Nike's Comeback Story Is Still Missing One ThingNIKE, Inc. Class BBATS:NKEmoonyptoNike's fourth quarter looked impressive at first glance.. Reported EPS jumped more than fivefold to $0.72 But most of that increase came from a one time $986 million tariff recovery tied to the International Emergency Economic Powers Act, which boosted gross margin by about 9 percentage points. Strip that out, and EPS was closer to $0.20. That's still better than the $0.13 consensus, but nowhere near the headline result The underlying business is still shrinking. Revenue fell 1% year over year to $11.0 billion in the May quarter, about $120 million ahead of expectations. In constant currency, sales were down 4%, extending a decline that's now lasted nearly two years into Nike's turnaround The margin illusion Reported gross margin reached 49%, up 9 percentage points from last year and one of the highest levels in Nike's history. Almost all of that improvement came from the tariff refund. Excluding that benefit, gross margin was closer to 40%, basically flat and still near the low end of the company's reset Wholesale revenue increased 4% to $6.6 billion, while NIKE Direct fell 7% to $4.1 billion. Nike Brand Digital was down 12% The shift back toward wholesale continues to pressure margins and reduce sales through Nike's own channels, but it also helped return North America to growth What's actually improving North America grew 3% to $4.8 billion, helped by a 10% increase in wholesale as Nike rebuilt relationships with retailers it had spent years moving away from Running remains the brightest spot. The category posted its fifth consecutive quarter of double-digit growth, adding roughly $1 billion in sales and gaining five points of market share across North America and Western Europe. So far, that's the strongest evidence that CEO Elliott Hill's "Sport Offense" reorganization, which moved 8,000 employees into sport-specific teams, is gaining traction That said, execution hasn't been perfect. A Boston Marathon ad was pulled after receiving backlash, and some World Cup merchandise missed its retail delivery window International markets remain a challenge -Greater China: Revenue fell 12% to $1.3 billion, or 17% in constant currency, while operating profit declined 20%. Results came in ahead of lowered expectations, but local competitors like Anta and Li Ning continue to gain share. Management expects the ongoing "comprehensive reset" in China to weigh on results through FY27 -EMEA: Revenue slipped 1% to $3.0 billion, but was down 6% in constant currency, showing that the underlying business is weakening more than the headline number suggests -APLA: Revenue was essentially flat at $1.6 billion, up 1% as reported and down 1% in constant currency Is it time to move on? Converse revenue fell 32% year over year to just $244 million Full year sales were the brand's lowest since 2011 Neil Saunders of GlobalData argued that if Nike can't or won't turn the business around, it should consider exiting the brand before it becomes a bigger distraction for management. Based on the current trajectory, it's a reasonable argument Soft outlook, realistic expectations Nike expects first quarter FY27 revenue to decline by the low to mid single digits. Excluding the tariff benefit, earnings are expected to remain roughly flat through the second quarter, although gross margin should begin improving as early as Q1 Outgoing CFO Matt Friend offered little optimism about the near term "We are not expecting the environment to improve meaningfully over the next six months" He said consumer demand remains under pressure across most markets. Friend will be succeeded by David Denton, currently CFO at Pfizer, on August 17. He'll be stepping into the role at a challenging point in Nike's turnaround The jump in profits was driven by a one time tariff recovery, not a meaningful improvement in the business. The stock is down more than 30% this year and is on pace for a fifth straight annual decline. Even so, growth in North America and the Running category provides the first tangible signs that the turnaround may finally be gaining traction after months of inventory cleanup. At roughly 28 times forward earnings, investors are still waiting for stronger proof. November's investor day will be the next major test