Nike's Q1 Gross Margin Defies Tariff Pressure in Early Win for New CEO's Strategy

TradingKey - Nike (NKE) reported better-than-expected first-quarter results for fiscal year 2026 after Tuesday’s market close, offering early evidence that its transformation strategy under new CEO Elliott Hill is gaining traction — even as the company continues to grapple with ongoing tariff pressures from the Trump administration.

The earnings report showed Nike’s gross margin declined by 320 basis points year-over-year to 42.2%. While below the prior-year period, it still exceeded Wall Street’s consensus estimate of 41.7% and marked improvement from last quarter’s 40.3%.

The company attributed the gross margin contraction primarily to “lower average selling prices, reflecting higher discounting and channel mix, as well as increased tariffs in North America.”

Nearly all of Nike’s footwear is manufactured in countries like Vietnam — regions heavily impacted by U.S. tariffs — making trade policy a critical external factor weighing on its profitability.

CFO Matthew Friend said the company now expects President Trump’s tariffs to impose a roughly $1.5 billion impact, up from the $1 billion estimated last quarter.

Friend emphasized that tariffs are projected to reduce gross margins by 120 basis points in fiscal 2026, higher than the previously anticipated 75 basis points. "While the new tariffs are creating near-term pressure on our margins, we have outlined the actions that we're taking there to address it over time," Friend said on the call. "It's going to take us a little bit of time," he stressed.

Natasha Nair, an analyst at Third Bridge, noted that tariffs remain a risk to margins, but Nike is already diversifying its sourcing away from China while introducing "surgical" price increases. Nike's running footwear category has also returned to growth, proving it can hold its own against Hoka and Saucony when the products resonate with customers.

Since taking over as CEO last fall, Elliott Hill has pledged to refocus the brand on core sports categories such as running and to prioritize cutting-edge product innovation. Several positive signals in the latest report — including successful clearance of excess inventory and a return to growth in wholesale revenue — suggest his plan to restore Nike to its former glory is already showing early results.

On Thursday, Nike shares edged up 0.26% to close at $69.73. According to TradingKey Stock Score, Nike currently holds an overall score of 6.76, while Wall Street analysts have set an average price target of $80.516 — implying a potential upside of approximately 15.77% from current levels.