While the worst could be behind the company, it has new challenges like tariffs to face, making a tough turnaround that much more difficult. On a call with analysts, finance chief Matt Friend called the duties a “new and meaningful” cost.
“With the new tariff rates in place today, we estimate a gross incremental cost increase to Nike of approximately $1 billion” in its current fiscal year 2026, Friend said.
He added that the company intends to “fully mitigate” that cost over time as it tweaks its supply chain, works with its factory and retail partners and implements price increases.
Currently, about 16% of its supply chain is in China and it expects to reduce that to the high single digit percentage range by the end of its current fiscal year, which is expected to end next summer.
“Despite the current elevated tariffs for Chinese products imported into the United States, manufacturing capacity and capability in China remains important to our global source base,” said Friend.
Friend said the company will consider cost cuts but its highest priority remains stabilizing its business, which requires investment.
Once those efforts are implemented, Friend said the financial impact to fiscal 2026 gross margin is expected to be 0.75 percentage points, with a greater impact expected in the first half.
While Wall Street’s expectations were low coming into the report, Nike beat estimates on the top and bottom lines.
Here’s how the company did for the three-month period ended May 31, compared with estimates from analysts polled by LSEG:
- Earnings per share: 14 cents per share vs. 13 cents estimated
- Revenue: $11.10 billion vs. $10.72 billion estimated
The company’s reported net income for the quarter was $211 million, or 14 cents per share, compared with $1.5 billion, or 99 cents per share, a year earlier.
Sales dropped to $11.10 billion, down about 12% from $12.61 billion a year earlier.
Last quarter, Nike warned that its fiscal fourth quarter would be the low point of its turnaround but in the months since, conditions worsened, leaving investors wondering if more pain was still to come.
In a press release, Friend confirmed that the fiscal fourth quarter will see the “largest financial impact” from its turnaround and headwinds are expected to moderate moving forward.
On a call with analysts, CEO Elliott Hill said it’s time to “turn the page.”
“The results we’re reporting today in Q4 and in FY25 are not up to the Nike standard, but as we said 90 days ago, the work we’re doing to reposition the business through our ‘Win Now’ actions is having an impact,” said Hill. “From here, we expect our business results to improve.”
For the current quarter, Nike expects sales to decline by a mid-single digit percentage, in line with expectations of down 7%, according to LSEG. It expects its gross margin to be down between 3.5 and 4.25 percentage points, including 1 percentage point from the tariff rates currently in place today.
Nike shares initially dropped after its report was released but moved about 10% higher during the company’s conference call.
During the quarter, Nike’s profits fell by a staggering 86% as it worked to clear out stale inventory, woo back wholesale partners and reset its digital business. The largest hit to margins came from Nike’s use of discounts and clearance channels to offload inventory, coupled with its shift back to wholesale, which is a less profitable channel than selling directly on its website and stores.
The company has warned the strategy would lead to lower near-term profits, but would leave the business in a healthier position in the long term.
During the quarter, Nike Direct revenue, representing stores, wholesale and its website, fell 14%, led by a 26% drop in digital sales and a 9% decline in wholesale.
Nike stores, however, were a bright spot. During the quarter, sales at Nike stores rose 2%.
Foot traffic data at Nike stores has been declining since October, but those figures also indicate that conditions could be improving, according to Placer.ai, an analytics firm that uses anonymized data from mobile devices to estimate overall visits to locations.
Monthly visits to Nike stores dropped 10.2% in April compared to the previous year, but that decline narrowed to 3.2% in May, according to Placer.ai.
Revenue fell in all regions during the quarter, but came in a bit better than expected in North America, Nike’s largest market. Sales fell 11% to $4.70 billion in North America, better than the $4.42 billion analysts had expected, according to StreetAccount.
Still, China revenue came in at $1.48 billion, just below the $1.50 billion analysts had expected, according to StreetAccount.
Since Nike last reported earnings, tariffs on goods imported from China have increased to 30%. The company increased prices across its assortment to offset those costs, CNBC previously reported.
The first product launch from its highly anticipated partnership with Kim Kardashian’s intimates line Skims was also supposed to go live during the quarter, but now that’s been delayed to later this year, CNBC previously reported.
When Nike hosts its conference call at 5 p.m. ET, investors will be most interested in Nike’s guidance. But Wall Street will also be looking out for more details on the state of its turnaround, insight into its product launch pipeline and whether it can continue to cut expenses.
Plans for Nike’s partnership with Skims will also be a key point of interest. Beyond clearing out stale inventory and releasing more innovative styles, Nike is working to win over more female shoppers, who are estimated to represent about 40% of its business.
This gender gap is not ideal for discretionary retailers because women tend to spend more on clothes than men. Nike has lost market share to athletic apparel competitors like Lululemon and Alo Yoga, which cater to a similar customer but are more geared toward women.
Sneakers are still the most important part of Nike’s business, but apparel is a growth area for the company, representing about 28% of Nike brand revenue in fiscal 2024.
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