Nike delivered what should have been good news: earnings per share of $0.53 that crushed the $0.37 consensus estimate by 43%. Revenue of $12.4 billion edged past expectations. North American sales climbed 9% to $5.63 billion. By most measures, a solid quarter.
The stock crashed 10% anyway.
The China Problem
The culprit was Greater China, where Nike's revenue plunged 17% to $1.42 billion. For a company that has long viewed China as its most important growth engine, this isn't just a bad quarter—it's a strategic crisis.
Chinese consumers who once lined up for limited-edition Jordans are increasingly turning to domestic brands. The broader economic malaise in China—weak consumer spending, property market stress, and youth unemployment—has hit discretionary categories particularly hard. Nike's premium positioning, once an asset, has become a liability in a market where value-conscious consumers are trading down.
The Tariff Squeeze
If China weren't enough, Nike flagged a new headwind: tariffs are about to hammer profit margins. The company warned that margins would fall by as much as 225 basis points next quarter, thanks in part to the impact of new import taxes on goods manufactured abroad.
Nike's global supply chain, once a competitive advantage, has become an exposure. The company manufactures heavily in Vietnam, Indonesia, and China—all countries subject to various tariff regimes. Restructuring that supply chain takes years and billions of dollars.
The Earnings Beat That Didn't Matter
Wall Street's reaction made clear that beating lowered expectations isn't enough. Adjusted profit dropped 32% from last year. The guidance was downbeat. And the fundamental question—can Nike reclaim its mojo—remains unanswered.
Multiple analysts cut their price targets Friday morning. The consensus view: turnarounds take longer than management hoped, and this one is just getting started.
Competition Isn't Waiting
While Nike struggles, competitors are seizing the moment. On Running and Hoka continue gaining market share with younger consumers. Adidas has stabilized. And Chinese brands like Anta and Li-Ning are winning at home while expanding globally.
The athleisure market that Nike helped create is more competitive than ever, and the Swoosh's historical dominance can no longer be taken for granted.
What Bulls Still See
Optimists point to North America's 9% growth as proof that Nike's core market remains healthy. New CEO Elliott Hill, who took the reins in October, brings decades of Nike experience and a mandate for change. The brand remains one of the most recognized in the world.
BTIG reiterated its Buy rating, citing Hill's leadership potential. But even bulls acknowledge the path forward is measured in years, not quarters.
The Bottom Line
Nike's 10% plunge encapsulates everything that's gone wrong: a China business in free fall, tariff headwinds just beginning, and a turnaround that's proving harder than the last CEO promised. For long-term investors, the question is whether this is capitulation or just another leg down in a multi-year reset. The answer probably won't come until we see whether Elliott Hill can deliver what his predecessor couldn't.
