To The Moon

$Nike(NKE)$ $Lululemon Athletica(LULU)$  $JD.com(JD)$  🧠 I believe Nike’s latest earnings report is one of those quarters where investors need to separate headline numbers from underlying business momentum. The market received a major EPS beat, but the quality of those earnings is now the central debate.

$NKE Q4 FY26 earnings:

🟢 EPS: $0.72 vs $0.13 expected

🟢 Revenue: $10.97B vs $10.85B expected

🟢 Net income surged 407% YoY

🟢 Gross margin expanded 890 bps

At first glance, this looks like a major turnaround quarter.

However, the deeper analysis tells a more complex story.

🧾 The $986M tariff recovery changed the entire earnings picture

I believe the biggest investor takeaway is that a significant portion of Nike’s earnings beat came from a one-time accounting benefit rather than accelerating operating performance.

The tariff recovery contributed approximately:

• ~$0.52 of the $0.72 EPS

• Nearly all of the reported gross margin expansion

• Around 900 bps of gross margin benefit

Excluding this benefit:

• Clean EPS was closer to ~$0.20

• Underlying gross margin was approximately 40.2%

• Currency-neutral revenue declined 4%

The headline earnings growth was impressive, but the real question remains:

Can Nike rebuild sustainable earnings power without temporary tailwinds?

📈 Options traders are aggressively positioning for a move

The options market reacted immediately after earnings:

• 157K calls traded

• 106K puts traded

• Approximately 4x normal intraday options volume

• March $55 call became the most active contract

This shows traders are not ignoring Nike. They are positioning around a potential recovery narrative, but the next phase depends on fundamental execution.

🐂 The bull case: The turnaround is showing early signs of life

I see genuine positives emerging, especially in North America.

🇺🇸 North America is currently Nike’s strongest proof point:

• Q4 revenue grew 3%

• Wholesale revenue increased 10%

• Underlying EBIT excluding tariff impact was approximately flat YoY

• Foot Locker returned to positive retail momentum for the first time in four years

The recovery strategy appears to be gaining traction where Nike implemented it first: reconnecting with wholesale partners, improving product flow, and refocusing on sport.

🏃 Running remains the strongest engine

Nike Running delivered its fifth consecutive quarter of double-digit growth.

Key developments:

• Approximately $1B added over the growth period

• 5 points of statement-footwear share gained across North America and Western Europe

• Pegasus 42 showed strong sell-through

• Global Football momentum is building ahead of the World Cup cycle

Management also expects gross margin expansion to begin in Q1 FY27, earlier than previously guided.

The supply-chain reset is becoming one of the most important parts of the recovery story.

🐻 The bear case: The core turnaround still needs proof

The biggest risk is that investors mistake a financial boost for an operating inflection.

Several challenges remain:

🇨🇳 Greater China remains under pressure:

• Revenue declined 17% currency-neutral

• Full-year China EBIT declined 20%

• Recovery remains dependent on future locally designed products

👟 Sportswear and Jordan remain the biggest obstacle:

• Represents roughly half of Nike’s business

• Declined double digits

• Management expects weakness to continue into FY27

The company removed more than $2B of classic footwear inventory this year, but rebuilding consumer demand will take time.

⚠️ Converse remains a major concern:

• Q4 revenue declined 32% to $244M

• Full-year EBIT collapsed to $18M from $240M

After multiple quarters of turnaround messaging, investors need evidence that Converse is stabilising rather than simply being repositioned.

📉 The balance sheet reveals the transition period

Nike remains financially strong:

• Cash and short-term investments: $9.0B

• Debt remains manageable

However:

• FY26 buybacks fell dramatically to only $123M versus $3.0B in FY25

• Capital allocation remains cautious during the turnaround

The upcoming Investor Day will be critical because investors want clarity on Nike’s long-term EBIT margin target and the path back toward historical profitability.

🎯 Key metrics I’m watching next:

1️⃣ Clean revenue growth

The turnaround cannot rely on cost cutting alone. Nike needs sustainable demand recovery.

2️⃣ Gross margin durability

The company must prove margin expansion can continue without tariff benefits.

3️⃣ Sportswear recovery

This category is too large to remain weak.

4️⃣ China stabilisation

China profitability may bottom before revenue, but execution matters.

5️⃣ Management credibility after CFO transition

Matthew Friend’s departure after approximately 18 years creates a leadership continuity question during a crucial restructuring phase.

⚖️ My investor takeaway:

I see Nike as a classic turnaround story where the opportunity and risk are equally significant.

The bull case is real: North America is improving, Running is strong, wholesale relationships are recovering, and cost restructuring is beginning to create leverage.

The bear case is also real: the EPS headline was heavily influenced by a one-time tariff recovery, China remains challenged, Converse is struggling, and half the portfolio still needs revitalisation.

The next chapter of Nike will not be defined by a $986M accounting benefit.

It will be defined by whether the company can rebuild consumer demand, restore premium brand strength, and convert operational improvements into sustainable earnings growth.

My question for the market:

Will Nike’s FY27 recovery be driven by genuine brand momentum, or is this simply a margin reset before revenue catches up?

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