NIKE, Inc. 10-Q Summary: Fiscal 2026 Q2 (Ended Nov 30, 2025)
Business Context and Reporting Period
This filing covers the quarterly period ended November 30, 2025 (Fiscal 2026 Q2). NIKE, Inc. operates as the world's largest seller of athletic footwear and apparel, selling through NIKE Direct (retail and digital) and wholesale channels. The company is navigating a challenging operating environment characterized by geopolitical dynamics, fluctuating foreign exchange rates, and evolving tariff policies, which have necessitated strategic shifts in product and marketplace management.
Key Financial Metrics
| Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 |
|---|---|---|---|---|
| Revenues | $12,427M | $12,354M | $24,147M | $23,943M |
| Gross Profit | $5,045M | $5,389M | $9,988M | $10,646M |
| Gross Margin | 40.6% | 43.6% | 41.4% | 44.5% |
| Net Income | $792M | $1,163M | $1,519M | $2,214M |
| Diluted EPS | $0.53 | $0.78 | $1.03 | $1.48 |
| Operating Cash Flow (6M) | $801M (vs $1,443M prior year) | |||
| Cash & Equivalents | $6,974M (as of Nov 30, 2025) | |||
| Total Debt | $8,015M ($999M current + $7,016M long-term) |
Material Changes vs. Prior Period
- Revenue Growth: Reported revenue increased 1% year-over-year (YoY) for the quarter, but was flat on a currency-neutral basis. Growth in North America (+9%) was offset by declines in Greater China (-17%), Converse (-30%), and Asia Pacific & Latin America (-4%).
- Profitability Decline: Net income dropped 32% YoY to $792M. Gross margin contracted by 300 basis points to 40.6%, primarily driven by higher tariffs in North America and lower average selling prices (ASP) due to channel mix and increased discounts.
- Channel Shifts: Wholesale revenues grew 8% YoY, while NIKE Direct revenues declined 8% YoY. The decline in Direct sales was driven by a 14% drop in digital traffic and a 3% drop in store sales.
- Inventory Build: Inventories increased 3% to $7.7 billion, attributed to higher product costs and tariffs.
Guidance, Outlook, and Risks
- Tariff Impact: Management expects a gross incremental cost of approximately $1.5 billion on an annualized basis due to new tariffs, which will negatively impact gross margins for Fiscal 2026.
- Strategic Actions: The company is rebalancing its portfolio by reducing supply of certain footwear, liquidating inventory through markdowns, and reinvesting in wholesale distribution. These actions are expected to continue to negatively impact revenues and profitability in the short term, particularly in Greater China and Converse.
- Share Repurchases: NIKE paused share repurchases in Q1 2026 due to lower operating cash flows. No shares were repurchased in Q2. The company has $18 billion authorized under the current program, with $12.1 billion utilized to date.
- Legal Contingencies: A significant Belgian customs claim regarding alleged underpaid duties remains unresolved. The company disputes the claims but notes that an adverse resolution could have a material adverse effect on financial results.
- Credit Rating: Moody's downgraded NIKE's debt rating from A1 to A2 in November 2025, though facility fees and interest rates remain unchanged.
Investor Verification Checklist
- Tariff Mitigation: Verify the specific actions taken to mitigate the projected $1.5 billion annualized tariff cost and the timeline for margin recovery.
- Greater China Recovery: Assess the depth of the inventory overhang and declining store traffic in Greater China, which saw a 16% currency-neutral revenue decline.
- Digital Traffic Trends: Monitor the 14% decline in NIKE Brand Digital sales and the effectiveness of the strategy to reposition digital platforms as full-price channels.
- Cash Flow Sustainability: Review the 44% drop in operating cash flow ($801M vs $1,443M) and its impact on future capital allocation, specifically the resumption of share buybacks.
- Converse Turnaround: Evaluate the progress of the strategic reset for the Converse brand, which reported a 31% currency-neutral revenue decline and a shift to a loss position.