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Nike Warns of "Longer Road" to Recovery as Tariffs and China Struggles Sink Stock 11%

MarketDash Editorial Team
18 hours ago
Nike's stock dropped 11% after hours as the company warned of shrinking margins and a prolonged struggle in China, with tariffs creating a $1.5 billion annual headwind that's overshadowing domestic gains.

Nike Inc. (NKE) beat revenue estimates on Thursday, and the stock still got hammered. That's what happens when you report $12.43 billion in sales but tell Wall Street that margins are about to shrink, China is a mess, and tariffs are eating into profits faster than you can pivot your strategy.

Shares dropped nearly 11% in after-hours trading as investors digested a third-quarter outlook that can only be described as grim. CFO Matt Friend guided for Q3 revenue to decline in the low single digits, with gross margins contracting by approximately 175 to 225 basis points. The main villain here? Reciprocal tariffs, which management estimates will create a $1.5 billion annualized headwind. Friend pointed out that without the projected 315-basis-point tariff hit, gross margins would actually be positive in the third quarter. So yeah, tariffs are kind of a big deal right now.

"It will take time for the actions we have put into place to change the trajectory," Friend cautioned, which is executive-speak for "don't expect miracles anytime soon."

China's Not Just Slow, It's Getting Worse

If the tariff news wasn't bad enough, Nike's Greater China business is deteriorating fast. Revenue in the region plunged 16% in the second quarter, with digital sales absolutely cratering—down 36%—as the company dealt with declining store traffic and an increasingly promotional marketplace.

CEO Elliott Hill didn't sugarcoat it. The region faces a "longer road to a healthier business," he said. While Nike is resetting its strategy in major cities like Beijing and Shanghai, Hill admitted the turnaround is "not happening at the level or pace we need." Greater China has traditionally been a key growth engine for the sportswear giant, so watching it sputter is particularly painful.

North America Delivers, But Don't Pop the Champagne Yet

Not everything is terrible. North America revenue jumped 9%, driven by a 24% surge in wholesale, which suggests Nike's "Win Now" strategy is actually working domestically. The company's emphasis on getting back to basics—better product, stronger retail relationships—is showing results where it matters most.

But Hill was quick to manage expectations, describing the company as only being in the "middle innings" of its comeback. Management emphasized that the "comeback continues to move at different speeds" across regions, which is a polite way of saying some parts of the business are recovering while others are still stuck in neutral.

"Greatness isn't promised, it's earned," Hill told investors. "And we're ready to earn it, again and again." Inspiring stuff, but investors wanted to see a faster path to profitability, not motivational quotes.

The Stock Has Been Struggling All Year

Nike shares closed Thursday down 0.091% at $65.63 before plummeting 10.76% in after-hours trading. The stock is now down 13.27% year-to-date and 14.66% over the past year, though it had managed to climb 10.28% over the last six months before this earnings report wiped out some of those gains.

The stock maintains a weaker price trend over the medium and long term but shows strength in the short term, with a poor quality ranking according to market data.

The bottom line: Nike beat revenue expectations but served up an outlook that highlights just how much work remains. Tariffs are squeezing margins, China is backsliding, and while North America is delivering, it's not enough to offset the headwinds. Hill's "middle innings" metaphor might be apt, but right now, investors are wondering if this game is going to go into extra innings—and not in a good way.

Back to News

Nike Warns of "Longer Road" to Recovery as Tariffs and China Struggles Sink Stock 11%

MarketDash Editorial Team
18 hours ago
Nike's stock dropped 11% after hours as the company warned of shrinking margins and a prolonged struggle in China, with tariffs creating a $1.5 billion annual headwind that's overshadowing domestic gains.

Nike Inc. (NKE) beat revenue estimates on Thursday, and the stock still got hammered. That's what happens when you report $12.43 billion in sales but tell Wall Street that margins are about to shrink, China is a mess, and tariffs are eating into profits faster than you can pivot your strategy.

Shares dropped nearly 11% in after-hours trading as investors digested a third-quarter outlook that can only be described as grim. CFO Matt Friend guided for Q3 revenue to decline in the low single digits, with gross margins contracting by approximately 175 to 225 basis points. The main villain here? Reciprocal tariffs, which management estimates will create a $1.5 billion annualized headwind. Friend pointed out that without the projected 315-basis-point tariff hit, gross margins would actually be positive in the third quarter. So yeah, tariffs are kind of a big deal right now.

"It will take time for the actions we have put into place to change the trajectory," Friend cautioned, which is executive-speak for "don't expect miracles anytime soon."

China's Not Just Slow, It's Getting Worse

If the tariff news wasn't bad enough, Nike's Greater China business is deteriorating fast. Revenue in the region plunged 16% in the second quarter, with digital sales absolutely cratering—down 36%—as the company dealt with declining store traffic and an increasingly promotional marketplace.

CEO Elliott Hill didn't sugarcoat it. The region faces a "longer road to a healthier business," he said. While Nike is resetting its strategy in major cities like Beijing and Shanghai, Hill admitted the turnaround is "not happening at the level or pace we need." Greater China has traditionally been a key growth engine for the sportswear giant, so watching it sputter is particularly painful.

North America Delivers, But Don't Pop the Champagne Yet

Not everything is terrible. North America revenue jumped 9%, driven by a 24% surge in wholesale, which suggests Nike's "Win Now" strategy is actually working domestically. The company's emphasis on getting back to basics—better product, stronger retail relationships—is showing results where it matters most.

But Hill was quick to manage expectations, describing the company as only being in the "middle innings" of its comeback. Management emphasized that the "comeback continues to move at different speeds" across regions, which is a polite way of saying some parts of the business are recovering while others are still stuck in neutral.

"Greatness isn't promised, it's earned," Hill told investors. "And we're ready to earn it, again and again." Inspiring stuff, but investors wanted to see a faster path to profitability, not motivational quotes.

The Stock Has Been Struggling All Year

Nike shares closed Thursday down 0.091% at $65.63 before plummeting 10.76% in after-hours trading. The stock is now down 13.27% year-to-date and 14.66% over the past year, though it had managed to climb 10.28% over the last six months before this earnings report wiped out some of those gains.

The stock maintains a weaker price trend over the medium and long term but shows strength in the short term, with a poor quality ranking according to market data.

The bottom line: Nike beat revenue expectations but served up an outlook that highlights just how much work remains. Tariffs are squeezing margins, China is backsliding, and while North America is delivering, it's not enough to offset the headwinds. Hill's "middle innings" metaphor might be apt, but right now, investors are wondering if this game is going to go into extra innings—and not in a good way.