NIKE, Inc. Q4 FY2026 Earnings Call

Good afternoon, everyone, and welcome to Nike, Inc.'s fourth quarter fiscal 2026 conference call. For those who want to reference today's press release, you'll find it at investors.nike.com. Leading today's call is Paul Trussell, VP of Corporate Finance and Treasurer. I'd now like to turn the call over to Paul Trussell.

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss Nike Inc.'s fourth-quarter fiscal 2026 results. Joining us on today's call will be Nike Inc. President and CEO Elliot Hill and EVP and CFO Matt Friend. Before we begin, let me remind you that participants on this call will make forward-looking statements based on current expectations, and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in Nike's reports filed with the SEC. In addition, participants may discuss non-GAAP financial measures and non-public financial and statistical information. Please refer to Nike's earnings press release or Nike's website, investors.nike.com, for comparable GAAP measures and quantitative reconciliations. All growth comparisons on the call today are presented on a year-over-year basis and are currency neutral unless otherwise noted. We will start with prepared remarks and then open the call for questions. We would like to allow as many of you to ask questions as possible in our allotted time, so we'd appreciate you limiting your initial question to one. Thank you for your cooperation on this. I'll now turn the call over to Nike Inc., President and CEO, Elliot Hill.

Thank you, Paul. I'm proud of the progress our team made in fiscal year 26. When I look back at where we started the year and where we are today, it's clear that we're building a much stronger foundation for our company. Through our WinNow priorities, we're elevating the fundamentals of our business across our team culture, innovative product, brand strength, and how we serve consumers in our countries and cities. We're making meaningful structural improvements in each of them. Win Now is making the comeback possible. And importantly, it's what's enabled us to move about 8,000 teammates into vertical sport teams under our new operating model, the sport offense, while also taking meaningful steps to simplify and accelerate our supply chain and technology as our foundation approves the sport offense is starting to create impact our renewed obsession with sport and the success of our athletes is fueling energy for our brands and building momentum in our performance business, which grew mid-single digits this fiscal year. Overall, the results aren't there yet. We know we're not living up to our full potential, particularly in Nike sportswear and Jordan streetwear, where sell-through remains challenged, impacting both current discounting and future order books. We're operating in a more complex macro environment, where we're seeing added pressure on traffic and discretionary spending across our geographies but we're focused on what we can control bringing each sport together across product brand marketplace and operations and deepening our connections with athletes consumers and partners when those dimensions connect they create the nike multiplier it's repeatable and sustainable that's why i'm confident we're building nike the right way not for the next quarter but for the next decade now the opportunity is consistency execution across every part of the portfolio from here we have to prove it every season now let me walk you through the details of the clearest signals of our progress in fy26 this year we directed our marketing social and communications to outreach to build influence across a wide network of sport-specific communities. We did that through our deep portfolio of athletes, creators, and sport partners. And through those networks, we brought energy and a uniquely Nike point of view to sports moments, both big and small. When we lead with sport authentically, consumers respond. And we see that in both internal and external brand tracking. Our focus now is translating that brand strength into healthier demand, cleaner marketplaces, and sustainable growth. You can see the same energy in our broader product pipeline, too. We've now delivered five consecutive quarters of double-digit growth in Nike running. and over that period, we've added roughly a billion dollars to our running business. In FY26, across Western Europe and North America, we gained five points of running market share in statement footwear, more than any other top five brand. The integrated marketplace is one of our most important areas of transformation. We've been rebuilding our wholesale relationships, expanding our outreach, and improving how we show up across channels. For the fiscal year, wholesale revenue grew 4%, led by double-digit growth in North America. And we've also made significant investments in physical marketplace, refreshing more than 15 000 spaces in wholesale doors around the world in nike direct we've taken equally important steps we're elevating the user experience by leading with performance celebrating sport moments and we're discounting less on nike digital in fy26 we've elevated more than 150 stores with sport led experiences over time we will continue to rezone and elevate our fleet and close the doors that are no longer aligned to our strategy at our scale this takes time we're not finished yet i'm confident our investments in the integrated marketplace will pay dividends for years to come We're also investing in experiences in our key countries and cities to accelerate demand. In global football, our grassroots tournament, TOMA, has reached more than 10,000 kids across 25 cities to date. In basketball, we continue to invest globally from our partnerships with the Chinese High School Basketball League and its 600 teams to Jordan's, the one tournament in 20 cities around the world. In running, we launched the After Dark Tour in Shanghai. It will reach seven cities this fall. Last year, 50,000 runners joined, and a third. And with our more expanded reach, we expect even more impact. Being more local matters. It deepens connection. It builds loyalty and it creates a pull market for our brands and products as we strengthen nike inc's foundation we're taking decisive action across our supply chain to lower cost streamline operations and right size our distribution network to match the demand ahead we've redeployed resources from our nike direct technology teams to better support the company end-to-end across the entire value chain, and we're investing in advanced tools and capabilities to improve speed, precision, and reliability in everything we create, from air manufacturing and materials innovation to how we plan, make, and move product to the marketplace. At its core, this work is about serving athletes better and creating a more profitable business that's especially important in Greater China a critical long-term growth market for Nike where we are fully committed to winning our teams in China are executing a comprehensive reset returning to sport and innovation taking a more local approach to product creation and building a territory level offense at the same time we're reimagining how we operate in the marketplace we are working with partners and evaluating new ways to so we can be more premium more culturally connected and move at the speed of the chinese consumer with seamless journeys across digital and physical retail in the near term we're executing cleaning up inventory investing in must-win doors, and when we invest, we're seeing sales increase high single digits. I'm confident in our leaders and our plans to restore long-term marketplace health in greater China, sharpen its strategy this quarter. It's getting clearer on the role it plays within Nike, Inc., and where it will grow, especially with the Chuck Taylor and Jack Purcell franchises. As part of that focus, we announced that Shea Gilgis-Alexander has joined the Nike basketball family. Shea and Nike basketball are a perfect match. This move allows Converse to fully focus on serving creators through its lifestyle business. That clarity matters. when we're focused global football is the best example of that playing out through the sport offense it's been an incredible few weeks of the world cup what feels different this time around is we're not treating the tournament as a single moment we're using it to reshape our business telling a connected story over time engaging different communities in relevant ways and building momentum that carries well beyond the tournament we built a full Nike football universe with a simple image of 31 Polaroids a map of what was to come an epic film called rip the script followed branching off into individual athlete stories collaborator collections innovation unveils retail skill experience, and local tournaments. We built it this way because the next generation wants to engage with sport on their terms, discovering, sharing, and participating in the story as it unfolds. Every beat, every story is a doorway, giving different micro-communities their own way This is the way to reach scale in today's culture. By the first week of the World Cup, we had 1.5 billion views of our various stories. This is about deeply understanding today's consumers and building modern, meaningful, and innovative connections with them. This is nothing new for Nike. Once again, at the center of the Nike football universe is amazing product. National team kits to help athletes compete in extreme conditions. By the start of the tournament, we had already sold 2.5 times the number of kits compared to the same period in World Cup 22 during the year. We redesigned our Tiempo and Phantom franchises, and before the tournament, we launched our new Mercurial into expressions of speed. at launch the Mercurial became the fastest selling 24-hour launch for pleated footwear in the history of Nike direct we also connected Nike mind to the tournament in team colors to fuel our new innovation with our X2 collections we created amazing energy with leading leading creatives and we reached scale through Nike Sportswear, Skate, Cactus Shack, and N7 to connect deeper with broader football culture. And as we talked about last quarter, we're activating the marketplace, elevating over 5,000 football doors around the world. World Cup is always a moment to prove ourself. It's one of the toughest battlegrounds in sport, and we're coming with our best. We're leading the conversation and shaping football culture, a strong early proof point for the sport offense. As we move into fiscal year 27, we're focused on building on that momentum. Here's what you can expect from our teams. As we scale the sport offense across more sports, we expect growth to expand beyond running into training, basketball, and ACG. but that progress will continue to be uneven we expect sportswear and jordan streetwear to continue to be negative this fiscal year with improvement expected in the back half we know changing their trajectory is critical to restoring sustainable top-line growth because together they represent approximately half of our revenue it we are moving quickly to reposition both businesses in the second half nike sportswear will introduce more than a dozen new footwear styles each with distinct consumer journeys but this work will take time to scale and translate into consistent results our teams are also focused on inspiring the consumer in modern ways while driving commercial impact at local sports moments, and we will continue to invest in how we show up as a premium brand in both digital and physical retail, including a plan to elevate 50% of our Nike Direct owned fleet by the end of the fiscal year. Across the enterprise, we'll operate with even greater discipline to improve planning accuracy, strengthen inventory management, and expand our margins over time. Most importantly, we look forward to sharing the next phase of our growth strategy at our Investor Day on November 16th and 17th. After to Matt, I want to take a moment and recognize him for his many contributions to Nike over his nearly 18 years at this company. I've helped guide the company through a demanding stretch, and he has been a trusted partner to me and to this team. I appreciate his continued support and his commitment to ensuring a seamless transition in the coming weeks and months. I'd like to thank him for all he has done for Nike and wish him the very best in his next chapter.

Thanks, Elliot. it. I've truly valued the partnership with you and this team, and I'm proud of the progress that we've made together. As we closed fiscal 26, we made meaningful progress across the business through rebalancing the product portfolio, driving momentum and growth in performance, while reducing classic footwear franchises by more than $2 billion, keeping revenue flat on a reported basis versus the prior year gross margins excluding the impact of incremental tariffs taking initial steps to reset our cost base and improve operating efficiency and effectiveness and our balance sheet is strong with substantial liquidity and flexibility to operate as we go forward our fourth quarter financial performance was in line with our expectations however the operating environment became more challenging as we progressed through the quarter after a stronger start in March especially in North America by mid-April we began to see a deceleration and retail sales trends our consumer is under pressure around the world and we can particularly see it having a larger impact on sportswear which declined double digits in the quarter with a similar decline in retail sales at the same time momentum and performance sports continued to build, growing mid-single digits, and delivering positive year-over-year retail sales comps across running, training, and global football, as well as other sports. We are monitoring marketplace inventory and promotions closely and adjusting buy plans to manage future supply and sell-in with demand and improvement in full-price sales. Before I turn to our results, I want to address an unplanned benefit related to tariffs, which was recognized in the quarter and was not included in our previous financial guidance. In the fourth quarter, we determined that the financial recovery of claims related to incremental tariffs paid under IEPA had become probable. This resulted in the recognition of a one-time benefit of $986 million, dollars offsetting the IEPA tariffs embedded within cost of sales that had been expensed through the income statement throughout fiscal 26 as of quarter end on May 31 we collected over 300 million dollars of cash related to these claims the remainder of the benefit was recorded to accounts receivable as we await recovery press remain a dynamic cost headwind that we expect to continue looking forward and so I will share more on our rate assumptions later in my remarks now I will turn to our fourth quarter results for the quarter revenues were down 1% on a reported basis and down 4% on a currency-neutral basis reflecting modest growth in North America more than offset by expected declines in Greater China, EMEA and Converse. Nike Direct was down nine percent with Nike digital declining 12 percent and Nike stores down seven percent wholesale grew one percent gross margin was forty nine point two percent up eight hundred and ninety basis points versus the prior year driven by a nine hundred basis point benefit related to recovery of IEPA tariffs excluding this benefit gross margin would have been forty point two percent down ten basis points versus the prior year which included additional severance costs related to supply chain actions in North America and a maya we highlighted last quarter we expect these actions will deliver positive operating leverage in gross margin in fiscal 27 SG&A was down 2% on a reported basis versus the prior year reflecting continued discipline managing expenses while accelerating investment for the World Cup our effective tax rate was nineteen point six percent earnings per share for the quarter was 72 cents and excluding the benefit on tariff recovery was 20 cents inventory was flat versus the prior year with continued progress made to address age inventory in Greater China for the full year revenue was flat on a reported basis and down 2% on a currency neutral basis gross margin was 42.9% up 20 basis points versus the prior year including a 210 basis point benefit related to recovery of IEPA tariffs excluding the benefit gross margin would have been forty point eight percent diluted earnings per share was two dollars and ten cents down three percent versus the prior year excluding the benefit on tariff recovery earnings per share would have been one dollar and fifty eight cents looking at our reported four-year results for fiscal 26 you can clearly see that our gross margin slightly expanded while earnings per share modestly declined despite significant investment and nearly 400 million dollars of severance charges made to reposition and create a healthier foundation for our business now I will turn to performance in the geographies in North America q4 revenue grew 3% Nike direct was down 6% while Nike digital was down 5% Nike stores were down 7% wholesale grew 10% EBIT increase 91% on a reported basis excluding the tariff refund benefit even would have declined 1% North America continues to drive momentum and performance including strong double-digit growth in global football and running as well as growth in kids and golf sportswear was down high single digits retail sales grew over the first six weeks of the quarter however we did see a deceleration in late April which we continue to monitor closely particularly in sportswear and Jordan Street wear wholesale revenue growth was driven by new and existing distribution one highlight I'd like to note is that our revenue growth and retail sales comp with Foot Locker was positive for the first time in four years and we continue to be encouraged about the path ahead inventory grew mid single digits in line with our plans with a healthy closeout mix and importantly excluding the tariff refund benefit underlying gross margin profitability continued to improve year over year in a maya q4 revenue was down six percent Nike direct declined 16 percent with Nike digital down twenty four percent and Nike stores down nine percent wholesale was down one percent EBIT was down eight percent on a reported basis a man continues to work through heightened inventory and promotional levels disruption in the Middle East and a higher portfolio mix of sportswear than our other geographies we had continued momentum and performance through running global football and golf all of which grew double digits versus the prior year although digital revenue declined off price was down over 50% following aggressive actions to reduce promotions this resulted in a 15-point improvement in full price realization sportswear declined double digits and sell-through continues to be challenging and so we have tightened buys and moderated selling plans for the near term total inventory dollars were up low double digits with actions in place to reduce supply and accelerate liquidation to improve marketplace health in Greater China Q4 revenue declined 17% Nike direct declined 14% with Nike digital down 25% and Nike stores down 9% wholesale declined 19% EBIT was down 20% on a reported basis as you heard Elliot say there are several changes underway in Greater China and the team continues to execute on their plan in season sell-through has improved sequentially and average retail discounts are down we are seeing recovery in full price realization on digital after more aggressive actions to reduce promotions over the last two quarters running grew mid single digits and global football and tennis were up double digits our pinnacle retail expression the house of innovation in Shanghai posted double-digit growth for the quarter we also saw sales growth in the doors that we have reset and encouraging initial results at our newest ACG door in Nanjing inventory was down double digits with units also down double digits. We continue to take actions with partners to clean up the marketplace and expect revenue trends in Greater China over the near term to be in line with recent performance. In APLA, Q4 revenue was down 1%. Nike Direct declined 3%, with Nike Digital down 8%, and Nike Stores up two percent wholesale was up one percent EBIT declined one percent on a reported basis the business across this geography continues to be mixed with strength and select territories and performance sports offset by ongoing pressure in sportswear running and global football grew double digits with high single digit growth in tennis and ACG across the marketplace the team is focused on elevation and expansion where we have invested in elevated retail we are seeing a strong increase in comp sales growth we also added new digital partners across five Southeast Asian countries inventory grew high single digits versus the prior year with a sequential improvement and closeout mix as inventory actions continue across the geography now I will turn to our outlook the environment around us continues to be volatile including evolving tariff policies ongoing disruption in the Middle East oil prices and other factors that could impact operating costs consumer behavior and weakness in store traffic and retail sales these assumptions reflect the macro environment as it stands today and we are not expecting the environment to improve meaningfully over the next six months. Last quarter we provided guidance which cumulatively included the fourth quarter of fiscal 26 through the first two quarters of fiscal 27 with revenues to be down low single digits gross margins to inflect positive in Q2 and earnings to be flattish over this period. we reiterate our expectation for earnings to be flattish over that time period excluding the benefit from tariff recovery the composition has shifted considering the current macro environment as well as recent sell-through trends we are taking actions to tighten buys reduce future selling and manage inventory this will result in revenue moderating but also higher gross margins we now expect revenue to be down low to mid single digits with q2 having a sequential deceleration from q1 due to some unique factors equating to a multi-point headwind including higher digital promotions in the prior year in EMEA and timing of North America wholesale shipments we now expect gross margin expansion earlier, beginning in Q1. We will continue to be disciplined with SG&A management, driving productivity benefits and operating overhead, beginning in Q1. Specifically for the first quarter, we expect reported revenues to be down low to mid single digits, with no expected benefit from foreign exchange and currency neutral revenue growth consistent with recent performance. we expect gross margin in q1 to be slightly positive the tariff environment continues to be uncertain our forecast is based on incremental tariff rates of 10% continuing through the end of July and then increasing to 15% thereafter as we communicated last quarter we expect q1 SG&A dollars to be flat with operating overhead declining while demand creation grows high single digits as we invest into the World Cup we expect our full year tax rate to be in the low 20% range while the environment remains volatile and it is taking more time for the top line to inflect positively we remain confident in the actions we control to improve even margins and increase cash flow from operations we are tightly managing expenses reallocating resources to elevate retail and drive deeper consumer connections and taking actions to

structurally improve the efficiency and profitability of our supply chain as well as Nike's overall business with that I will pass it back to Elliot before we go to questions I want to leave you with one thought we spent a lot of time this quarter talking about sport, the highs, the setbacks, the pressures that define teams. Yet there's one I keep coming back to. Earlier this month, we watched something special happen in New York. The Knicks became NBA champions. A team that had carried the weight of expectations for more than 50 years finally broke through. And when you look at what happened at the final buzzer the trophy the celebration the joy across the city it's easy to think that's where it was won but it wasn't the championship wasn't built on a single series or even in one season it was built backs and step forwards through relationships and buying into a system where everyone knows their role you saw it when it mattered most because every one of those wins in the finals was a fight double-digit deficits they didn't flinch they didn't panic they went to work chipping away one stop one bucket another stop again and again that's not luck that's a team that's ready most importantly, that's belief. Belief in their system. Belief in each other. Brunson kept coming. Towns was disruptive at both ends. Hart made the hustle plays. Different players, one goal, all focused on closing the gap. Possession by possession. And that's what I see in our team we believe in our system and each other in the way we're building this not because the work is finished and not because every result is where we want it to be today but because we know what it's built on I see the progress I see the structural change I see the foundation getting stronger I I see the sport offense taking hold. I see a team that's been tested and is ready for what's in front of us. The Knicks reminded all of us of something important. The real story is never just the celebration. The real story is everything it took to get there. And that's exactly how we're building Nike. The right way. because the goal isn't one championship. It's building a team that can do it again and again.

We're ready for questions.

We will now begin the question and answer session. To ask a question, press star, then the number one on your telephone keypad. We kindly ask that you please limit your initial question to one. Our first question will come from the line of Adrian Yee with Barclays. Please go ahead. Great. Thank you very much.

I guess, Elliot, one of the things we talked about was kind of the difficulty of full-price sell through, I guess, primarily sportswear. I'm just trying to figure out how much R&D and innovation investment in that sportswear category to drive kind of future growth.

If you're pulling back on inventory and focusing on full-price selling, yet having struggled in full-price selling, just wondering how you can get the performance success to halo out to sportswear thank you very much great question thank you adrian let me uh start first with the the sport offense because i think it's really important for everyone on the call to understand we understand the importance of getting both uh nike sportswear and jordan streetwear back to growth with that said our point of differentiation our point of distinction, what creates authenticity for Nike is our sport business. And that creates a halo over both of those brands. It's also which differentiates us from fashion brands. And so the reason why we've put so much time on the sport offense is because we believe that's how we create that authenticity around that business. We've created a portfolio of sport verticals, small cross-functional teams focused on a consumer Nike running which I'm sure we'll dive into here in a minute it led the way and as you heard in the prepared remarks we've had great response with the sharp sharp focus on the consumer whether it's the product whether it's the investments we've made on the ground and retail with Eakins our tech reps and the results are clear running group five billion dollars and or one billion dollars over the last five quarters, and we gained five market share points. Shifting over to other sports, we see it in the sport offense. It's working in real time. Nike basketball, that team, yes, we have Asia one or Asia two, the jaw three, but the way they respond around the Knicks championship's been phenomenal. The ad we ran, the championship product, the pre-orders and footwear, Nike football, I'm inspired. You heard me talk about that in my prepared remarks around the way the Nike football team is leveraging the world cup to create a halo over the nike brand not just sport but also culture and we would not be doing that if we weren't in the sport offense and we see momentum gaining training tennis golf outdoor i'll use one example before i jump to sportswear i'm not sure if you guys watched serena today but she had the radical air on that's performance product and that will start to show up that innovation will start to show up in some of our sportswear as well so when we lead with sport we win as it relates to sportswear and Jordan we have taken two billion dollars out of the market in FY26 of our classic franchises the team we do have now dedicated teams against each of those consumers and and so that team now is looking to the future and in uh the second half of fy27 sportswear is going to introduce more than a dozen new footwear styles and it's not just going back to the vault and doing old retro shoes it is leveraging innovation and you'll see some newness and freshness uh coming uh in new silhouettes and so the sports routine is moving to to quickly reposition the business uh being more community driven, on the ground, working with local creators, authentic story. We're investing in accelerating our local product creation as well. You'll see us leverage that more around the world. And in the end, it's going to take time to scale, but I'm confident in the work that the teams are doing.

Our next question will come from the line of Bob Durbel with BTIG. Please go ahead.

Hi. Good afternoon. And, Matt, you know, I just want to tell you, when you look at the innovation pipeline, you know, I think one of the, I guess, two parts to this is that when you think the mind shoe, can you talk about, you know, what you're doing throughout the business, you know, how quickly that can occur? When you think about the most about what is coming in the pipeline.

Thank you, Bob. um here you know i'll go back to we're leading with the sport offense we now have those small cross-functional teams uh against each of the sports obsessing the consumer taking the insights for the consumer translating that into uh a relentless flow of innovative beautiful coveted product across footwear apparel and accessories and we needed to get that going bob that's where a nike mind comes from as an example And so the first time you're going to see the product across all of the sports that the teams worked on from brief to the market will be spring 27. So that'll be the first time you're going to see the fruits of those teams' efforts. But nevertheless, I am excited what the team continues to do in running, where they set it up. This quarter alone, we launched the PEG-42, and it was a full-length encapsulated Zoom airbag and sold through well. As I look forward to running, the AeroFit product that we launched in football is going to show up in running apparel in fall 26. We've got a Vomero Plus 2 coming in, new in running. ACG continues to bring really interesting product, the Radical Airflow. is amazing looking product and that sold well the long sleeve sold out immediately and you'll see us then also leverage that innovation across multiple uh sport categories football we've talked a lot about aerofit the mercurial pack coming back next year with the women's world cup i'm excited we we're hosting a bunch of retailers this this today yesterday and today in new york we've had tremendous feedback to the product coming there both in sport and in culture basketball uh excited about the dimension that the team's bringing there of course caitlin clark's coming so that'll be launched in the uh in in holiday 26 training nike mine i i we see a big opportunity there and you'll see a scale that beyond the slide uh coming in in in uh spring of 27 free metcon another performance fabric or um uh innovation with free that's doing well nike pro men's and women's and so the point there is and it's not just performance i think the team is doing a nice job of launching new products in sportswear probably the best example this quarter would be the moon shoes so short answer your question is, it's taken time to get the flow of innovation and product going, but I'm excited by what the team's doing. I'm confident in the teams, and you'll start to see a season in, season out, that relentless flow of product that we expect and you expect out of Nike.

Our next question will come from the line of Matthew Boss with JP Morgan. Please go ahead.

Great, thanks. So, Elliot, could you elaborate on the sequential cadence of sell-through trends across performance relative to sportswear? And what you see is the optimal mix between performance and sportswear roughly versus the roughly 50-50 split today. And then Matt, just on the numbers, could you help us just bridge the drivers of first quarter revenues down low to mid-single digits, further moderation in the second quarter, just relative to the negative 1% decline here in the fourth quarter as the base Thank you, Matthew.

Again, we don't break out, sell through by sport and sportswear. What I can tell you is we had a strong start in March, especially in North America on sell through. The teams watch it, track it every single week. We're on it, watching sell through. And then by mid-April, we began to see a deceleration in retail sales trends. And that softness did coincide with our, we believe, our consumer being more under pressure, impacting traffic and discretionary spend. But Matt did touch on it, I think, in his premier remarks. We are seeing a strong bounce back with the World Cup momentum right now. So as we moved into June, we are seeing a halo that is being created by the World Cup. So it's something that we will continue to monitor every single quarter, or excuse me, every single week and make the necessary adjustments that we need to make on forward orders. In terms of optimal mix, I think ultimately the consumer is going to decide what the optimal mix is. It's not something that's predetermined. I think if we predetermine we want X business to be bigger than the other, I think it forces our teams to do unnatural things to get to that number. So it is not a number that we're driving the teams towards. We're going to let the consumer ultimately decide the mix of sport to sportswear.

And Matt, on the revenue guide, I think the way to think about it is we provided specificity on the first quarter that we expect revenue to be down low to mid single digits. And I think the biggest driver in Q1 versus Q4 is the fact that FX will no longer be a tailwind to revenue. Outside of that, we don't expect a meaningful change in the mix of the portfolio or anything else. As it relates to Q2, we just wanted to highlight that we expect a sequential deceleration relative to Q1. As you'll recall, in Q2 of last year, there were some anomalies that drove our revenue in that particular quarter. And the two largest ones that equate to a multi-point headwind were much higher level of digital promotions than EMEA last year in the second quarter. And you can see from our results this quarter, we've taken a massive turn on the amount of promotional activity that's on Nike.com and on our digital platforms in Europe. And our off-price business was down 50% versus the prior year. It's the right decision. It's strategically what Elliot highlighted as he came in, that we need to reposition digital to be a premium business. But that's going to create a comp issue in Q2 of next year. And then we also had extraordinarily high wholesale growth in North America in Q2 last year, also related to some timing anomalies. So we just wanted to call that out in advance as we think about this performance over the next two quarters.

Our next question will come from the line of Lorraine Hutchinson with Bank of America. Please go ahead.

Good afternoon. I was hoping you could go into a little more detail on your China strategy. It sounds like there are some renovations underway for the physical fleet, but how are you thinking about the direct-to-consumer, particularly the digital business from here?

Lorraine, and I've said this every quarter that I've been on this call, and I'll continue to say uh china the second largest market today it'll be the second largest market in in uh near term or any you know three five years from now and so we remain committed to serving the chinese consumer we're going to do it through sport i think the key in china is we have to to get back to growth in china we have to be more premium and culturally relevant and we have to lead with sport it's those three things in sport some of the proof points running did grow mid single digits this quarter we had a great launch of the peg 42 there the team just didn't sell it online we sold it physical doors 2,000 doors and we really elevated the presentation which is what we need to do more of global football was up double digits we launched the Mercurial we had a really good storytelling both digitally and physical on that the team's moving resources out to our territories and our cities, connecting with consumers, which I think is also critical to our success there. We've got the After Dark Tour from a running perspective up and going there. We celebrated the Chinese Basketball League. I talked about that. But we know that's not enough, Lorraine. And so we are going to take additional actions to reimagine the marketplace. Number one, it's got to be easier for a consumer to find, and we do have to be more culturally connected. We're repositioning the brands as premium to do that. We've got to continue to clean up the marketplace and elevate the marketplace. We have to invest in elevating online and offline. We have a consistent consumer experience between that online experience that you referenced and then the offline experience. And we know that success in China is going to require deep local partnerships, and we continue to execute the reset with both online and brick-and-mortar in mind and those partners in mind. And so we're working closely with them. Two last points, local for local. We have hired our resource and our Greater China Local Product Creation Team. team, they will be delivering locally designed, developed, and manufactured product in China in Holiday 27. And then the last thing I'll say is it's been great to have Kathy Sparks leading that team. I have a tremendous amount of confidence in her and her team. We have a clear diagnosis, we have a plan in place, and we're moving with urgency. So overall, pleased with the progress we're making in China.

Our next question comes from the line of...

I was just going to add that we also highlighted this quarter the progress that the team continues to make in China, and I just wanted to reiterate a couple things that I said on the call. In recovery and full price realization on digital, so in addition to everything Elliot said, the team has taken aggressive actions to reduce promotions over the last two quarters, And we are seeing that bear fruit on our across our digital across the digital properties in in greater China, including partners. Our pinnacle retail store are, you know, the most premium Nike store that we have in China is in Shanghai, the House of Innovation. And it grew double digits in the quarter, a reflection of elevating retail and focusing on sport in the market. And then, as Elliot referenced in his remarks, where we've elevated our other retail doors with our partners, as we've talked about our top-door offense, we're seeing strong comp performance in those doors for another sequential quarter. And so we continue to be encouraged by the actions that we're taking and the decision that we've taken to sell in less inventory into the marketplace in order to create a more full-priced business. and the progress that we're making with our partners on aged inventory in the marketplace is meaningful. And so as we look forward, we do expect that the revenue trends in greater China over the near term will be in line with our recent performance, and we continue to believe that profitability will bottom before sales in this market.

Our next question will come from the line of Michael Bonetti with Evercore ISI. Please go ahead.

Hey guys, thanks for our question. matt let me add my my thank you for the last 17 years wishing wishing you all the best um maybe just a a couple brief comments on where the order books on the wholesale side saw the most impact you know what geos got better or worse but then maybe just a qualitative thought on on the back half of fiscal 27. i know you commented the sportswear will be down for the year but improves in the second half is that so that's negative for the full year is that negative as you start to look out to the spring summer 27 books and how are retailers in general approaching spring summer 27 overall given the uh pretty aggressive actions you guys are taking as you work through the channels here well so here's what i just say on on the outlook as as we we look out um and you know we

we reiterate that we expect earnings to be flattish i want to i want to start there over the three quarter period that we guided but we do know that the composition has changed matt hit on that in the prepared his prepared remarks um part of that is the the softer sell through and and weaker macro environment and we are tracking the sell through weekly and making adjustments but we expect revenues over that period that we guided to be down low single digits to mid single digits at the same time we expect gross margins to expand in q1 and we are actively managing cost in our business and we will see the benefits beginning in q2 and so you know we look forward to sharing more about our overall uh view to the future at investor day from an outlook perspective um so again overall that that's how we we're seeing the uh uh the balance of this calendar year and then we like i said we continue to track uh sell through the order books and we're making the adjustments that we need to make our next question will come from the line of anisha sherman with bernstein please go ahead thank you so much and best wishes to you matt um elliott about six months ago you talked about being in the middle innings on the turner we now go into fiscal 27 can you give us an update on where you're at and do you expect

fy28 to be the first quote unquote normal year of operations and then matt a follow-up on margins you said there's a clear path to double digit margins today you guided for a faster inflection in margins than before can you can you walk through some of the main drivers of this margin inflection that are aside from operating leverage so excluding sales growth what gives you the confidence that margins will inflect first thank you yeah well first of all i don't think there's been anything normal since i've sat in this chair there's been nothing uh nothing normal about this but you know we we in december of 24 we launched the win now actions and it helped us without

question rebuild the foundation of nike and we do remain on track to sunset the win now actions by the end of this calendar year so i'm going to reiterate that um the the idea is we wanted to move through the actions in a really thoughtful sequence we began first around culture getting the team refocused on sport and growth and and really uh uh inspiring our teammates around that and i think we've made tremendous progress there it was also about reigniting our brand uh being more emotional and inspiring with consumer connections hopefully you're seeing and feeling some of that of us through this quarter then we started to focus on our product portfolio driving a steady flow of innovative coveted beautiful products and so next it's about how we then start to execute out into the countries in the the cities that uh around the world that make make a difference for us so we continue to elevate and so i think we're making tremendous progress and we are prepared as we move through this uh calendar year to sunset what that then does sets us up to run the sport offense and we are going to share more what's to come next at our investor day this fall and I'll just sort of end here is that you know we're not building this business for the next quarter or the next year we're building it for the decade to come and

we're sunsetting when that sunsetting when now is just sort of the next step on our journey and so again we look forward to outlining more in in November on margins Anisha you know I would say that our performance this quarter has given us increasing confidence that that our margins are stabilizing and that we're starting to see a pathway back towards gross margin expansion in the fourth quarter our margins, if you exclude the tariff benefit, we're down 10 basis points versus the prior year. And that was better than how we guided. We guided to be down 25 to 75 basis points. And I would say that the biggest driver was discount improvement that we're seeing in North America. We're seeing lower sales-related reserves in North America, lower cancellations, and and lower discounts and so that's that's been giving us confidence that margins are coming back we also have had we had four quarters of sequential improvement in our margins overall throughout fiscal 26 and then I do think it's really important to note that you know we highlighted in the third quarter and we've talked about this a couple times now that that we see meaningful opportunity to structurally improve our gross margins really focused on taking out costs of our supply chain and the make of our product and the actions that we took in Q3 and Q4 were the initial steps of us reducing the number of facilities we operate to changing the size of our workforce to changing the the way we flow product from factory to retail. And we expect that while those were costs largely in fiscal year 26, we expect those to drive margin expansion in fiscal year 27 and contribute to this trajectory to get back to double-digit margins, as you referenced. And then obviously, as we continue to take actions on our business, reducing, tightening buys, reducing the order book in holiday, and reducing the order book as we look beyond, we do expect that we're going to have a more full-priced business and a higher and healthier business. And that should help us pull margins up in the geographies outside the U.S. that are still depressed relative to where they were.

Our final question will come from the line of Ike Borico with Wells Fargo. Please go ahead. Please go ahead.

Hey, Elliot and Matt. Matt, congrats on the 17 years. I just wanted to focus on North America wholesale. I know you guys don't guide, you know, by geography your channel, but just in terms of the shaping, you know, I guess my highest level question is, are there any quarters next fiscal year you're expecting North America wholesale to decline just based on the sell-in and some of the comments that you made on POS? So just kind of curious if you could kind of help shape that, at least for the first half that you kind of had walked us through.

So let me just – North America – here's what I'd say about North America. They continue to lead the comeback. That team does what Tom Petty and his crew have done. And I think part of it is because the biggest part is they've centered on sport, and they're elevating the marketplace, not only our own digital footprint and physical footprint Nike but also the relationships with the wholesale team as well and so again I think what they've been able to do is the model for the rest of the geos to follow and the only other thing that I would say really quickly is that when we do elevate we see better sell through stronger sell through both in our own doors and our partner doors. The team's doing a great job managing sell through every single week, making certain that we're adjusting order books, making certain we're shipping in the appropriate level of inventory so that we drive not only revenue for ourselves, but revenue and profitability for our wholesale partners as well. So I think the team's got there. They found a really good rhythm there. And I'm really, I remain very bullish on North America and their ability to continue to have sustainable growth moving forward.

Yeah. And I would just add, I think when you look at Q4 and you look at the North America wholesale growth reported up 10%, I just want to make the point that we didn't sell in up 10%. There was a meaningful amount of that revenue growth that It was associated with lower returns or sales-related reserves and returns, lower discounts, and lower cancellations. And so it's a healthier business in North America that contributed to that growth in Q4. It isn't just – that wasn't just a wholesale comp. But when you look forward into 27 specifically to your question, Q2 has a tough compare in North America. And what I would say is that without getting into the specificity of every quarter, Q2 does have a tough compare in North America. And we continue to believe North America is leading our progress. You know, we've talked for several quarters about the fact that the geos are operating on different timelines. And while we've seen a little bit of a blip associated with retail sales in North America, you know, it's highly correlated as we can see with gas prices and how those fluctuated in North America. You know, we continue to believe that North America is out front leading us in our turnaround and in our comeback. And we're looking forward to the momentum that we continue to build in that geography. I referenced Foot Locker and the fact that this quarter was the first quarter that we grew both Nike revenue plus Nike retail sales in Foot Locker in over four years. And so, you know, we're encouraged by that relationship. You know they're an important partner to us in North America and outside, but especially in North America. And then, you know, we continue to be furthest ahead in the progress we're making in Nike Direct in North America and in digital. And so, you know, we're continuing to take the steps forward there to a more full-priced business. and believe that we're on the right path as it relates to that marketplace.

And that will conclude the question and answer session and our call today. Thank you all for joining. You may now disconnect.