NIKE, Inc. — FY2025 Earnings: Margin Compression, Cash-Flow Shock, and Capital-Allocation Shifts

FY2025 shock: revenue down, profit and free cash flow collapse#

NIKE ([NKE]) closed FY2025 with revenue of $46.31B, a decline of -9.88% year-over-year, and net income of $3.22B, down -43.53% from FY2024. Free cash flow tumbled to $3.27B, a -50.61% drop versus the prior year. Those concrete moves—top-line contraction paired with a halving of cash generation—are the single most important development in NIKE’s recent financials and frame every strategic and capital-allocation question the company now faces. The shares traded near $79.76 with a market capitalization around $117.8B at the time of these results.

These outcomes were driven by a mix of weaker revenue across the business, compressed operating leverage and lower operating income, and a marked slowdown in operating cash conversion. The company’s reported metrics (filing date: 2025-07-17) show gross margin held at a mid-40s-level historically but slipped versus the immediate prior year, while operating and net margins contracted materially. The rest of this analysis connects those headline moves to cash-flow quality, capital allocation, and the operational levers that will determine whether FY2025 is a temporary trough or the start of a multi-year reset.

What the numbers show: income statement traction and deterioration#

NIKE’s income statement shows a clear and rapid deterioration between FY2024 and FY2025. Revenue fell from $51.39B to $46.31B (-9.88%), gross profit declined from $22.62B to $19.79B (-12.52%), and operating income dropped from $6.04B to $3.70B (-38.79%). The operating-income decline outpaced the revenue decline, indicating operating leverage that worked against the company as volumes softened and fixed or semi-fixed costs persisted. Net income fell to $3.22B, representing a net margin of 6.95% in FY2025 versus 11.09% in FY2024—a swing of -4.14 percentage points.

A recalculation of the core margin metrics confirms the company’s reported ratios. Gross margin in FY2025 is 19.79 / 46.31 = 42.73%. Operating margin is 3.70 / 46.31 = 7.99%. Net margin is 3.22 / 46.31 = 6.95%. Those mark a clear step-down from FY2024, when gross margin was 44.01% and operating margin 11.76%.

Table 1 below compresses the four-year income-statement trend and makes the margin erosion visible in one view.

The pattern is unmistakable: revenue weakness combines with compressed operating margin to drive a disproportionate earnings decline. Notably, FY2025’s operating margin of 7.99% is the lowest in the four-year series, indicating management either absorbed costs to defend volume or reductions in operating efficiencies outpaced savings.

Cash-flow quality: the double-hit to operating cash and buybacks/dividends#

Cash flow magnifies the severity of FY2025. Net cash provided by operating activities declined from $7.43B in FY2024 to $3.70B in FY2025, a swing of -50.22%. Free cash flow (FCF) fell in lockstep from $6.62B to $3.27B (-50.61%). The company still generated positive FCF, but at roughly half the prior-year level, constraining optionality on buybacks and raising the relative importance of dividends and debt performance.

NIKE paid $2.30B in dividends and repurchased $2.98B of stock in FY2025. The dividend payout represented roughly 71.45% of FY2025 net income (2.30 / 3.22 = 71.4%), highlighting the company’s commitment to its dividend even as earnings compressed. Repurchases moderated from $4.25B in FY2024 to $2.98B in FY2025, indicating some pullback in capital-return intensity. The combination of elevated payout ratio and reduced buybacks demonstrates a tilt toward maintaining dividend continuity while trimming discretionary buybacks to preserve liquidity.

Table 2 summarizes balance-sheet and cash-flow anchors that constrain NIKE’s near-term choices.

Two balance-sheet points are critical. First, NIKE remains investment-grade in profile: current ratio stands at 2.21x (23.36 / 10.57), and total liabilities are manageable relative to assets. Second, net debt fluctuates depending on the cash definition. Using cash-and-cash-equivalents, net debt in FY2025 is $3.55B (11.02 - 7.46), while a calculation based on cash+short-term investments would show a lower net debt figure (~$1.87B). The company’s own reported net-debt figure uses cash-and-cash-equivalents, and that is the conservative lens we use here.

Margin decomposition: where did profitability erode?#

NIKE’s gross margin only contracted modestly from 44.01% to 42.73% year-over-year, implying that cost-of-goods-sold pressures and product mix were challenges but not the dominant driver of earnings collapse. The larger deterioration occurred at the operating line: SG&A and other operating expenses remained high in absolute terms—$16.09B in FY2025 versus $16.57B in FY2024—meaning management achieved only limited nominal cost reductions while revenue declined by approximately $5.08B. That weaker operating leverage—fixed and semivariable costs spreading over a smaller revenue base—is the proximate cause of the operating-margin collapse.

Depreciation and amortization of $775MM and a meaningful working-capital swing (change in working capital: -787MM) also contributed to reduced cash conversion in FY2025. The working-capital outflow in 2025 contrasts with the positive contribution in 2024 (+716MM), accentuating the cash-flow decline.

From a structural standpoint, that decomposition tells a simple story: price/mix and COGS pressures shaved a couple hundred basis points off gross margin, but the earnings shock mainly reflects operating-leverage headwinds—SG&A inflexibility versus a rapid top-line slowdown.

Capital allocation: dividends intact, buybacks trimmed#

NIKE continued to return capital in FY2025 but altered the mix. Dividends of $2.30B were sustained (the dividend schedule shows four quarterly payments each at $0.40 in 2025), resulting in a high payout ratio of ~71% of FY2025 net income. Share repurchases fell to $2.98B, down from $4.25B the prior year. Management thus prioritized dividend maintenance while dialing back repurchases in response to lower cash generation. Net cash used for financing activities was -5.82B in FY2025, roughly in line with FY2024 levels but with a different composition.

The capital-allocation shift has strategic implications. Sustaining the dividend at a high payout ratio reduces flexibility to support aggressive repurchases or incremental M&A until cash generation recovers. That said, NIKE’s balance sheet — modest net debt and strong current ratio — still provides room for opportunistic deployment if operating cash recovers.

Forward-looking context: analyst estimates and valuation signals#

Analysts’ forward estimates in the dataset show FY2026 EPS expectations low relative to historical levels (estimated EPS for 2026 in the provided forward series is $1.657), with multi-year EPS and revenue growth implied by consensus models that anticipate gradual recovery (revenue reaching mid-to-high $40B in 2026 and into the $50B range by the late 2020s). The dataset also contains forward P/E points (e.g., 47.07x for 2026 falling toward 19.54x by 2030), reflecting both depressed near-term earnings and long-run normalization assumptions.

Valuation on reported trailing metrics is elevated on an earnings basis: using reported price ($79.76) and TTM EPS ($2.18), the TTM P/E is about 36.59x. Enterprise-value multiples in the dataset show a reported EV/EBITDA of 25.9x, though a direct EV recalculation (market cap + total debt - cash+ST investments) using the numbers in this release produces a higher EV/EBITDA near ~30x depending on cash definition. That discrepancy underscores how sensitive EV calculations are to the cash definition and the need to reconcile differing data conventions when making cross-company comparisons.

Competitive and strategic context: durable brand, cyclical demand#

NIKE remains a global market leader with a deep brand moat and significant direct-to-consumer capabilities that historically supported higher margins than many peers. Yet the FY2025 results show that brand strength does not immunize the business from cyclical demand shifts and inventory and pricing dynamics. The magnitude of the FCF decline suggests that near-term demand softness and working-capital swings are powerful enough to pressure execution. Against this backdrop, the company’s ability to translate product cycles and marketing investments into sustainable volume recovery — while holding SG&A growth in check — will determine the pace of margin reacceleration.

Macro factors matter here. Industry-wide pressures—variable consumer spending patterns, currency headwinds, and input-cost/tariff dynamics—amplified the revenue decline and margin pressure in FY2025. More broadly, the sector-level environment described in recent market commentary shows earnings revisions are a key determinant of stock performance; NIKE’s FY2025 trajectory places it on the watch list for whether guidance and early-quarter data point to stabilization or further downgrades (see general market context in FactSet - Earnings Insight.

Data conflicts and reconciliation: net debt & EV calculations#

A necessary technical note: the dataset contains two related but differing cash aggregates. When net debt is calculated using cash-and-cash-equivalents (the company’s reported approach), FY2025 net debt is $3.55B. If one uses cash + short-term investments, the net debt figure is materially lower (~$1.87B). This difference meaningfully affects EV and EV/EBITDA calculations. For conservative analysis and comparability to the company’s reported net-debt figure, we prioritize the cash-and-cash-equivalents-based calculation, but analysts should be explicit about which cash measure they use when comparing NIKE to peers.

What this means for investors#

NIKE’s FY2025 results create a short-term litmus test around three questions: will revenue stabilize and return to growth; can management reestablish operating-leverage through SG&A discipline and improved product mix; and will operating cash flow and free cash flow recover sufficiently to sustain both dividend and buyback programs without eroding the balance sheet? If NIKE can demonstrate sequential improvement in revenue and operating cash conversion in the next two quarters, the equity’s high P/E multiple will be easier to justify. If not, valuation multiples will remain vulnerable to downward revisions.

Key near-term catalysts to watch include quarterly revenue trajectory and regional performance (particularly North America and Greater China), commentary on inventory and product mix, cadence of marketing and promotional activity that affects sell-through, and working-capital evolution in the cash-flow statement. The company’s next scheduled earnings-announcement date in the dataset is 2025-09-30, which will be a critical read-through for whether FY2025 is a temporary trough or the start of a deeper reset.

Historical context and management execution record#

Looking back to FY2022–FY2024, NIKE demonstrated that margin recovery is possible: operating margin bounced to 14.49% in FY2022 before normalizing lower in subsequent years. The FY2025 decline therefore represents a reversal from that higher-margin environment. Historically, management has used a combination of pricing, product-cycle control and digital/direct-to-consumer investment to restore margins. The current test is whether those levers can be re-employed while preserving cash and avoiding forcing higher payout ratios that compress balance-sheet flexibility.

On capital allocation, the moderation in buybacks in FY2025 is a recognizable tactical move: preserve cash while maintaining dividend continuity. That mirrors historical practice at scale-focused consumer-owning franchises—prioritize dividend continuity and adjust repurchases when cash generation is under stress.

Key takeaways#

NIKE’s FY2025 financials reveal a material earnings and cash-flow reset. Revenue contracted -9.88% while net income fell -43.53% and free cash flow dropped -50.61%. The primary profit-pressure driver was operating leverage rather than a dramatic collapse in gross margin. The balance sheet remains serviceable—with net debt at a modest level using the company-preferred cash definition—but the payout ratio rose sharply as the company sustained dividends while trimming repurchases. Analysts’ forward models show gradual recovery expectations, implying the market must see clear sequential improvement for multiple expansion to resume.

Final synthesis: the path forward is operational recovery and cash restoration#

NIKE’s story for the coming quarters is operational: restore demand momentum, optimize product mix and pricing to arrest gross-margin erosion, and reinstate operating-leverage benefits by holding SG&A growth while revenue recovers. Free cash flow and working-capital trends will be the concrete read-outs investors should use to judge recovery credibility. If operating cash flow and FCF rebound meaningfully and persistently, management can reaccelerate repurchases without sacrificing the dividend or taking on excessive leverage. If cash conversion remains depressed, capital allocation will likely remain conservative, and valuation multiples will have to compress to reflect the new cash-generation norm.

This is not a balance-sheet crisis. It is, however, a clear test of execution for a brand-dependent, scale-driven business that must prove its ability to convert brand strength into sustainable top-line and margin improvement amid a softer macro and shifting consumer patterns. The next few quarters of revenue and operating-cash flow data will be decisive in separating a temporary trough from a more prolonged reset.

(Company figures from NIKE FY2025 financial statements, filing date: 2025-07-17; market and macro context referenced in FactSet - Earnings Insight and supplementary market commentary.)