- Modest Revenue Growth: Q2 revenue rose 1% year-over-year on a reported basis but was flat currency-neutral, driven by 8% wholesale growth offset by 9% decline in NIKE Direct.
- Gross Margin Pressure: Gross margins fell 300 basis points to 40.6%, primarily due to $1.5B in annualized product costs from U.S. tariffs and inventory obsolescence in Greater China.
- North America Momentum: North America wholesale grew over 20%, with strong partner relationships and inventory cleanup, while EBIT margins expanded amid margin-focused strategies.
- Greater China Challenges: Q2 revenue dropped 16% in Greater China, with NIKE Direct falling 18% and EBIT declining 49%, as the company resets its premium brand positioning.
- Q3 Outlook: Revenue expected to decline low single digits, with gross margin pressured by 175–225 basis points, reflecting ongoing headwinds from tariffs and region-specific challenges.
Regional Performance
North America, the largest business, showed over 20% wholesale growth, with meaningful growth from existing partners. In contrast, Greater China faces a longer road to a healthier business, with a 16% revenue decline in Q2. EMEA maintained a healthy marketplace, with growth in Central and Eastern Europe and the Middle East, but saw declines in Western Europe. APLA's Q2 revenue was down 4%, with mixed results across countries.
Guidance and Outlook
For Q3, NIKE expects revenue to be down low single digits, with modest growth in North America, and gross margin to be down approximately 175 to 225 basis points. The company is making progress in its priorities, with momentum in North America, and is working to position its portfolio for a recovery. Analysts estimate next year's revenue growth at 1.8%.
Valuation
With a P/E Ratio of 34.38 and an EV/EBITDA of 26.39, NIKE's valuation appears to be pricing in a certain level of growth. The company's ROE of 18.45% and ROIC of 9.08% indicate a relatively healthy profitability profile. The Dividend Yield of 2.74% provides a relatively stable source of return.
Operational Highlights
CEO Elliott Hill emphasized that margin expansion is a top priority, and the path back to double-digit EBIT margins includes a multi-branded and diverse product portfolio. The company is prioritizing creating greater brand distinction through sport and innovation in Greater China, where it is resetting its approach, focusing on sport, and working to regain its position as a premium and innovative brand.
Product Portfolio and Innovation
The product portfolio is diversifying, with innovation across sports, including running, football, basketball, and training. The company feels good about the pipeline and order book, with growth expected in the back half of the year. In North America, partnerships are strong, and the order book is balanced between new and existing partners.