Nike shifts from 'direct-first' to 'city-led' strategy amidst Q3 challenges

US brand Nike has reported financial results for the third quarter of fiscal 2026, ending February 28, 2026, revealing a period of strategic rebalancing. The company recorded revenues of 11.3 billion dollars, remaining flat on a reported basis compared to the previous year. On a currency-neutral basis, revenues declined by 3 percent.

The results arrive as the Beaverton-based group continues its 'Win Now' initiative, a series of corrective measures aimed at improving marketplace health. Nike president and chief executive officer, Elliott Hill, noted that the company is deliberately removing "unhealthy inventory" of classic footwear franchises. This intentional reduction created a five-percentage point headwind for the quarter but is deemed necessary for long-term brand equity.

Segment performance and wholesale growth

While total revenue stagnated, the company saw a shift in channel dynamics. Wholesale revenues reached 6.50 billion dollars, an increase of 5 percent on a reported basis and 1 percent on a currency neutral basis. This growth was primarily fueled by strong demand in the North American market.

In contrast, Nike Direct (D2C) revenues fell to 4.50 billion dollars, representing a 4 percent decline. This was exacerbated by a 9 percent drop in Nike brand digital and a 5 percent decrease in Nike-owned stores.

Performance varied significantly across the brand portfolio. Nike brand revenues reached 11 billion dollars, up 1 percent reported but down 2 percent currency neutral, as growth in North America was offset by declines in Greater China and the Europe, Middle East and Africa (EMEA) region. Converse brand faced significant pressure, with revenues dropping 35 percent to 264 million dollars.

Sportswear category remained a headwind, declining in the low double digits during the period.

Margin pressure and tariff impacts

The group's gross margin decreased by 130 basis points to 40.2 percent, attributed largely to higher tariffs in North America. Executive vice president and chief financial officer, Matthew Friend, stated that higher tariffs are expected to remain a material headwind to gross margin through the first quarter of fiscal 2027.

Net income for the third quarter fell 35 percent to 520 million dollars or 35 cents per diluted share.

Strategic pivot to performance and local markets

Executive leadership emphasized that the current decline in the Nike Sportswear and Jordan Streetwear segments is a byproduct of prioritizing the performance category. Hill explained that the company focused first on running and football to rebuild brand authenticity.

“Ultimately, sport is what creates a halo over the sportswear and streetwear businesses,” Hill said, adding that the company is now moving from "defense to offense" in its lifestyle segments.

The group is also moving away from a 'direct-first' strategy in favor of a 'city-led' approach. This is particularly relevant in EMEA and Greater China, where the brand aims to become more "locally relevant." In China, the company is tightening execution across digital and physical retail to navigate structural challenges.

Even with immediate pressure on its income statement, Nike maintained its shareholder commitment by returning approximately 609 million dollars through dividends, marking 24 consecutive years of payout increases. However, the outlook remains cautious; Friend revealed that Nike expects fourth-quarter sales to decline between 2 percent and 4 percent, significantly missing Wall Street’s projected 1.9 percent increase. For the remainder of the calendar year, the company anticipates a low single-digit drop in revenue, as modest growth in North America fails to offset ongoing sales slumps in China.