NIKE Q4 FY26 Earnings: Tariff Recovery Masks Soft Demand as Turnaround Extends Into FY27

NIKE’s fourth-quarter results were mixed. Revenue fell 1% on a reported basis and 4% currency-neutral as weaker NIKE Direct sales, Greater China and EMEA offset modest North America growth, while a $986M tariff-related recovery lifted reported gross margin and EPS substantially.

The underlying operating story was less favorable than the headline profit figures suggest. Performance categories including Running, Training and Global Football are gaining traction, but Sportswear and Jordan Streetwear, which together represent about half of NIKE revenue, remain under pressure. Management now expects revenue to decline low to mid-single digits through the first half of FY27, with a more meaningful improvement in Sportswear not expected until the back half.

As Reported on the Call

The Bigger Story

NIKE is showing progress in the performance categories where management has concentrated product, marketing and marketplace investment. Running has grown for five consecutive quarters at a double-digit rate, adding roughly $1B to the business over that period, according to management. The company also said it gained 5 percentage points of running market share in statement footwear across North America and Western Europe during FY26.

That progress has not yet offset weakness in the company’s larger lifestyle-oriented businesses. Management said Sportswear declined double digits in the fourth quarter, while Jordan Streetwear also remains challenged. The two businesses represent approximately half of total NIKE revenue, making their recovery central to any broader return to sustainable growth.

The company has reduced classic footwear franchises by more than $2B during FY26 as it works to clean up distribution, lower discounting and reposition its product portfolio. That should help reduce marketplace congestion, but it also creates a near-term revenue headwind while NIKE introduces replacement product.

Management expects Sportswear and Jordan Streetwear to remain negative in FY27, with improvement anticipated in the second half. NIKE plans to launch more than a dozen new Sportswear footwear styles in that period. The investment question is therefore shifting from whether NIKE can improve performance-category demand to whether that momentum can eventually restore growth in its much larger Sportswear and Jordan businesses.

Revenue and Operating Performance

Q4 revenue declined 1% on a reported basis and 4% on a currency-neutral basis. NIKE Direct revenue fell 9%, including a 12% decline in NIKE Digital and a 7% decline in NIKE stores. Wholesale grew 1%, reflecting modest growth overall but materially different regional conditions.

North America was the strongest major geography, with revenue up 3% and wholesale revenue up 10%. Performance categories were the primary driver: Global Football and Running both posted strong double-digit growth, while kids and golf also grew. However, North America Sportswear revenue declined high single digits.

Management said North American retail sales were positive over the first six weeks of the quarter but decelerated in late April. It attributed some of that pressure to a consumer facing weaker discretionary spending and volatile gas prices. That trend matters because North America is furthest along in NIKE’s turnaround efforts and has been the company’s relative bright spot.

The reported 10% increase in North America wholesale should also be interpreted carefully. CFO Matt Friend said NIKE did not sell product into the channel at a 10% higher rate. Instead, the increase was helped by lower returns, lower sales-related reserves, fewer cancellations and lower discounts. Those factors point to healthier channel economics, but they do not necessarily indicate equivalent growth in underlying wholesale shipment demand.

NIKE highlighted improving relationships with wholesale partners, including Foot Locker. The company said it achieved positive revenue growth and positive NIKE retail sales comps at Foot Locker for the first time in four years. That is a meaningful operating marker given NIKE’s effort to rebuild a more balanced marketplace after prior emphasis on direct channels.

Outside North America, the picture remained difficult. EMEA revenue declined 6%, with Direct down 16% and Digital down 24%. The region continues to face elevated inventory, promotional activity, disruption in the Middle East and a heavier mix of Sportswear. NIKE reduced off-price sales by more than 50% in EMEA, contributing to a 15-point improvement in full-price realization but also creating a revenue drag. Total EMEA inventory dollars rose low double digits as the company works to reduce supply and liquidate excess product.

Greater China was the weakest major region, with revenue down 17%. Wholesale fell 19%, NIKE Digital declined 25%, and Direct fell 14%. Management said in-season sell-through has improved sequentially, average retail discounts have fallen and inventory dollars and units both declined double digits. Running grew mid-single digits, while Global Football and Tennis posted double-digit growth, but these gains were not sufficient to offset broader market weakness.

APLA revenue fell 1%. Running and Global Football grew double digits, while tennis and ACG each grew high single digits.

Profitability and Margins

NIKE reported Q4 gross margin of 49.2%, up 890 basis points year over year, and diluted EPS of $0.72. Those figures were heavily influenced by a one-time $986M recovery related to tariffs previously paid under IEEPA.

The company determined in Q4 that recovery of the tariff claims had become probable and recognized the benefit in cost of sales. NIKE had collected more than $300M in cash by May 31, with the remaining amount recorded as accounts receivable pending recovery.

Excluding the tariff recovery, Q4 gross margin would have been 40.2%, down 10 basis points year over year, while EPS would have been $0.20. The underlying margin result was better than management’s prior outlook for a 25- to 75-basis-point decline, helped principally by improved discounting, lower cancellations and lower sales-related reserves in North America.

For the full year, gross margin was 42.9%, including a 210-basis-point benefit from the tariff recovery. Excluding that benefit, full-year gross margin would have been 40.8%. FY26 diluted EPS was $2.10, down 3%, but would have been $1.58 excluding the tariff benefit.

Management said it has now delivered four consecutive quarters of sequential margin improvement. It also cited structural supply-chain actions, including reducing facilities, adjusting workforce levels and changing product flows from factories to retail. Those actions imposed costs in FY26, but management expects them to support gross-margin expansion in FY27.

Demand, Customers and Pricing

The contrast between performance and lifestyle demand remained the defining commercial trend. Management said performance sports grew mid-single digits in Q4, with positive retail sales comps in Running, Training and Global Football. NIKE’s World Cup-related product and marketing activity also appears to be creating near-term demand, according to management.

In Global Football, NIKE said national-team kit sales were 2.5 times the level achieved during the comparable period around the 2022 World Cup. The company also said its new Mercurial launch became its fastest 24-hour cleated-footwear launch in NIKE Direct history.

Those product successes have not yet solved the Sportswear problem. Management acknowledged that full-price sell-through remains challenged in Sportswear and Jordan Streetwear, affecting current discounting and future order books. NIKE is reducing future buys and sell-in to manage inventory, a decision that may improve marketplace health but constrains near-term revenue.

In Greater China, NIKE said it is attempting a more locally tailored reset. The company is moving resources closer to territories and cities, investing in digital and physical storefronts, and building a local product-creation team. Management expects locally designed, developed and manufactured products to arrive in China in holiday 2027.

What is NIKE’s guidance and outlook?

Management reiterated its expectation that earnings will be roughly flat across the three-quarter period from Q4 FY26 through Q2 FY27, excluding the tariff recovery. However, the revenue outlook has become more cautious.

NIKE now expects revenue to decline low to mid-single digits over that period. For Q1 FY27, management expects reported revenue to decline low to mid-single digits, with currency-neutral growth consistent with recent performance and no foreign-exchange benefit.

Management expects Q2 revenue to decelerate sequentially from Q1. It cited two specific comparison issues: higher EMEA digital promotions in the prior-year period and unusually high North America wholesale growth in the prior year tied to shipment timing.

Gross margin is expected to turn slightly positive year over year in Q1, earlier than previously indicated. NIKE expects SG&A dollars to be flat, with lower operating overhead offset by high-single-digit growth in demand-creation spending related to the World Cup. Management expects the full-year tax rate to be in the low-20% range.

The company’s tariff assumptions remain a material variable. Its Q1 outlook assumes incremental tariff rates of 10% through the end of July and 15% thereafter. Management characterized tariff policy, Middle East disruption, oil prices and consumer behavior as continuing sources of volatility and does not expect the operating environment to improve meaningfully over the next six months.

Balance Sheet, Cash Flow and Capital

NIKE said inventory was flat year over year at the end of Q4, with continued improvement in aged inventory in Greater China. Inventory levels remain more problematic in EMEA, where total inventory dollars increased low double digits despite lower off-price activity and efforts to reduce supply.

The tariff recovery also has a balance-sheet implication. NIKE collected more than $300M in related cash by quarter-end, while the remainder of the $986M benefit was recognized in accounts receivable. Management described the company as maintaining a strong balance sheet with substantial liquidity, but did not provide cash, debt or free-cash-flow figures on the call.

What Investors Should Watch

1. Sportswear and Jordan Streetwear Sell-Through

These businesses account for roughly half of NIKE revenue and are expected to remain negative in FY27. Investors should watch whether reduced inventory, lower discounting and new product introductions improve full-price sell-through by the second half of the year.

2. North America Retail Sales and Wholesale Quality

North America remains NIKE’s leading turnaround market, but retail sales decelerated late in Q4. Sustained sell-through at wholesale partners, including Foot Locker, would provide better evidence that revenue growth is being supported by consumer demand rather than reserve, return or cancellation benefits.

3. Greater China Revenue Stabilization

Greater China revenue fell 17% in Q4, and management expects near-term trends to remain similar. Improving sell-through, lower discounts and lower inventory are constructive, but a return to revenue growth will depend on whether NIKE’s localized marketplace and product strategy gains traction.

4. Gross-Margin Recovery Excluding One-Time Items

The Q4 tariff recovery materially inflated reported gross margin. The more relevant indicator is whether NIKE can sustain gross-margin expansion excluding tariff effects through a cleaner inventory position, lower promotions, supply-chain savings and reduced discounting.

5. Revenue Impact From Tighter Buys

NIKE is intentionally reducing future buys and sell-in to improve marketplace health. Investors should monitor whether this discipline produces better pricing and margins without extending the revenue downturn beyond management’s current low- to mid-single-digit decline outlook.

AlgovestIQ Takeaway

NIKE closed FY26 with evidence that its performance-led strategy is gaining traction. Running, Global Football and other performance categories are growing, North America wholesale relationships appear healthier, and management has made progress reducing classic-footwear inventory and promotional activity. The company also delivered a better-than-expected underlying Q4 gross-margin outcome relative to its own prior outlook.

But the headline Q4 profit result materially overstates the operating improvement. The $986M tariff recovery accounted for nearly all of the reported gross-margin expansion and reduced the relevance of the $0.72 EPS figure as a measure of recurring earnings power. Excluding that benefit, gross margin declined 10 basis points and EPS was $0.20.

The unresolved issue is the scale and duration of the Sportswear and Jordan reset. NIKE is reducing supply and discounting to protect brand positioning, but the resulting lower sell-in contributes to a weaker near-term revenue outlook. Management does not expect those businesses to improve meaningfully until the second half of FY27, when new footwear launches begin to reach the market.

Greater China is another significant uncertainty. Inventory and discount trends are improving, but revenue remains sharply negative and the company’s local-product strategy will not produce locally designed and manufactured offerings until holiday 2027. The turnaround therefore still depends heavily on execution in North America and on NIKE’s ability to convert performance-category momentum into broader brand demand.

The next several quarters should clarify whether NIKE’s cleaner marketplace strategy is producing a more profitable and sustainable revenue base. Evidence of stabilizing Sportswear sell-through, continued North America wholesale improvement, better China trends and gross-margin gains excluding one-time tariff benefits would strengthen the recovery case. Continued revenue pressure, renewed promotional activity or further weakness in consumer traffic would indicate that the reset requires more time.