But that supposedly impressive performance — specifically, sharp jumps in gross profit, pretax income, and net income — was entirely due to Nike booking $986 million in tariff refunds! So does it really count?

Let’s start with the headline numbers from the earnings release. Revenue actually fell 1.1 percent from the year-ago period, to $10.97 billion. Gross profit, however, jumped 20.7 percent thanks to a sharp decline in Nike’s cost of goods sold. Pretax income more than tripled, net income more than quadrupled. See Figure 1, below.

Earnings growth like that sounds too good to be true, so we opened our Disclosure and Footnotes Query page to do a detailed reading of the earnings release — and, yep, it was.

There in the earnings release, Nike included this statement about its most recent quarter (which ended on May 31, and is Nike’s fiscal Q4 2026): 

Gross margin increased 890 basis points to 49.2 percent, primarily due to the expected recovery of the IEEPA tariffs. The expected recovery of the IEEPA tariffs of $986 million increased gross margin by approximately 900 basis points.

OK, hold up. That’s not tariff refunds “primarily” contributing to an increase in gross margins; the $986 million in expected refunds entirely supports the growth in gross margin. Nine hundred basis points is more than 890. If not for Nike booking the $986 million, gross margins would have declined for its fiscal fourth quarter.

We have other questions about this disclosure, too. For starters, what does “expected recovery” actually mean? Is that $986 million in Nike coffers already, or is it not? 

Second, where does that $986 million show up on the income statement?

Gross margin is calculated as cost of goods sold divided into net sales. So does the $986 million show up as an increase in the revenue line, making the denominator of our equation larger? Or does it show up as a decrease in cost of goods sold, making the numerator smaller? 

Mathematically you arrive at the same gross margin number either way, but the specific accounting treatment would affect year-over-year performance for that individual line item. (That is, revenue growth or cost of goods sold growth.) 

Nike’s cost of goods sold for the quarter did decline by $1.05 billion from the year-ago period. But the $986 million in tariff refunds would presumably be for all of 2025 (when the tariffs were being improperly collected) rather than just fiscal Q4 2025. So it doesn’t seem like the $986 million is reflected in that year-over-year decline we see in Figure 1, above.

We’ll keep digging into Nike’s accounting treatment when the full 10-Q arrives in the next week or two, but meanwhile — this is the second time in two weeks that we’ve seen companies trying to convert expected tariffs into some immediate bright shiny thing on the income statement. 

Just last week we noted that Children’s Place ($PLCE) securitized its expected tariff refunds of $38.2 million, selling those promise refunds at 67 cents on the dollar, which led to a one-time cash injection of $25.6 million. Now we have Nike booking an “expected recovery,” whatever that means, of $986 million to goose its gross margins.

Presumably we’ll see more such financial engineering in the Q2 earnings statements that will start to arrive later this month. What a time to be alive and a Calcbench subscriber!