Nike 2Q26 Immediate Call Postmortem
Every region (and Converse) except for North America missed consensus revenue expectations with China the most notable shortfall. It is encouraging that they seem to have defended the homeland well in their time of weakness, but questions remain towards the underlying health of that upside (Elliott swears “North America driving a repeatable healthy offense” but what else can he point to this quarter). Meanwhile the overall revenue growth rate sequentially decelerated (still slightly positive though and flat cc) but that’s just not what anyone wants to see… Aneesha asked about expanded wholesale distribution in a nice way during Q&A and all they would say is “order book balanced between new partners and existing partners”.
Nike is “leaving nothing on the table right now”. Thanks, Elliott, for confirming the title of our last note: Throwing Shoelaces Against The Shoe Wall.
All geographies now report to Elliott Hill – didn’t Adidas made that change almost two years ago…
“EMEA activated sport offense December 1st. Just started hiring these important roles in key geographies”… doesn’t scream we should see an inflection in next few quarters. Why would Matt Friend even proactively mention they are watching promotional activity in Europe? China going to take a fresh perspective – doesn’t scream we should see an inflection in next few quarters. “It’s complicated what we are trying to do” – Matt Friend regarding China.
Q2 running grew by 20% for second quarter in row. Up DD in every channel including Nike Direct. If we have one more quarter like this than I might just have to believe the focus on that business is working… They said they are encouraged by sell-through in running so it’s not just sell-in.
Wholesale partners confident in Nike football product – booking units up 40% higher than World Cup 2022. That sounds super bullish for that business as we head into the World Cup 2026 hosted in North America.
Order book is improving “season on season”. We really don’t know what that means. We knew the order book was apparently positive for the Fall/Winter 2025 season, and they just delivered flattish growth for total company. In Q&A said order book for Spring/Summer is “up”, whatever that means. Still not sure why it’s such a state secret when they used to disclose this number in absolute levels. Management’s narrative is they are in the middle innings of the turnaround but not sure we are hearing enough today to believe that.
Matt Friend keeps talking about the turnaround “taking time” and “more work to do”. Ike nailed this in Q&A – when will they stop having to use this disclaimer? “We have lots of geographies so just going to take time” – Elliott Hill. Going to drive “modest growth in wholesale this year” after the massive growth we have seen year-to-date is not very encouraging Matt Friend.
Reduction in classics franchise was a $550 million headwind this quarter. Would have been up 6% constant currency this quarter without that. Clearly China is coming in worse than they thought. We had a heads up on that last quarter but seems to be a bigger obstacle now. Seems sportswear has some work to do - think we heard that last quarter.
Inventory in marketplace in good place in North America and EMEA – still have work to do in APLA and China. Granted China was surprisingly bad this quarter, but they knew APLA had an issue last quarter so why is it taking so long to clean that region up?
North America margin down 330 basis points this quarter despite a 520 basis point hit from tariffs (not sure we have heard a number that high from anyone else), which shows they are back on the path to profitable growth, according to Matt Friend.
Oh, consensus going to push out gross margin once again. Street had them back to positive gross margin in 3Q26 given all the clearance activity last year, but they won’t get that because of “tariffs”. Made a point to say the 175-225 bps of pressure was more than driven by 315 bps of tariffs so on a core basis they would be up.
“We focused demand creation on North America” – Matt Friend. So, are we supposed to think a 13.5% y/y increase in that line item (during a quarter with practically no major sport events) is what it takes to drive 9% revenue growth in that region?
Once again, we have a major EPS beat driven by better-than-expected SG&A spend (accounted for pretty much the entire beat). Happy to say that we outright called this in our deep dive note following the guidance they gave last quarter, which never made any sense. Now we no longer have any confidence in their guidance for this line item going forward (clearly just a manufactured lever for future beats) so honeymoon period slowly ending for Elliott Hill. Gary Friedman at Restoration Hardware was just talking about these games last week but must admit it’s better to beat than miss… I am just more concerned by the long-term health of the brand as they make such deep cuts just to appease Wall Street in the near-term.
*These are our unabridged quick thoughts and notes from the call. We get them out as soon as possible after the call ends. Management has given some topics to dig deeper into and will circle back afterwards with much more in depth work on what was mentioned. You can find that work (and more on Nike and other retail/consumer research) at the website here: M Squared Capital
Originally posted on X and Substack.