyond inventory management, Hill has also begun a structural overhaul of Nike’s corporate organization. The company is transitioning back to sport-based divisions instead of gender-based ones, aiming to create more agile, sport-specific teams. In late August, Nike began implementing these changes, which affected around 8,000 employees. Roughly 1% of staff are expected to be cut, while most others will transition to new roles.

“This new structure aligns Nike, Jordan, and Converse into more focused teams centered on sport,” Hill explained. “It will strengthen innovation, storytelling, and community engagement — allowing each brand to connect with its audience in more authentic ways.”

He cited Nike’s “House of Innovation” store in New York as an example of the strategy in action, noting that sales there have grown by double digits since the redesign. A smaller-format version of the concept in Texas has seen similar success.

Hill said the renewed focus on sport will help Nike reconnect with its core athlete consumers, even as lifestyle products remain an important growth area — particularly among women. To expand its female customer base, Nike recently launched a collaboration with Kim Kardashian’s shapewear brand, Skims. The Nike x Skims collection, officially released last week, has already received an enthusiastic early response from consumers.

As Nike works through external challenges and internal restructuring, its leadership remains optimistic that these strategic changes will pave the way for sustained growth. The next few quarters — particularly the holiday season — will be a key test of whether Nike’s turnaround momentum can translate into lasting results.