Nike’s Weaker Outlook Signals a Longer Turnaround as China and Sportswear Weigh

Nike’s Turnaround Faces Another Test

Nike (NKE) shares fell sharply after the sportswear company reported mixed fiscal first-quarter results and issued a weaker-than-expected full-year outlook. Revenue declined 4%, while earnings per share exceeded expectations.

The larger concern was what comes next. Nike expects fiscal 2027 revenue to decline by a high-single-digit percentage as weakness in Greater China, Sportswear and Jordan continues. The company also unveiled a restructuring program called Pace designed to simplify operations and reduce costs over several years.

Key Points

• Nike expects fiscal 2027 revenue to decline by a high-single-digit percentage, with Greater China, Sportswear and Jordan remaining major pressure points.
• Greater China revenue fell 26%, while North America grew and Nike’s Performance business continued to expand.
• The new Pace restructuring program targets approximately $2.5 billion in savings through fiscal 2031 and will include job reductions beginning in 2027.

China and Sportswear Remain Nike’s Biggest Pressure Points

Nike’s first-quarter results showed a business still moving in different directions.

North America revenue increased 2%, while the broader Performance business grew at a high-single-digit rate. Those gains, however, were not enough to offset weakness elsewhere.

Greater China revenue fell 26%, extending a prolonged period of declining sales in the region. Nike expects conditions there to remain difficult as it changes its digital distribution and works through inventory.

Sportswear, which represented just under half of quarterly revenue, declined by a low-double-digit percentage. Nike deliberately reduced Dunk revenue by nearly half, while some older, higher-volume footwear sold more slowly than expected. Jordan Brand also declined, and management acknowledged that it had supplied too much Jordan retro product.

Nike plans to reduce the volume and frequency of those releases as part of its effort to restore scarcity.

Why Did Nike Stock Fall Despite Better-Than-Expected Earnings?

Nike’s earnings per share exceeded expectations, but investors focused on the company’s outlook rather than the quarterly profit result.

Revenue came in slightly below expectations, and management projected a high-single-digit revenue decline for fiscal 2027. Its full-year adjusted earnings outlook also came in below analysts’ expectations.

That guidance reinforced the challenge facing Nike’s turnaround. CEO Elliott Hill said the growing Performance business is not yet large enough to offset weakness in Sportswear, Jordan and Greater China.

Margins provide another part of the picture. First-quarter gross margin improved as supply-chain cost management and favorable currency effects helped results. However, discounting and higher input costs remain headwinds.

The combination helps explain the negative earnings reaction: areas of operational progress remain, but management expects several of Nike’s largest challenges to continue weighing on revenue and profitability.

Pace Restructuring Targets a Leaner Nike

Nike is responding with a broader operating overhaul called Pace.

The restructuring will reorganize the company into three geographic regions: the Americas; Asia Pacific and Greater China; and Europe, the Middle East and Africa. Nike also plans to open a new campus in India.

The program targets approximately $2.5 billion in cumulative savings through fiscal 2031. Nike expects roughly $1 billion in pre-tax charges associated with the changes, and job reductions will begin in calendar 2027. The company has not yet determined how many positions will be eliminated.

Management also identified faster decision-making, greater productivity and a lower cost base as objectives of the new operating model.

The restructuring addresses costs and organizational structure, while Nike continues separate efforts to improve Sportswear, Jordan and Greater China. Management expects some of those pressures to extend beyond the current fiscal year.

What It Means for Investors

Nike’s latest results show why the company’s turnaround remains centered on execution rather than a single quarter.

There are signs of progress. North America grew, the Performance business expanded and gross margin improved during the quarter. At the same time, Greater China deteriorated sharply, Sportswear remained weak and Jordan continued to require product adjustments.

The Pace restructuring adds another component to the recovery effort by targeting costs and simplifying the organization. However, its savings are expected to build over several years, while Nike’s current revenue outlook reflects more immediate pressure.

Nike plans to provide a five-year financial framework at its November Investor Day, offering additional detail on how management expects the business and its financial structure to develop.

Conclusion

Nike’s first-quarter earnings contained pockets of improvement, but the company’s full-year outlook made clear that its larger challenges remain unresolved.

Performance and North America are providing areas of growth, while Greater China, Sportswear and Jordan continue to weigh on the business. Management is reducing product supply, changing distribution and restructuring operations as it works through those issues.

The Pace program could lower Nike’s cost base over time, but the immediate focus remains on whether the company can stabilize its weaker businesses while maintaining momentum in the areas already showing improvement.

FAQs

Why did Nike stock fall after its earnings report?

Nike stock fell after the company projected a high-single-digit revenue decline for fiscal 2027 and issued an adjusted earnings outlook below analysts’ expectations, despite first-quarter earnings per share exceeding expectations.

What is Nike’s Pace restructuring plan?

Pace is Nike’s operating-model restructuring program designed to speed decision-making, improve productivity and lower costs. The company is targeting approximately $2.5 billion in cumulative savings through fiscal 2031.

What is happening to Nike’s business in China?

Greater China revenue fell 26% in the fiscal first quarter. Nike is changing its digital distribution and expects revenue and profitability in the region to remain under pressure across several selling seasons.

Which parts of Nike’s business are performing better?

North America revenue increased 2%, while Nike’s broader Performance business grew at a high-single-digit rate during the fiscal first quarter.

Will Nike’s restructuring include layoffs?

Yes. Nike said the Pace restructuring will result in fewer roles, with decisions about affected positions beginning in calendar 2027 and beyond. The company has not yet determined how many roles will be eliminated.

This article was created with AI assistance and reviewed by an editor. For details, please refer to our Terms of Use.

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