Nike’s Stock Price (NYSE:NKE) Pops as Earnings Beat The Street, Margin Squeezed

Nike's stock (NYSE:NKE) jumped in extended trading, climbing 4% after the athletic apparel giant reported first-quarter fiscal year 2026 earnings that significantly beat the street. The positive reaction came despite the company's cautious outlook and concerns regarding the impact of increased tariffs.

The stock's upward movement reflects markets' positive sentiment toward Nike's ability to outperform estimates, even amidst a challenging economic landscape.

Nike reported earnings per share (EPS) of $0.49, substantially surpassing the consensus estimate of $0.27. Revenue also exceeded expectations, coming in at $11.7 billion compared to the anticipated $10.99 billion. This strong performance was attributed to the company's “Win Now” strategy, which focuses on key areas such as North America, Wholesale, and Running. While the company is seeing progress in specific areas, there is still work to be done across all sports, geographies, and channels.

Despite the positive results, Nike anticipates a decline in gross margins for the second quarter, projecting a decrease of 300 to 375 basis points. The company also expects wholesale revenue to return to modest growth for fiscal year 2026, driven by increased spring orders, particularly in the sports category. However, Nike Digital, which is being repositioned as a full-price business, is expected to continue facing pressure on traffic comparisons, leading to an expectation that Nike Direct will not return to growth in fiscal year 2026.

A significant factor influencing Nike's outlook is the impact of increased tariffs. The company now estimates the annual incremental cost to be approximately $1.5 billion, up from the previous estimate of $1 billion. This is projected to increase the net headwind in fiscal year 26 from approximately 75 basis points to 120 basis points to gross margin. The company is actively evaluating and implementing actions to mitigate these new costs; however, the magnitude of the tariff increases presents a considerable challenge.

Analysts have offered mixed perspectives on Nike's earnings report. Morgan Stanley upgraded Nike to “Overweight” with a price target of $90, citing strong demand for Air Force 1 and Air Max lines. However, they cautioned that second-half estimates might be too optimistic. UBS maintained a “Hold” rating, expressing concerns about Nike's reliance on traditional strategies amid a competitive retail landscape. Meanwhile, Telsey Advisory Group highlighted positive feedback from U.S. retailers regarding Nike's new running products and the expansion of the Jordan brand, suggesting potential for a turnaround.

The market's initial positive reaction to Nike's earnings beat suggests confidence in the company's ability to navigate current challenges and capitalize on growth opportunities. However, the long-term impact of tariffs and the competitive retail environment remain key factors to watch.