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Nike (NYSE: NKE) has had its share of problems in recent years stemming from declining sales, new competition, and tariffs, among other headwinds.

Over the past five years, Nike stock has been steadily declining, with an average annualized return of -10% over that stretch.

Late last year, Nike brought on Elliott Hill as its new CEO in hopes of turning the sneaker brand around. In the company’s fiscal first quarter of 2026, Nike began to see the fruits of its turnaround efforts as both revenue and earnings exceeded analysts’ estimates.

• Revenue: $11.7 billion, up 1% year-over-year. Analysts had anticipated revenue of $11.0 billion, which would have been a year-over-year decline.
• Net income: $727 million, down 31% year-over-year.
• Earnings: 49 cents per share, down 30% year-over-year but better than estimates of 27 cents per share.

Also, Nike saw a 7% increase in wholesale revenue, as it shifts the sales focus back in that direction. Direct-to-consumer revenue was off 4%.

“I’m encouraged by the momentum we generated in the quarter, but progress will not be linear as dimensions of our business recover on different timelines,” Matthew Friend, CFO at NIKE, said. “While we navigate several external headwinds, our teams are focused on executing against what we can control.”

Tariffs have impact on earnings

While earnings were better than anticipated, they were still down about 30% from the same quarter a year ago. This has a lot to do with tariffs.

Nike saw its cost of sales increase by about 7% to $6.8 billion, and a big chunk of the increase is due to tariffs, as most of Nike’s shoes are made in Vietnam and China and subject to higher tariffs. This led to a reduction in its gross margin to 42.2%, down from 45.4% a year ago.

While Nike is working to reduce its imports from China down to single-digit percentages, it still faces significant headwinds.

Since our last earnings call, new reciprocal tariff rates have been increased for certain countries. With the new rates in effect today, we now estimate the gross incremental cost to Nike on an annualized basis to be approximately $1.5 billion, up from the $1 billion we shared 90 days ago,” Friend said on the Q1 earnings call.

With these new projections, the company now anticipates a 120 basis-point hit to its gross margin in fiscal 2026, up from the previous estimate of 75 basis points.

For the fiscal second quarter, Nike projects revenue to be down in the low single digits and gross margins to be off 300 to 375 basis points, with 175 of that coming from new incremental tariffs.

As Friend and Hill stated, progress for Nike won’t be linear, but it is moving in the right direction. Investors are buying in, too, as Nike stock is up about 9% this week, including a 2% rise on Thursday, fueled by the earnings report.

But its still doesn’t look cheap enough, given the headwinds, to be a screaming buy yet.

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