Nike shares slide 10% as margin pressure deepens and China slump persists

Nike’s turnaround challenges remained in focus on Thursday after the sportswear major reported a second consecutive quarterly decline in gross margins, triggering a sharp 10 percent fall in its shares. Persistent weakness in China and the financial impact of resetting its product and distribution strategy continue to pressure profitability, even as revenue modestly exceeded expectations.

For the quarter ended November 30, Nike’s gross margin declined by 300 basis points, reflecting higher discounting, a greater reliance on wholesale partners and lingering cost pressures. The company warned that margin headwinds are likely to continue, forecasting a further contraction of 175 to 225 basis points in the current quarter.

Chief executive Elliott Hill said the results were an improvement on internal expectations from three months earlier, but acknowledged they fell short of the company’s longer-term ambitions. He described Nike as being in the “middle innings” of its recovery, cautioning that progress would not be linear.

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China remained a key area of concern, with sales in the region falling 17 percent for the sixth straight quarter. While Nike has previously said a rebound in China would lag North America, analysts have begun to question the pace of recovery. Morningstar analyst David Swartz said the continued weakness in China was becoming increasingly troubling for investors.

Since taking over as CEO in 2024, Hill has been attempting to rebuild Nike’s brand relevance and regain market share lost to newer rivals such as On and Hoka. The strategy has centred on refocusing on core sports categories like running and football, re-engaging wholesale partners including Dick’s Sporting Goods, and shifting emphasis away from legacy shoe lines toward newer products.

However, that reset has come at a cost. Greater dependence on third-party retailers typically results in lower pricing compared with Nike’s direct-to-consumer channels, while clearing excess inventory has required aggressive discounting. In addition, tariffs have emerged as a significant drag. CFO Matthew Friend reiterated that U.S. tariffs on Southeast Asian manufacturing hubs are expected to add roughly $1.5 billion in costs this year.

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Despite margin pressure, Nike posted second-quarter revenue of $12.43 billion, beating analysts’ estimates of $12.22 billion, according to LSEG data. Net income declined 32 percent year-on-year, but adjusted earnings per share of 53 cents comfortably topped market expectations of 38 cents.

Looking ahead, Nike expects third-quarter revenue, which includes the key holiday shopping period, to decline in the low single digits—slightly worse than analyst forecasts of a 1.5 percent drop.

Analysts said the results underscored the financial strain of the company’s ongoing transformation. “This turnaround is still costing real money,” said David Bartosiak of Zacks Investment Research, adding that while revenue resilience was encouraging, earnings power remains under pressure as Nike works through its reset.