TLDR
- Nike reported Q2 EPS of $0.53 beating estimates of $0.37, but stock fell 10% in premarket trading
- Gross margin dropped 300 basis points to 40.6% due to promotional discounting and tariff pressures
- North America sales rose 9% to $5.6 billion while China revenue crashed 17% to $1.42 billion
- Company faces $1.5 billion full-year tariff impact as it works to clear excess inventory
- CEO Elliott Hill reorganized leadership team with China chief now reporting directly to him
Nike delivered a solid earnings beat Thursday but Wall Street wasn’t impressed. The stock dropped 10% in premarket trading as margin concerns trumped the better-than-expected results.
The company posted Q2 earnings of $0.53 per share on revenue of $12.43 billion. That topped analyst expectations of $0.37 EPS on $12.2 billion in revenue. But profits collapsed 32% to $792 million from last year.
The real story was in the margins. Gross margin contracted 300 basis points to 40.6%. That’s a big drop that investors couldn’t ignore.
Two factors drove the margin squeeze. First, Nike ramped up promotional activity to clear excess inventory in North America. Second, tariffs continued to pressure costs with a full-year impact pegged at $1.5 billion.
Regional Performance Split
North America was the bright spot. Revenue jumped 9% to $5.6 billion as the running category performed well. The region helped offset weakness elsewhere and showed the brand can still resonate with American consumers.
China was a different story entirely. Greater China revenue plummeted 17% to $1.42 billion, missing the $1.6 billion estimate. That’s a problem for a market Nike needs to win.
CEO Elliott Hill didn’t sugarcoat the China situation. The turnaround is “not happening at the pace we like,” he said. Hill restructured his executive team so the China division leader now reports directly to him.
“It’s going to take a fresh perspective, a new approach,” Hill told analysts. He promised to return Nike to “a beloved, premium and innovative brand in China.”
Inventory declined 3% to $7.7 billion. CFO Matthew Friend said the inventory position has improved in North America compared to earlier quarters when excess merchandise hurt margins.
Wall Street Reacts
Jefferies analyst James Grzinic said the market appears “underwhelmed by the scale of sales acceleration and moderation of gm pressures to come in the months ahead.”
GlobalData managing director Neil Saunders said Nike is “behind the curve” in casual and fashion segments. The China weakness “reflects a brand that is not connecting culturally in a way that rivals are.”
Saunders noted Nike needs to replicate its running success across other categories. The company is making progress but “this quarter’s results underline how much work remains to be done.”
Looking Ahead
Hill described Nike as being “in the middle innings” of its comeback. The company plans major product launches around the 2026 Olympics, World Cup and other events.
Friend said additional actions are needed in China to “break the cycle that we’ve been managing through.” The region has shown some progress but more work lies ahead.
Revenue edged up just 1% to $12.4 billion for the quarter. The modest top-line growth combined with the 32% profit drop illustrated the margin pressure from tariffs and promotional spending.
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