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NIKE (NKE) is running sharply lower and reaching new decade lows after another disappointing earnings report. While Q1 (Aug) EPS of $0.48 beat expectations, revenue declined 4% yr/yr to $11.21 bln and came in slightly below consensus, while its FY27 outlook was the bigger disappointment. NKE now expects FY27 revenue to decline in the high-single-digit range, while adjusted EPS of $1.15-$1.35 came in well below expectations, with lower revenue, continued margin pressure and fixed-cost deleverage weighing on profitability.

• Pressure points: The same core trouble spots remain, with Sportswear, which represented just under half of Q1 revenue, declining low-double digits and Jordan Brand falling mid-teens. NKE reduced Dunk revenue by nearly 50%, while some aged, higher-volume Sportswear footwear also sold through below expectations. Management also acknowledged it has been oversupplying Jordan retro product and will reduce launch volume and frequency to restore scarcity.
• North America vs. China: North America grew 2%, helped by strength in Running, Global Football and Basketball, while NKE's broader Performance business grew high-single digits. However, Greater China deteriorated sharply, falling 26%, and management expects revenue trends there to worsen over the balance of FY27 as it continues cleaning up digital distribution and inventory.
• Margins: While gross margin expanded 60 bps to 42.8%, largely driven by supply chain cost management and FX tailwinds, those benefits were partially offset by increased discounts and channel mix. Looking ahead, NKE expects supply chain and sourcing initiatives to continue supporting margins, although discounting and higher input costs are expected to remain headwinds.
• Pace: NKE looks to pick up the pace on its broader turnaround, revealing a new operating-model transformation focused on speeding decision-making, improving productivity and lowering its cost base. The overhaul targets approximately $2.5 bln of cumulative savings through FY31 against roughly $1.0 bln of pre-tax charges, with maximum savings expected in FY29-FY30.
• Looking ahead: Management expects the actions across Sportswear, Jordan and China to weigh on results through the balance of this year and bleed into FY28, while FY27 EBIT is expected to decline faster than revenue amid gross-margin pressure and fixed-cost deleverage. NKE plans to provide a five-year financial framework at its November Investor Day.

Briefing.com Anayst Insight

Overall, this is another report from NKE that highlights the pressure surrounding its ongoing turnaround. There are areas of progress, particularly across Performance, but those gains are still not large enough to offset weakness across Sportswear, Jordan and Greater China. Management itself acknowledged that Performance is not yet large enough to overcome those headwinds. What is most disappointing is that the recovery continues to get pushed out. NKE is deliberately reducing supply across key parts of Sportswear and Jordan, while its China reset will take multiple seasons and is expected to pressure revenue and profitability further. At the same time, discounts remain a drag on gross margin even as supply chain savings begin to help. The result is a business that is making progress operationally, but still faces a difficult path back to sustainable revenue growth and margin expansion, with some of the pressure now expected to bleed into FY28.