Nike shares jump on strong earnings, signs its turnaround is racing ahead under CEO Hill

Published: Wednesday, October 1, 2025 · 12:02 AM  |  Updated: Wednesday, October 1, 2025 · 12:02 AM

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Nike shares jumped in after-hours trading Tuesday after the sportswear maker’s quarterly results far exceeded Wall Street expectations, signaling that CEO Elliott Hill’s turnaround strategy is gaining momentum. Total revenue in the company’s fiscal 2026 first quarter increased 1% year over year to $11.72 billion, topping Wall Street expectations of about $11 billion, according to estimates compiled by LSEG. Earnings per share (EPS) fell 30% from the year-ago period to 49 cents, beating the consensus of 70 cents, LSEG data showed. The stock — a member of the Club’s portfolio for only a few days — climbed more than 4% to around $72.66 a share in extended trading. Nike shares ended Tuesday’s regular session down almost 10% in September. Why we own it Nike, the global leader in sportswear, is undergoing a turnaround under CEO Elliott Hill. With Hill in charge, Nike is focusing on its most important categories across its three main geographies and five major cities. After too much attention on its direct-to-consumer business, Nike has pivoted back to key retail partners to drive sales. Competitors: Adidas , Puma , Lululemon , On Holding , Deckers Brands Last buy: Sept. 26, 2025 Initiation date: Sept. 26, 2025 Bottom line Nike’s quarter filled up the box score, as far as our investment thesis is concerned. Turnarounds require management credibility, and the best way to create that is by beating the guidance you give the Street. Nike’s results were far better than the guidance that executives offered three months ago. Hill and Co. had forecast revenue falling by a mid-single-digit percentage, gross margins declining 350 basis points to 425 basis points, and selling, general and administrative (SG & A) expenses increasing by a low-single-digit percentage. Instead, what actually happened is that revenues increased by 1%, gross margin fell by just 320 basis points, and SG & A dollars dipped about 1%. A basis point is equal to 0.01%, so in this case, gross margin declined by 3.2 percentage points. Another part of our thesis where Nike shined is innovation and its “Win Now” initiative, which is all about prioritizing its best-performing categories across its main geographies. This strategy is still in its early days, but the work has begun to pay off in key areas like running, where management launched what it called its “sport offense,” which brings the company’s organization closer to the athletes it serves. “We’re getting back to delivering a relentless flow of innovation that serves real athlete needs, and we’re pulling it all the way through the marketplace in consumer-friendly ways,” Hill said on the earnings call. “The early results have been positive with Nike running growing over 20% this quarter,” added Hill, a longtime Nike employee who returned to the company in October 2024 as CEO. We also wanted Nike to pivot back toward its wholesale business and re-engage partners like Dick’s Sporting Goods and the Dick’s-owned Foot Locker, rather than relying too heavily on its direct-to-consumer channel, which had been a focus of Hill’s predecessor, John Donahoe. To our delight, Nike’s fledgling efforts have paid off: its North America wholesale business returned to growth, with sales up 5% year over year on a currency-neutral basis and momentum is expected to continue. In particular, management called out the success of the Nike Brand Store on Amazon , which Hill said is driving stronger engagement and sales than anticipated. Nike returned to selling wholesale on Amazon earlier this year for the first time since 2019 . Amazon is a fellow Club holding. Like any turnaround, Though, we know progress isn’t made in a straight line. We’ve talked about this repeatedly with our position in Starbucks . Nike has acknowledged this, too. “We are encouraged with how we have started the year, but progress won’t be linear and there is still work to do to return to driving consistent, sustainable and profitable long-term growth” CFO Matthew Friend said on the call. Specifically, getting Nike’s Greater China segment and its Converse brand to return to profitable growth won’t be an easy task. Additionally, Nike’s website may have been de-emphasized, but it’s still an important part of the business. Inventory and tariffs headwinds need to be managed as well. Still, we left the earnings call with greater confidence in Hill’s plan. Ahead of Tuesday’s print, we put a small Nike position on last week because we wanted to participate in some upside if the turnaround was on track, and we liked what we heard. For that reason, we are increasing our price target to $85 from $80, reiterating our buy-equivalent 1 rating, and planning to scale deeper into this new position. Tariffs Nike is among the many shoe and apparel companies grappling with President Donald Trump’s evolving tariff policies, as a result of Southeast Asia being such a hub for manufacturing those products. Investors are well aware that Nike has steep tariff exposure, though, and investors have been pricing that risk into the stock for months — well before we arrived. For us, the question is how Nike manages tariffs from here. On Tuesday, Nike said on the earnings call that reciprocal tariff rates have increased for certain countries since its last earnings call in late June. As a result, management now estimates the gross incremental cost to Nike on an annualized basis is approximately $1.5 billion, up from its prior view of $1 billion. That is going to result in a hit to gross margins in the fiscal year of roughly 120 basis points, up from 75 basis points. Nike has previously shared that it is working to mitigate its tariff headwind through initiatives like sourcing optimization and reducing China footwear imports from 16% to a high single-digit range by the end of fiscal 2026. Also, the company is working with suppliers and retail partners to mitigate other cost increases and has implemented a price increase beginning this fall. Finance chief Friend said Tuesday that Nike is adhering to that plan. “And I remain confident in our ability to leverage our strengths, our scale and the deep experience of our leadership team to navigate through this disruption,” he said. Guidance Here’s the second-quarter guidance Nike management offered Tuesday: Revenues to decline by a low-single-digits percentage, including a one-point tailwind from foreign exchange. That’s roughly in line with the consensus estimate implying a roughly 3.1% year over year decline, according to FactSet. Gross margin to decline approximately 300 basis points to 375 basis points year over year, inclusive of a 175 net headwind from the new incremental tariffs. That’s worse than the roughly 225 basis point decline analysts were modeling, but the main difference appears to be the incremental tariffs. SG & A dollars to increase in the high-single digits, balanced between an acceleration of marketing spending— which Nike calls demand creation expenses — and a low-single-digit increase in operating overhead. That’s higher than the estimate for flat growth. Overall, we’re calling quarterly guidance better than feared, largely due to the tariff headwinds. Outside of the second-quarter figures, the company shared some other updates for the rest of the year that we found quite bullish. Specifically, Nike said its spring order book is up versus last year, with growth led by sport. As a result, the wholesale business is expected to return to modest growth for the full fiscal year. Again, this is welcome news to us because it shows the pivot back to wholesale was the right call. Growth in this channel also makes the decline expected in Nike’s direct-to-consumer operations much more tolerable. (Jim Cramer’s Charitable Trust is long NKE. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC Outcome OR PROFIT IS GUARANTEED.

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