Nike now expects to earn less this year than it pays out in dividends

Nike said on Thursday that its revenue will fall by a high-single-digit percentage in the year to May 2027, and that adjusted earnings will be $1.15 to $1.35 a share, the company reported. The shares, which had closed at $35.15, fell 8.3% to $32.22 in trading after the close.

The quarter itself was close to forecasts. Revenue in the three months to August fell 4% to $11.21bn, against $11.33bn expected, according to StockStory. Earnings of 48 cents a share beat the 44 cents analysts had forecast. It was the outlook for the rest of the year that moved the shares, which were already near their lowest level since early 2014 before the report.

As we wrote on Wednesday, four things mattered most: China, the gross margin, the outlook and the first words of David Denton, the new finance chief. Here is how each came out.

China fell faster

Revenue in Greater China fell 22% to $1.18bn, or 26% at constant exchange rates. Sales to Chinese wholesale partners fell 28%. Profit before interest and tax in the region fell 34% to $248m, below the roughly $310m analysts had expected, investingLive noted.

The worst is still to come. Nike is closing much of the online distribution its partners run in China, which management said was “too broad” and “had become promotional”. The clean-up will take “multiple seasons”, Elliott Hill, the chief executive, told analysts, according to the call transcript. Denton said the actions “will further dampen China compared to Q1” for the rest of the year.

The margin rose, for now

The gross margin rose 60 basis points to 42.8%, mostly because of lower warehouse and logistics costs. That was the promise from June, and Nike kept it. For the full year, though, Nike expects profit before interest and tax to fall faster than revenue, with “continued pressure on gross margin” from discounts, higher input costs and lower sales.

A deliberate shrink

The outlook is largely Nike’s own doing. Sportswear, just under half of revenue, fell by a low-double-digit percentage. Nike cut revenue from the Dunk, a lifestyle sneaker, by nearly half, a loss of about $200m in the quarter. The Jordan Brand, 13% of the business, fell by a mid-teens percentage, and Nike will cut the volume and frequency of some retro Jordan releases to make them scarce again.

The second quarter will look worse. Nike faces a hard comparison with heavy Cyber Week discounting in Europe and strong shipments to North American retailers last year. Together, Denton said, they will knock about 400 basis points off revenue growth in the quarter.

Nike also set out a cost plan called Pace. It will move to three regions from four, open a campus in Bengaluru and cut roles, with layoffs from 2027, CNBC reported. Nike expects about $2.5bn of savings through fiscal 2031, at a cost of about $1bn. Most of the savings, Denton said, will come in fiscal 2029 and 2030. The guidance excludes about 15 cents a share of Pace costs this year.

The dividend question

Denton’s most quoted words were about the dividend. Many small investors hold Nike for its payout of 41 cents a quarter, or $1.64 a year. At the midpoint of the new guidance, $1.25 a share, that is about 131% of adjusted earnings. Profit after the Pace costs will be lower still.

One analyst put it to Denton directly. “Dividend is a very significant priority for us here at Nike,” he replied, adding that “under all scenarios, we have support for maintaining and ultimately growing the dividend over time”. Nike has the cash for now. It ended the quarter with $8.4bn in cash and short-term investments, and paid out about $610m in dividends in the three months.

The cut in expected profit is large. Nike earned $2.10 a share in the year to May 2026, including a one-off 52 cents from an expected refund of tariffs. Without it, earnings were about $1.58. The midpoint of this year’s range is about 21% lower again. At the after-hours price, the dividend yields about 5.1%.

What to watch

Friday’s trading will show whether the after-hours fall holds. The bigger date is Nike’s investor day in November, where Denton promised “a financial algorithm” for the next five years, with targets for sales and profit. Until then, the shares rest on two promises: that the businesses Nike is shrinking will return to growth, and that the dividend survives the wait.