Nike designs athletic footwear, apparel, and equipment, then sells it two ways: directly to consumers through its own stores and digital platforms, and through wholesale partners like sporting goods chains and department stores. The company does not own most of its factories. Independent manufacturers in Vietnam, Indonesia, and China make nearly all the shoes and clothes. Nike earns money on the difference between what it costs to make a product and what a customer pays for it. Footwear alone brought in $29.5 billion in fiscal 2025, making it by far the biggest piece of the business. The Nike brand, the Jordan brand, and Converse each contribute to that total. The diagram below traces where the money goes.
How Nike Makes Money
flowchart LR
A["Athletes & Consumers"] -->|"Demand for sport"| B["Product Design & Innovation"]
B --> C["Contract Manufacturing
97 footwear, 303 apparel factories"]
C --> D["Product Sales
$46.3B revenue"]
D -->|"Footwear $31B
Apparel $13B
Equipment $2.2B"| E["Gross Margin
42.7%"]
E --> F["Operating Cash Flow
$3.7B"]
F --> G["Reinvestment in R&D
and Brand Marketing"]
G --> B
D -->|"57% non-US
43% US sales"| H["Direct to Consumer
& Wholesale Distribution"]
H --> A
E --> H
Five years of financial data tell a clear story: Nike grew steadily from $44.5 billion in revenue in fiscal 2021 to a peak of $51.4 billion in fiscal 2024, then fell sharply back to $46.3 billion in fiscal 2025. That is not a small blip. It erases years of growth in a single year.
Nike Annual Revenue (Fiscal 2021 to 2025)
Revenue in billions of US dollars. After four years of growth, fiscal 2025 revenue fell 10% from the prior year peak.
The revenue drop was not the only problem. Gross margin, which is the percentage of each dollar of revenue left after paying for the products, also fell. It went from 46.0% in fiscal 2022 down to 42.7% in fiscal 2025. That means Nike kept less of every dollar it earned. The main reasons were heavy discounting to clear excess inventory and a shift in where products were sold, with more going through discount channels.
What Is Gross Margin?
Gross margin is the share of revenue left after subtracting the cost of making and delivering the product. If Nike charges $100 for a shoe and it costs $57 to make and ship, the gross margin is 43%. A falling gross margin means the company is either discounting more, paying more to make things, or both.
Nike's own direct sales channel, called Nike Direct, shrunk from $21.5 billion in fiscal 2024 to $18.8 billion in fiscal 2025. Digital sales inside that channel dropped 20% in a single year. At the same time, profit fell sharply. Net income dropped from $5.7 billion in fiscal 2024 to $3.2 billion in fiscal 2025, a decline of 44%.
44%
Drop in net income from fiscal 2024 to fiscal 2025, falling from $5.7B to $3.2B
Free cash flow, the actual cash left over after running the business and maintaining its assets, also contracted. It fell from $6.6 billion in fiscal 2024 to $3.3 billion in fiscal 2025. That is still positive, meaning Nike is not burning cash, but the direction is the wrong one. Nike returned $5.3 billion to shareholders through dividends and share repurchases in fiscal 2025, which is more than its free cash flow for the year.
Management is trying to fix the business through three stated actions. First, reduce the supply of older footwear to clear it out of the market. Second, reposition Nike's own digital store as a full-price channel rather than a discount outlet. Third, spend more on brand and sports marketing to reconnect with consumers. Demand creation expense, which covers advertising and athlete endorsements, rose 9% to $4.7 billion in fiscal 2025 even as overall revenue fell. The company is spending more to remind people why they should care about Nike.
2024
crisis
New CEO, Shrinking Business
Elliott Hill returned to Nike as President and CEO in October 2024 after retiring in 2020. He inherited a business where revenue had already peaked and digital sales were declining fast. His stated turnaround plan involves clearing excess inventory through discounts, rebuilding relationships with wholesale partners that Nike had previously pulled back from, and launching new products to replace the older styles that had flooded the market.
Nike faces documented risks that go beyond the current slowdown. The supply chain is heavily concentrated. Four footwear manufacturers together produced about 59% of all Nike Brand footwear in fiscal 2025. Factories in just three countries, Vietnam, Indonesia, and China, made 96% of it. If any major manufacturer stops working with Nike or gets disrupted by a disaster or trade conflict, finding a replacement fast is not realistic.
Why Tariffs Matter for Nike
Nike makes almost nothing in the United States. When the US government puts new taxes, called tariffs, on goods imported from other countries, Nike's costs go up. Nike's own 10-K filing states that new tariffs are expected to cause a material increase in cost of sales and a negative impact on gross margin in fiscal 2026. Nike cannot easily move factories on short notice.
Currency is another persistent pressure. Nike sells in nearly every country on earth, collecting revenue in dozens of currencies, but reports everything in US dollars. When the dollar is strong, foreign sales are worth less when converted. This is not a one-time event. It is a structural feature of the business that creates volatility every year.
Brand risk is real too. Nike's value depends heavily on a small number of famous athletes and the reputations they carry. A single high-profile endorser controversy can damage the brand in ways that take years to repair. Nike's 10-K lists this as a high-severity risk. The company also relies on a handful of large retail customers for a significant portion of US sales. Its three largest US customers together accounted for roughly 25% of US sales in fiscal 2025. If any of those retailers run into financial trouble, Nike feels it.
59%
Share of Nike Brand footwear produced by just four contract manufacturers in fiscal 2025
The Converse brand is a separate concern. It has now declined for two straight years, falling from $2.4 billion in fiscal 2023 to $1.7 billion in fiscal 2025, a drop of 30% over two years. Converse profit before interest and taxes fell 49% in fiscal 2025 alone. This is a brand that once seemed like a stable, low-maintenance earner, and it is no longer acting like one.
$2.4B
Converse Revenue, Fiscal 2023
$1.7B
Converse Revenue, Fiscal 2025
Converse has declined 30% in two years across both wholesale and direct-to-consumer channels.
Nike still held more cash than debt at the end of fiscal 2024, with net debt of negative $1.0 billion. By fiscal 2025, that had flipped to net debt of $0.5 billion. The balance sheet remains manageable, but the cushion is smaller than it was.
The Bet
Nike's brand can be reset. The assumption behind the current turnaround plan is that consumers still want Nike products at full price, that the problem is too much discounted old inventory rather than a deeper shift in how people feel about the brand. If that assumption is right, clearing out the old shoes and launching fresh products will restore pricing power, margins will recover, and the Nike Direct digital channel will rebuild as a full-price destination. If it is wrong, if competitors like On, New Balance, and Adidas have genuinely captured the attention of younger consumers in a more lasting way, then discounting was a symptom rather than the cause, and spending more on marketing will not fix it.
Open question
Nike is actively cutting supply, spending more on marketing, and leaning back into wholesale after years of pulling away from it. The company still generates billions in cash and has the largest athletic footwear market share in the world. But revenue is back to where it was in 2021, margins are at their lowest point in five years, and every geography declined in fiscal 2025. Is this a fixable inventory and positioning problem that a new CEO and a refreshed product lineup can solve in a few years, or has the athletic market shifted enough that Nike's peak revenue and margins are already behind it?
Compiled · 10-K · FY2025
Supply Chain Concentration
Nike relies on a small number of contract manufacturers, mostly located outside the United States, to make all of its shoes. If any of these major manufacturers stop working with Nike, get damaged by natural disasters, or can't deliver products on time, Nike may not be able to get replacement factories quickly enough to meet customer orders.
Foreign Currency Fluctuations
Most of Nike's products are made and sold outside the United States using different currencies. When the US dollar gets stronger compared to other currencies, the value of Nike's sales and profits reported in dollars decreases, which can significantly hurt financial results.
Wholesale Customer Financial Health
Nike sells products to large retail chains on credit, sometimes 5 to 6 months before delivery. If these retailers face financial trouble or bankruptcy, Nike may not get paid, lose sales, and have trouble collecting money owed to the company.
Brand Reputation and Endorser Risk
Nike's value depends on its reputation and relationships with famous athletes and sports teams. If endorsers say or do something harmful, if Nike loses expensive endorsement deals, or if suppliers behave badly, the company's brand image and sales could suffer serious damage.
Climate and Natural Disaster Vulnerability
Nike's headquarters is located in an earthquake-prone area, and the company has factories, stores, and offices worldwide. Extreme weather, earthquakes, or other natural disasters could close facilities, disrupt manufacturing, harm employees, and reduce customer spending.
10-K Item 1A · Risk Factors
