Nike (NKE) Stock Plunges 10% as Margin Pressures Overshadow Earnings Beat

TLDR

• Nike beat Q2 earnings expectations with EPS of $0.53 versus $0.37 expected and revenue of $12.43 billion versus $12.2 billion expected
• Stock dropped 10% in premarket trading despite the earnings beat due to gross margin compression of 300 basis points to 40.6%
• North America sales grew 9% to $5.6 billion while China sales plunged 17% to $1.42 billion, missing estimates
• Higher US tariffs and promotional activity to clear excess inventory drove margin pressure, with full-year tariff impact estimated at $1.5 billion
• Profits fell 32% to $792 million as the company works through inventory issues and attempts to revive the brand in China

Nike reported fiscal second-quarter results that topped Wall Street expectations, but investors weren’t buying it. The stock tumbled 10% in premarket trading Friday as margin concerns overshadowed the revenue and earnings beat.

The sportswear giant posted earnings per share of $0.53 on revenue of $12.43 billion. Analysts had expected EPS of $0.37 on revenue of $12.2 billion. Despite the beat, profits dropped 32% to $792 million from the year-ago period.

The problem wasn’t the top line. It was what happened to the bottom line along the way.

NIKE, Inc., NKE

Gross margin fell 300 basis points to 40.6%. That compression came from two main sources: aggressive promotional activity to clear excess inventory in North America and higher tariffs.

CFO Matthew Friend estimated the full-year tariff hit at $1.5 billion. That’s unchanged from the company’s September projection. The tariff impact continues to eat into profitability as Nike manages elevated input costs.

North America Rebounds While China Struggles

North America delivered the bright spot in the quarter. Sales in the region jumped 9% to $5.6 billion. The running franchise performed well and helped offset weakness elsewhere.

China told a different story. Revenue in Greater China plunged 17% to $1.42 billion, missing analyst estimates of $1.6 billion.

Inventory fell 3% to $7.7 billion. Friend said the inventory position has improved in North America compared with earlier quarters when excess merchandise depressed margins.

The promotional activity that hurt margins was necessary to clear that excess stock. Nike has been working through inventory glut issues that built up over previous quarters.

Analysts Express Concern

Neil Saunders, managing director of GlobalData, said Nike remains “behind the curve” in casual and fashion categories. The China weakness “reflects a brand that is not connecting culturally in a way that rivals are,” Saunders said.

Saunders noted Nike must find ways to replicate its running success across other sports. The company is making progress overall but “this quarter’s results underline how much work remains to be done.”

Hill plans product rollouts around the Olympics, World Cup and other major 2026 events. He’s promised to return Nike to “a beloved, premium and innovative brand in China.”

The revenue increase of 1% to $12.4 billion during the quarter showed modest growth. But the 32% profit decline highlighted the margin pressure the company faces from tariffs and promotional activity.

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