On Wednesday, Nike (NKE) shares plummeted by as much as 13%, nearing an 11-year low, as the company’s ambitious turnaround plans faced setbacks. The company’s recovery in China has stagnated, and ongoing disruptions caused by geopolitical tensions in the Middle East have adversely influenced its forecasts.
Nike’s projections for 2026 indicate a modest revenue decline in the low single digits, primarily due to anticipated drops in Greater China, countered by expected gains in North America. Earnings for the coming period are expected to remain flat. CFO Matthew Friend acknowledged the volatile environment, citing potential disruptions from the Middle East conflict, increasing oil prices, and other variables that could affect both input costs and consumer spending.
Despite these challenges, Nike reported a slight improvement in its fiscal third quarter. Adjusted earnings per share reached $0.35, surpassing Wall Street’s expectations of $0.31. While total revenue remained flat at $11.3 billion year-on-year, it exceeded the anticipated $11.34 billion, although it still represented a 3% decline when adjusted for currency fluctuations.
The company’s Greater China segment reported an 11% revenue drop for the quarter, primarily driven by a 27% decrease in equipment sales, which also affected footwear and apparel sales. For the upcoming quarter, Nike predicts a 2% to 5% decline in revenue, with the Greater China segment expected to drop about 20%. This anticipated decline reflects both reduced product sell-in levels and accelerated marketplace management efforts.
CFRA analyst Zachary Warring commented on the ongoing turnaround process, indicating that while many initiatives are underway, the market’s reaction has been tepid as there aren’t many positive developments to share.
Nike’s direct-to-consumer segment, Nike Direct, observed a 4% revenue decrease to $4.5 billion, consistent with analyst predictions. Nike had previously indicated intentions to return focus to its wholesale operations for growth this fiscal year. Conversely, wholesale sales rose by 5% to $6.5 billion, beating forecasts predicting a slight decline.
The flagship Nike brand experienced a 1% sales increase to $11 billion, outpacing expectations, while Converse underperformed significantly, with sales plummeting by 35% to $264 million—far below the expected 26% drop.
Nike’s CEO Elliott Hill remarked on the company’s strategic measures, stating that significant actions have been undertaken to bolster business health and quality. Although the pace of progress varies across the portfolio, he believes that the future direction is promising.
The company faced headwinds from increased tariffs in North America, resulting in a 130 basis point impact on gross margins, which stood at 40.2%, slightly exceeding the expected 39.8%. CFO Friend noted that the current quarter is expected to be the final one where elevated tariffs exert a significant year-on-year pressure on gross margins.
In summary, while Nike has made strides in parts of its business, the outlook remains complicated by external factors and internal challenges, particularly in the Chinese market and geopolitical instability. Investors will be closely monitoring how effectively Nike can navigate these turbulent times and implement its turnaround strategy.
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