Nike Q2 Earnings and Revenue Beat Estimates, But 32% Net Income Drop and China Slump Weigh on Outlook
Nike Reports Q2 FY2026 Results Amid Margin Squeeze
Nike, Inc. (NKE) announced its second-quarter fiscal 2026 results, revealing that both its top and bottom lines exceeded the Zacks Consensus Estimate. However, the positive headline beat was overshadowed by significant margin pressures and a weak forward-looking outlook, leading to a decline in the company's stock price.
The athletic apparel giant reported quarterly revenues of $12.42 billion, marking a 1% increase year-over-year. Despite this revenue growth, the company's profitability suffered a substantial hit. Net income for the quarter dropped sharply to $792 million, representing a 32% decrease compared to the previous year.
Profitability Challenges Driven by Tariffs and Promotions
The material decline in net income and the resulting margin compression are attributed to two primary factors: higher tariffs and increased promotional activities. These headwinds underscore the challenges Nike faces in maintaining profitability while navigating complex global supply chains and competitive retail environments.
"Net income dropped to US$792 million and margins compressed amid heavier promotions and higher tariffs."
Regional Imbalances Highlight China Slowdown
The revenue growth was not uniform across Nike's global footprint, highlighting significant regional imbalances. While the North American market demonstrated strong growth, the performance in Greater China proved to be a major drag on overall results. Sales in Greater China experienced a sharp 17% decline during the quarter.
This contrast between robust domestic performance and a severe international slowdown is a key concern for investors, signaling that economic slowdowns and promotional pressures in key markets, particularly China, are reshaping Nike's growth trajectory.
Forward Guidance Signals Continued Headwinds
Despite the Q2 earnings beat, management's guidance for the upcoming quarter was cautious, contributing to the post-earnings sell-off. The company's turnaround is viewed as incomplete, requiring further patience from investors.
- Management guided for a Q3 revenue decline, indicating that the current challenges are expected to persist into the next quarter.
- Further margin compression is anticipated due to ongoing tariff headwinds and the necessity of promotional activities to clear inventory.
- The recovery is expected to be gradual and regionally varied, suggesting that the Greater China market will continue to pose a significant risk.
The combination of a sharp drop in net income and a weaker outlook suggests that while Nike's brand strength allows it to maintain top-line growth, the shift in its business model and persistent challenges in key regions are impacting profitability and warrant a cautious approach to the stock.
