Morning Note: Market news and an update from Nike.

Market News

US equity-index futures fell as the deadline to avert a government shutdown lapsed, disrupting one of the country’s largest employers and threatening to delay key economic data releases. The US Senate failed to approve legislation to extend government funding, while President Trump signalled further cuts to the federal workforce. A gauge of the dollar declined for a fourth day, while the 10-year Treasury yield settled at 4.17%.

Following a volatile session yesterday, which saw the gold price fall back to $3,800 an ounce, it has rebounded this morning back to the record level of $3,870 an ounce boosted by demand for safe-haven assets.

Brent Crude edged above $66 a barrel, following a two-day decline as traders weighed potential OPEC+ production increases against falling US crude inventories.

In Asia this morning, Hong King and China were closed for a holiday, while the Nikkei 225 fell 0.8% as Japan’s manufacturer sentiment improved, backing the case for a rate hike. The FTSE 100 is currently 0.3% higher at 9,366, while Sterling trades at $1.3465 and €1.1450.

Pfizer won a reprieve from Trump’s threatened pharma tariffs by agreeing to slash some drug prices by up to 85%. AstraZeneca has been marked up 5% as the market continues to cheer the plans to upgrade its listing in the US.

Source: Bloomberg

Company News

Last night, Nike released results for the three months to 31 August 2025, the first quarter of its financial year to end May 2026, which were better than market expectations. The plan to return the business to growth is ongoing, with good momentum in priority areas of North America, Wholesale, and Running. On the analysts’ call, the company provided guidance for the current quarter which includes the impact of increased tariffs. Although the CEO reminded the market that progress will not be linear as parts of the business recover on different timelines, progress so far is encouraging, and the shares were marked up by 4% after hours.

Nike is the world’s leading sports footwear and apparel company. We are positive on the long-term outlook for the business, with the company well placed to benefit from increased consumer demand for healthier living and the shift to personalised products. Nike has a very strong brand and an impressive track record of product innovation.

However, in the near-term, the group is faced with a number of challenges:

·       the rebalancing of the business from a concentration on key ‘classic’ product franchises (Air Force 1, Air Jordan 1, and Dunk) towards new products

·       a subdued macroeconomic backdrop with continued promotional activity

·       increased competition from new brands such as On and Deckers’ Hoka

·       an admission that the company was too aggressive with its push with Nike Direct sales (in particular digital) at the expense of wholesale partners which are essential to elevate its brand and grow the total marketplace.

In response, former senior executive (and 32-year Nike veteran) Elliott Hill has returned to the company as CEO. Given that much of the recent corporate malaise was down to poor management/strategy, the hope is that Nike will return to its roots and the culture that made it so successful. The plan is to ‘lead with sport and put the athlete at the centre of every decision, leveraging athlete insights to accelerate innovation, design, and product creation’.

The group has accelerated its multi-year cycle of innovation and pulled forward several new products, especially in high-volume areas like running, training, football, sportswear, and Jordan. We note last month retailer JD Sports said new products from Nike were “resonating well” with customers, highlighting the Vomero, Pegasus and P-6000 running ranges. Nike recently launched a new women’s activewear brand in the US in partnership with Kim Kardashian-owned shapewear clothing company Skims. The brand, called NikeSKIMS, includes training apparel, footwear, and accessories for women.

In football, the company is planning a new platform launch ahead of next year’s FIFA World Cup.

The company is shifting NIKE Digital to a full-price model and reducing the percentage of the business driven by promotional activity. Nike is being aggressive in sports marketing across leagues, associations, teams and individuals.

Overall, immediate action has been taken in areas that will make the most near-term impact. The company has admitted change will take time and “turnaround efforts may hurt in short term”, with sales and gross margin in decline. Furthermore, progress is not expected to be linear as parts of the business recover on different timelines. This is particularly the case with China – although the long-term opportunity is “huge”, the near-term structural challenges will take time to work through.

Overall, however, the results from the latest quarter provide encouragement that the group’s turnaround plans are on track. In the three months to 31 August 2025, revenue only fell by 1% on a currency-neutral basis to $11.7bn. This was much better than the company guidance to be down by ‘mid-single digits’ and the market estimate of €11.0bn, the Wholesale channel and Running category the standout performers.

Nike Brand sales were flat at $11.4bn, while the Converse brand fell by 28% to $366m. By region, Nike Brand revenue rose in North America (+4%), Europe, Middle East, & Africa (EMEA, +1%), Asia Pacific & Latin America (APLA, +1%), offsetting declines in Greater China (-10%).

Nike Brand sales are split into Direct sales (both online and through Nike-owned stores) and wholesale revenue from third party retailers. During the quarter, Nike Direct sales fell by 5% to $4.5bn, with digital down 12% and stores 1%. Encouragingly, Wholesale grew by 5% to $6.8bn. By category, Running was the star performer, up 20%.

The gross margin fell by 320 basis points to 42.2%, better than the company guidance for a 350-425bps decline and reflected lower average selling price, reflecting higher discounts and channel mix, as well as 100bps from higher tariffs in North America.

Selling and administrative expenses fell by 1%, with demand creation expense (i.e., marketing) down 3%. Operating overhead expense was flat partly due to higher wage-related expenses offset by lower other administrative costs. EPS fell by 30% to 49c, well above the market forecast of 27c.

Inventories remain elevated across all geographies, albeit down 2% to $8.1bn, reflecting a decrease in units, partially offset by increased product costs, primarily due to higher tariffs in North America. The company reiterated that inventories remain on track to be in a ‘clean’ position by the end of the group’s first half (i.e. November 2025). This is being achieved by continued liquidation action through factory stores and select value partners.

The group’s balance sheet remains strong – with net cash of c. $0.6bn. During the quarter, the group bought back $123m of its own stock as part of its 4-year $18bn share repurchase programme. Given the current level of the share price, this comes as a bit of a disappointment. The annual dividend has been increased by 23 years in a row., with the payout was lifted by 8% to 40c in the latest quarter.

On the call, the company provided an update on the impact of tariffs following the recent increase and its response through a combination of optimised sourcing, new retailer arrangements, price increases, and cost cutting. For the current financial year, the expected gross impact has risen from $1.0bn to $1.5bn, with the net headwind to gross margin increasing from 75 basis points to 125bps. This was in line with market expectations.

Given where the company is in its restructuring programme, Nike is currently only providing quarterly guidance rather than annual guidance. Over the near term, the net effect of the strategic actions will continue to result in lower revenue, gross margin pressure, and higher marketing expenses. However, the outlook of the current quarter is slightly better than the market forecast. Revenue is expected to decline in the low single-digits (including a 100bps FX headwind), while the gross margin is forecast to be down 300-375 basis points (including a 175bps tariff impact).

Source: Bloomberg