Nike Posted Surprising Sales: Should You Buy Nike Stocks?

2025-10-01

Nike (NYSE: NKE), the world’s leading sportswear giant, has once again stolen the spotlight with its latest earnings report. The company’s fiscal Q1 2026 results not only surpassed Wall Street expectations but also reignited debate among investors: is Nike still a growth play worth buying, or do the challenges beneath the surface signal caution?

The report revealed strong revenue and earnings per share (EPS) beats, despite ongoing headwinds from tariffs, slowing digital demand, and regional pressure in China. Investors saw a modest after-hours stock price increase, but questions remain about whether this momentum is sustainable.

In this article, we’ll break down Nike’s financial performance, assess the company’s “win now” strategy, and weigh the pros and cons of investing in Nike stock today.

Nike’s Surprising Q1 2026 Earnings

Nike delivered revenue of $11.72 billion, comfortably above Wall Street’s estimate of $11.0 billion. EPS came in at $0.49, far ahead of forecasts of $0.27, marking a strong bottom-line performance.

On the surface, these results suggest resilience. However, the financial details reveal underlying weaknesses:

Revenue grew only 1% year-over-year on a reported basis.
Gross margins fell 320 basis points, down to 42.2%.
Net income declined, highlighting the cost of tariffs and discounts.
Tariffs are expected to impose a $1.5 billion annual drag on profitability.

This blend of a revenue beat with weaker profitability signals that Nike is walking a fine line between short-term growth and long-term margin pressure.

Key Drivers Behind Nike’s Performance

1. Wholesale Growth Outshines Direct Sales

A major shift in Nike’s revenue structure came from wholesale. Wholesale sales rose 5% to $6.8 billion, powered by renewed partnerships with major retailers like JD.com in China and Dick’s Sporting Goods in the U.S.

Meanwhile, Nike Direct sales declined 5%, with digital sales plunging 12%. For years, Nike had championed its direct-to-consumer (DTC) business as the future, aiming for higher-margin sales.

This reversal raises concerns about whether the company’s digital strategy can remain competitive against rivals that are aggressively scaling their e-commerce presence.

2. Regional Performance Highlights

Nike’s growth was uneven across geographies:

North America: modest growth supported by wholesale.
Europe, Middle East, and Africa (EMEA): positive momentum continued.
Greater China: revenue dropped 10%, reflecting both geopolitical challenges and shifting consumer sentiment.

China has historically been a cornerstone of Nike’s growth story. The double-digit revenue decline is a red flag that could weigh heavily on future quarters.

3. Inventory Levels a Concern

Nike reported inventory at $8.11 billion, higher than expected. Elevated inventories often translate into discounting, which further pressures margins. This echoes challenges faced in 2024 when excess stock weighed on profitability.

Nike’s “Win Now” Strategy

CEO Elliott Hill framed Nike’s approach as a “win now” strategy, prioritizing stability over experimentation. The plan focuses on:

Strengthening wholesale partnerships to capture scale.
Doubling down on key product categories like running, where Nike retains strong brand equity.
Restoring profitability while keeping an eye on long-term double-digit margin expansion goals.

While this strategy appears pragmatic, critics argue it represents a strategic pivot backward. Nike’s past success was built on controlling its customer experience through direct channels. Relying more heavily on wholesale could boost short-term sales but dilute brand exclusivity and margin potential.

Competitive Landscape: How Does Nike Compare?

Nike is not navigating these challenges in isolation. The broader athletic apparel industry is also shifting.

Adidas (ADDYY) has seen improvement after years of restructuring, gaining traction in Europe and showing resilience in digital.
Lululemon (LULU) continues to thrive with a premium focus, especially in North America and Asia, leveraging its strong direct-to-consumer model.
Puma and Under Armour remain smaller players but have carved niches in performance and lifestyle segments.

Compared to peers, Nike remains the undisputed global leader in scale and brand recognition. However, rivals are making gains in areas where Nike has stumbled, particularly in digital engagement and premium margins.

Investor Sentiment and Valuation

Following the earnings report, Nike stock rose modestly in after-hours trading. Analysts highlighted the company’s ability to beat revenue and EPS estimates despite macro challenges.

That said, valuation remains a sticking point. Nike trades at a P/E ratio around 32, considered elevated for a company facing margin pressure, slowing growth in China, and elevated inventories.

For long-term investors, Nike’s brand strength, global reach, and dividend yield make it a compelling holding. But short-term traders may find the stock’s risk-reward balance less attractive.

Should You Buy Nike Stock Now?

The decision to buy Nike stock boils down to weighing its strengths against its risks.

Pros of Buying Nike Stock

Surprising revenue and EPS beat in Q1 2026.
Wholesale revival through partnerships with JD.com and Dick’s Sporting Goods.
Strong global brand recognition and consumer loyalty.
CEO Elliott Hill’s turnaround plan is gaining early traction.
Dividends and buybacks support shareholder value.
Long-term potential for double-digit margin expansion.

Cons of Buying Nike Stock

Direct and digital sales decline, undermining past growth strategy.
Greater China weakness, a major risk to growth.
Margin compression from tariffs, higher costs, and discounts.
Inventory buildup could lead to further markdowns.
Elevated P/E valuation limits near-term upside.
External risks: tariffs, geopolitical volatility, and currency pressures.

The Investment Verdict

Nike’s Q1 2026 earnings remind investors why the company commands global respect: resilience, brand power, and adaptability. Yet the details reveal a brand under pressure, pivoting back to wholesale while struggling to reignite digital momentum.

For long-term investors, Nike’s strong fundamentals, history of innovation, and shareholder-friendly policies suggest the company remains a solid blue-chip play. For shorter-term investors, the combination of margin compression, China weakness, and high valuation may justify caution.

In short, Nike stock may be best viewed as a turnaround opportunity with long-term upside potential, but not without risks.

FAQs

Why did Nike beat earnings expectations in Q1 2026?

Nike exceeded forecasts thanks to wholesale growth and strong cost management, which offset digital weakness and margin pressures.

What are the biggest risks for Nike stock?

Tariffs, declining direct-to-consumer sales, China’s slowdown, inventory overhang, and persistent margin compression.

Is Nike stock overvalued?

At a P/E near 32, Nike trades at a premium compared to peers, which could limit near-term gains given its current challenges.

How does Nike compare to Adidas or Lululemon?

Nike leads in global scale and brand strength but lags rivals like Lululemon in direct-to-consumer growth and Adidas in digital recovery.

Should I buy Nike stock now?

Buyers with a long-term outlook may benefit from Nike’s turnaround potential, while cautious investors may prefer to wait for margin recovery.

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