Nike Q2 earnings delivered a mixed picture for investors. While the athletic apparel giant exceeded Wall Street expectations on both earnings and revenue, profitability pressures and ongoing weakness in digital sales and Greater China weighed heavily on sentiment. Shares of Nike, Inc. (NYSE:NKE) fell sharply in after-hours trading as investors focused on margin compression and a cautious outlook.
Earnings and Revenue Top Forecasts
For the second quarter of fiscal 2026, Nike reported earnings per share of $0.53, comfortably beating the consensus estimate of $0.37. However, Nike Q2 earnings still declined 32% year over year, highlighting the pressure on profitability. Revenues came in at $12.43 billion, up 1% from the prior year and above expectations of $12.14 billion. On a currency-neutral basis, revenues were flat, underscoring uneven demand trends across regions.
Despite the headline beat, investors appeared more concerned with what lies beneath the surface. Higher costs, weaker digital performance, and slowing momentum in key international markets overshadowed the modest revenue growth.
Digital Sales Continue to Drag
Nike Direct revenues declined 8% on a reported basis to $4.6 billion, driven primarily by a 14% drop in Nike Brand Digital sales. Nike-owned stores also saw a 3% decline. In contrast, wholesale revenues rose 8% to $7.5 billion, supported by strength in North America.
The continued decline in digital sales is notable, as Nike has historically positioned its direct-to-consumer strategy as a core growth driver. Management reiterated its plan to reposition Nike Digital as a more premium experience, with fewer promotions and lower markdowns, but the near-term impact remains a headwind.
Regional Performance Highlights Divergence
Nike Q2 earnings were supported by strong performance in North America, where revenues rose 9% year over year to $5.63 billion. Wholesale sales in the region surged 24%, aided by increased liquidation activity and strong demand across multiple sports categories beyond running, including basketball and training.
Elsewhere, results were less encouraging. In EMEA, revenues increased 3% on a reported basis but declined 1% on a currency-neutral basis to $3.39 billion. Nike Direct sales in the region fell 3%, reflecting softer digital and store performance.
Greater China remained the most significant drag. Revenues in the region plunged 17% year over year to $1.42 billion, with Nike Digital sales collapsing 36%. Wholesale revenues also fell 15%, pointing to broad-based weakness in consumer demand. In APLA, revenues declined 4% year over year, with digital softness partially offset by modest store growth.
The Converse brand added further pressure, with revenues down 30% year over year to $300 million.
Margin Pressure Intensifies
Nike’s gross profit declined 6.3% year over year to $5.05 billion, while gross margin contracted by 300 basis points to 40.6%. Management attributed the decline to elevated product costs, including higher tariffs in North America and unexpected inventory obsolescence in Greater China.
Selling and administrative expenses rose 1% to $4.04 billion, driven by higher brand marketing spend, partially offset by lower operating overhead. Demand creation expenses jumped 13% year over year, reflecting continued investment in brand and sport marketing initiatives.
Balance Sheet and Capital Returns
Nike ended the quarter with $7 billion in cash and cash equivalents, down nearly 13% year over year. Inventories declined 3% to $7.7 billion, signaling progress in inventory management. During the quarter, the company returned $598 million to shareholders, reinforcing its commitment to capital returns despite near-term challenges.
nike
Looking ahead, management expects third-quarter revenues to decline in the low single digits, with modest growth in North America offset by continued weakness in Greater China and Converse. Gross margin is projected to decline 175–225 basis points in Q3, largely due to tariff-related product cost pressures.
While Nike remains focused on long-term brand health—through portfolio diversification, deeper consumer connections, and marketplace elevation—the near-term outlook suggests continued volatility. Nike Q2 earnings may have beaten estimates, but the path to sustained margin recovery and digital reacceleration remains uncertain.
Featured Image: Unsplash
