Nike Inc. reported fiscal third-quarter earnings that disappointed investors, with shares dropping over 14% as the company's turnaround plan faces prolonged challenges, particularly in China.
Earnings Disappointment and Market Reaction
On Tuesday, Nike reported its fiscal third-quarter results, but investors sought clear evidence of a recovery. Instead, the retailer's turnaround remains uncertain, leading to a sharp decline in stock price during mid-day trading on Wednesday.
China Sales Decline
- CFO Matt Friend warned that global sales would decrease by a low single-digit percentage in the current quarter, worse than analyst expectations.
- China sales are projected to fall by 20%, even with a two-point benefit from foreign exchange rates.
- Efforts to revamp Nike's product assortment in China and drive full-price sales are expected to continue through fiscal 2027, acting as a drag on revenue growth.
Financial Outlook and Risks
- Gross margins have declined year over year for seven straight quarters and may not improve soon.
- Potential cost increases due to the war in the Middle East and rising oil prices could impact input costs or consumer behavior.
- Nike anticipates starting to lap higher tariff impacts in fiscal 2027, with gross margins possibly expanding by the second quarter of that year.
- Friend stated: "The environment around us has become increasingly dynamic, and we could experience unplanned volatility due to the disruption in the Middle East, rising oil prices, and other factors that could impact either input costs or consumer behavior."