NIKE's Profit Plunges 32% Amid Rising Costs, Despite Revenue Bump

Ticker: NKE · Form: 10-Q · Filed: Dec 30, 2025 · CIK: 320187

Sentiment: bearish

Topics: Earnings Decline, Cost of Sales Increase, Cash Flow Decrease, Tax Rate Impact, Shareholder Returns, Retail Apparel, Footwear Industry

Related Tickers: NKE, ADDYY, LULU, PUMSY

TL;DR

**NIKE's revenue growth is a mirage; rising costs are eating profits, making it a short-term sell.**

AI Summary

NIKE, Inc. reported a decline in net income for the three and six months ended November 30, 2025, despite a slight increase in revenues. For the three months, net income decreased by 31.9% to $792 million from $1,163 million in the prior year, while revenues saw a modest 0.6% increase to $12,427 million from $12,354 million. This profit contraction was primarily driven by a 7.4% increase in cost of sales to $7,382 million and a 13.5% rise in demand creation expense to $1,273 million. Diluted earnings per common share fell to $0.53 from $0.78. For the six-month period, net income dropped 31.4% to $1,519 million from $2,214 million, with revenues up 0.8% to $24,147 million. The effective tax rate increased to 20.9% for the six months ended November 30, 2025, from 18.7% in the prior year, mainly due to changes in earnings mix and decreased benefits from stock-based compensation. Cash provided by operations significantly decreased to $801 million for the six months, down from $1,443 million in the prior year, largely due to an increase in accounts receivable and inventories.

Why It Matters

This filing reveals a concerning trend for NIKE investors: declining profitability despite revenue growth. The significant drop in net income and earnings per share, coupled with increased costs of sales and demand creation, suggests margin pressure and potentially less efficient marketing spend. For employees, this could signal a period of tighter cost controls. Customers might see price adjustments or shifts in product offerings as NIKE seeks to optimize its financial performance. In the competitive landscape, this could give rivals like Adidas or Lululemon an opportunity to gain market share if NIKE struggles to translate sales into stronger bottom-line results.

Risk Assessment

Risk Level: high — The risk level is high due to a substantial 31.9% decrease in net income for the three months ended November 30, 2025, to $792 million, despite a slight revenue increase. Additionally, cash provided by operations fell significantly by 44.5% to $801 million for the six months, compared to $1,443 million in the prior year, indicating deteriorating operational cash generation.

Analyst Insight

Investors should closely scrutinize NIKE's upcoming earnings calls for management's strategy to address declining profitability and increasing operational costs. Consider re-evaluating your position, as the current financial trends suggest potential headwinds for earnings growth and cash flow generation. Look for concrete plans to improve gross margins and control selling and administrative expenses.

Financial Highlights

revenue
$12,427M
total Assets
$37,787M
total Debt
$7,915M
net Income
$792M
eps
$0.53
gross Margin
40.6%
cash Position
$6,974M
revenue Growth
0.6%

Revenue Breakdown

SegmentRevenueGrowth
Total Revenues$12,427M0.6%
Total Revenues$24,147M0.8%

Key Numbers

Key Players & Entities

FAQ

Why did NIKE's net income decrease in the latest quarter?

NIKE's net income decreased by 31.9% to $792 million for the three months ended November 30, 2025, primarily due to a 7.4% increase in cost of sales to $7,382 million and a 13.5% rise in demand creation expense to $1,273 million, outpacing a modest 0.6% revenue growth.

What was NIKE's revenue for the quarter ended November 30, 2025?

NIKE's revenues for the three months ended November 30, 2025, were $12,427 million, a slight increase from $12,354 million in the same period last year.

How did NIKE's cash flow from operations change?

Cash provided by operations for the six months ended November 30, 2025, significantly decreased to $801 million, down from $1,443 million in the prior year. This decline was largely attributed to an increase in accounts receivable and inventories.

What is NIKE's current effective tax rate?

NIKE's effective tax rate for the six months ended November 30, 2025, was 20.9%, an increase from 18.7% in the prior year. This rise was mainly due to changes in earnings mix and decreased benefits from stock-based compensation.

Are there any significant tax audits or investigations for NIKE?

Yes, NIKE is currently under audit by the U.S. Internal Revenue Service for fiscal years 2017 through 2023. Additionally, the European Commission opened a formal investigation in January 2019 to examine whether the Netherlands breached State Aid rules regarding tax rulings granted to NIKE.

What impact did new tax legislation have on NIKE?

The U.S. government enacted The One Big Beautiful Bill Act of 2025, effective June 1, 2025, which includes changes to the U.S. corporate income tax system. NIKE does not expect these tax law changes to have a material impact on its financial statements based on current analysis.

How much did NIKE spend on share repurchases?

NIKE repurchased $146 million of common stock for the six months ended November 30, 2025. This is a significant decrease compared to $2,280 million in common stock repurchases during the same period in the prior year.

What are NIKE's total unrecognized tax benefits?

As of November 30, 2025, NIKE's total gross unrecognized tax benefits, excluding related interest and penalties, were $1,029 million. Of this amount, $757 million would affect the company's effective tax rate if recognized in future periods.

What are the key factors affecting NIKE's profitability?

Key factors affecting NIKE's profitability include rising cost of sales, increased demand creation expense, and a higher effective tax rate. These elements collectively contributed to a significant decline in net income despite a slight increase in overall revenues.

What is the outlook for NIKE's tax liabilities?

NIKE estimates it is reasonably possible that total gross unrecognized tax benefits could decrease by up to $296 million within the next 12 months, primarily due to the expected resolution with the IRS of certain U.S. federal income tax matters for fiscal years 2017 through 2019.

Risk Factors

Industry Context

The athletic footwear and apparel industry remains highly competitive, driven by innovation, brand loyalty, and evolving consumer trends. While global demand for athletic products is generally strong, companies like NIKE face challenges from economic slowdowns, supply chain complexities, and intense competition from both established players and emerging brands. Digital transformation and direct-to-consumer strategies are increasingly critical for market penetration and profitability.

Regulatory Implications

NIKE operates in a global environment subject to various tax regulations, trade policies, and environmental standards. Changes in international tax laws, such as the increase in its effective tax rate to 20.9% for the six months ended November 30, 2025, can directly impact profitability. Compliance with evolving environmental, social, and governance (ESG) standards is also becoming increasingly important for maintaining brand reputation and investor confidence.

What Investors Should Do

  1. Monitor inventory levels and sales trends closely.
  2. Analyze the impact of rising cost of sales and demand creation expenses.
  3. Evaluate the company's response to macroeconomic headwinds.
  4. Assess the effectiveness of capital allocation strategies.

Key Dates

Glossary

Cost of sales
The direct costs attributable to the production or purchase of the goods sold by a company. (Increased by 7.4% for the three months ended November 30, 2025, significantly impacting gross profit and net income.)
Demand creation expense
Expenses incurred for marketing, advertising, and promotional activities designed to drive sales. (Increased by 13.5% for the three months ended November 30, 2025, contributing to the decline in net income.)
Diluted EPS
Earnings per share calculated after accounting for all dilutive potential common shares, such as stock options and convertible securities. (Decreased to $0.53 for the three months ended November 30, 2025, from $0.78 in the prior year, reflecting lower profitability.)
Effective tax rate
The actual percentage of pre-tax income that a company pays in income taxes. (Increased to 20.9% for the six months ended November 30, 2025, from 18.7% in the prior year, reducing net income.)
Cash provided by operations
The net amount of cash generated from a company's normal business operations. (Significantly decreased to $801M for the six months ended November 30, 2025, down from $1,443M, largely due to increases in accounts receivable and inventories.)
Inventories
The value of raw materials, work-in-progress, and finished goods held by a company. (Increased to $7,726M as of November 30, 2025, from $7,489M as of May 31, 2025, contributing to the decrease in operating cash flow.)
Accounts receivable, net
The total amount of money owed to a company by its customers for goods or services delivered. (Increased to $5,738M as of November 30, 2025, from $4,717M as of May 31, 2025, impacting cash flow from operations.)

Year-Over-Year Comparison

Compared to the prior year's six-month period, NIKE's revenue saw a slight increase of 0.8% to $24,147M, but net income experienced a significant decline of 31.4% to $1,519M. This profit contraction was driven by a substantial increase in cost of sales and demand creation expenses, alongside a higher effective tax rate. Operating cash flow also saw a sharp decrease of 44.5% to $801M, primarily due to increased accounts receivable and inventories, while share repurchases were drastically reduced.

Filing Stats: 4,747 words · 19 min read · ~16 pages · Grade level 14.8 · Accepted 2025-12-30 16:20:45

Filing Documents

- FINANCIAL INFORMATION

PART I - FINANCIAL INFORMATION 1 ITEM 1.

Financial Statements

Financial Statements 1 Unaudited Condensed Consolidated Statements of Income 1 Unaudited Condensed Consolidated Statements of Comprehensive Income 2 Unaudited Condensed Consolidated Balance Sheets 3 Unaudited Condensed Consolidated Statements of Cash Flows 4 Unaudited Condensed Consolidated Statements of Shareholders' Equity 5 Notes to the Unaudited Condensed Consolidated Financial Statements 7 ITEM 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 23

Quantitative and Qualitative Disclosures about Market Risk

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 42

Controls and Procedures

ITEM 4. Controls and Procedures 42

- OTHER INFORMATION

PART II - OTHER INFORMATION 44

Legal Proceedings

ITEM 1. Legal Proceedings 44

Risk Factors

ITEM 1A. Risk Factors 44

Unregistered Sales of Equity Securities and Use of Proceeds

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 45 ITEM 5. Other Information 46

Exhibits

ITEM 6. Exhibits 47

Signatures

Signatures 48 Table of Contents

- FINANCIAL INFORMATION

PART I - FINANCIAL INFORMATION

FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS NIKE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30, (In millions, except per share data) 2025 2024 2025 2024 Revenues $ 12,427 $ 12,354 $ 24,147 $ 23,943 Cost of sales 7,382 6,965 14,159 13,297 Gross profit 5,045 5,389 9,988 10,646 Demand creation expense 1,273 1,122 2,461 2,348 Operating overhead expense 2,766 2,883 5,594 5,705 Total selling and administrative expense 4,039 4,005 8,055 8,053 Interest (income) expense, net ( 9 ) ( 24 ) ( 27 ) ( 67 ) Other (income) expense, net 16 ( 8 ) 39 ( 63 ) Income before income taxes 999 1,416 1,921 2,723 Income tax expense 207 253 402 509 NET INCOME $ 792 $ 1,163 $ 1,519 $ 2,214 Earnings per common share: Basic $ 0.54 $ 0.78 $ 1.03 $ 1.48 Diluted $ 0.53 $ 0.78 $ 1.03 $ 1.48 Weighted average common shares outstanding: Basic 1,479.5 1,486.8 1,478.1 1,492.3 Diluted 1,481.0 1,490.0 1,480.0 1,495.9 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement. 1 Table of Contents NIKE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30, (Dollars in millions) 2025 2024 2025 2024 Net income $ 792 $ 1,163 $ 1,519 $ 2,214 Other comprehensive income (loss), net of tax: Change in net foreign currency translation adjustment ( 55 ) ( 224 ) 79 ( 86 ) Change in net gains (losses) on cash flow hedges 258 450 72 223 Change in net gains (losses) on other 1 3 3 12 Total other comprehensive income (loss), net of tax 204 229 154 149 TOTAL COMPREHENSIVE INCOME $ 996 $ 1,392 $ 1,673 $ 2,363 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement. 2 Table of Contents NIKE, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS NOVEMBER 30, MAY 31, (In millions) 2025 2025 ASSETS Curr

View Full Filing

View this 10-Q filing on SEC EDGAR

View on Read The Filing