Nike shares drop 10% as margin pressure persists amid turnaround efforts

Nike reported a decline in gross margins for a second straight quarter on Thursday, as weak sales in China and efforts to reset its product mix continued to pressure the sportswear maker, sending its shares down 10%, according to a report by Reuters.

Chief executive Elliott Hill said on a post-earnings call that the results were slightly better than expected 90 days ago but still far from the company’s full potential, adding that Nike remained in the middle innings of its turnaround.

Sales in China fell for the sixth consecutive quarter, dropping 17%, and while Nike has maintained that recovery in the region would lag North America, analysts are increasingly showing signs of impatience. Morningstar analyst David Swartz said it was concerning that China’s performance continued to be so weak.

Nike has been attempting to regain cultural relevance after several disappointing quarters that saw it lose market share to newer rivals such as On and Hoka. Hill, who took over as chief executive in 2024, has anchored the recovery strategy around core sports including running and football, rebuilding relationships with wholesale partners such as Dick’s Sporting Goods and shifting focus away from legacy footwear lines towards newer products.

However, this strategy has weighed on margins in the short term, as third-party retailers typically sell at lower prices than Nike’s direct-to-consumer channels, while efforts to clear older inventory have relied heavily on discounting.

Tariffs also remain a significant challenge, Hill said on the call. Chief financial officer Matthew Friend reiterated that the company expects steep US tariffs imposed by President Donald Trump on Southeast Asian countries, where most of Nike’s products are manufactured, to cost the company around $1.5 billion this year.

Gross margin for the quarter ended November 30 fell by 300 basis points, and Nike expects margins to decline by between 175 and 225 basis points in the current quarter. Hill said the recovery would not follow a linear path.

His repeated reference to Nike being in the middle innings of its turnaround, likening the brand to the Los Angeles Dodgers following their third World Series win in six years, failed to reassure investors seeking clearer timelines for growth. Analysts pressed management on the call for more clarity on what the middle innings meant and for a more defined outlook on China.

Hill responded that different parts of the business were moving at different speeds, explaining that North America remained strong while China continued to lag.