Nike Shares Dive 11% as Tariffs and China Struggles Impact Outlook

Nike Inc. (NYSE:NKE) experienced a dramatic decline of nearly 11% in after-hours trading on Thursday, following a second-quarter earnings call that revealed significant challenges ahead. The sportswear giant, despite reporting revenue of $12.43 billion, announced a cautious outlook characterized by shrinking profit margins and ongoing difficulties in its key market of Greater China.

The decline in share price was largely triggered by a disappointing forecast for the third quarter. Chief Financial Officer Matt Friend indicated that revenue is expected to decrease in the low single digits, while gross margins may contract by approximately 175 to 225 basis points. This downturn is primarily attributed to escalating product costs driven by reciprocal tariffs, which the company estimates will create an annualized headwind of $1.5 billion. Friend emphasized that without this projected impact from tariffs, gross margins would likely remain positive in the upcoming quarter, highlighting the severity of the current economic pressures affecting the company.

Challenges in Greater China Deepen

Further compounding the company’s struggles is a significant downturn in Greater China, a region that has historically been a vital growth area for Nike. Revenue in this market fell by 16% in the second quarter, with digital sales plummeting 36% as the company faced declining store traffic and a highly promotional marketplace. CEO Elliott Hill candidly acknowledged the challenges, stating that the region is on a “longer road to a healthier business.” While Nike is recalibrating its strategy in key urban centers such as Beijing and Shanghai, Hill admitted that the turnaround is not progressing at the necessary pace.

Despite these hurdles, the company did report positive outcomes in North America, where revenue rose by 9%, driven by a notable 24% increase in wholesale sales. This uptick suggests that Nike’s “Win Now” strategy is gaining traction domestically. However, Hill tempered expectations, remarking that the company is still in the “middle innings” of its recovery journey.

Stock Performance and Future Outlook

On Thursday, Nike’s shares closed 0.091% lower at $65.63 each and subsequently dropped by 10.76% in after-hours trading. Year-to-date, the stock has decreased by 13.27% and is down 14.66% over the past year. Interestingly, it has shown some resilience in the last six months, with an increase of 10.28% during that period. Despite this short-term gain, the overall price trend remains weak in both the medium and long term.

Hill emphasized the importance of perseverance, stating, “Greatness isn’t promised, it’s earned. And we’re ready to earn it, again and again.” The company continues to navigate a challenging landscape but shows some glimmers of hope as it refines its strategies across various markets.

As Nike moves forward, analysts and investors will be closely monitoring how these dynamics unfold, particularly in the context of ongoing tariff impacts and the recovery trajectory in crucial markets like Greater China.