Nike Shares Soar, But Gross Margins Set to Shrink Again
Friday’s premarket trading saw a spike in Nike (NKE) stock after the footwear manufacturer announced that its profit and sales reductions would slow this quarter. After the shoe manufacturer’s quarterly earnings report was released on Thursday, shares rose by more than 9%. Meanwhile, it is anticipated that tariffs will cost close to $1 billion.
Nike anticipates a mid-single-digit decline in sales this quarter after a 12% decline in revenue in its fiscal fourth quarter, which concluded on May 31. After dropping 440 basis points, or 4.4%, in the fourth quarter, gross margins are expected to decline 350–425 basis points this quarter.
Nike CFO Warns of Major Cost Surge from New U.S. Tariffs
Nike CFO Matthew Friend said the recently imposed US tariffs are a fresh and significant cost headwind during a conference call with investors late Thursday. Nike anticipates that tariffs will reduce their gross margins by 100 basis points.
The company sees a gross incremental cost increase to Nike of approximately $1 billion. We intend to fully mitigate the impact of these headwinds over time.
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Nike announced on Thursday that, as part of this approach, it will reduce its reliance on China to manufacture the products it sells in the US. Currently, according to Reuters, 16% of the shoes it imports into the US come from Chinese sources.
Nike Battles Tariffs, Rivals, and Weak Consumer Confidence: Can It Bounce Back?
Nike has struggled with President Trump’s broad tariffs, and given its global operations and exposure to both China and Vietnam, the effects are still unknown. As it works to bring customers back into its shops and competes with rivals like On (ONON) and Hoka (DECK), Nike is now dealing with declining consumer confidence in addition to the tariff challenges.
While our financial results are in line with our expectations, they are not where we want them to be. Moving forward, we expect our business to improve as a result of the progress we’re making,
CEO Elliott Hill
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