Nike's Restructuring Efforts Face Mounting Headwinds

Nike's corporate recovery is under pressure from new 15% tariffs, a landmark EEOC lawsuit on DEI programs, and a projected $1.5 billion annual cost burden, impacting margins and shares.

The sportswear giant Nike finds its much-discussed corporate turnaround navigating a perfect storm of external pressures. While company leadership insists the business is at the midpoint of its recovery, a combination of volatile trade policy, significant new tariffs, and a regulatory probe into its hiring practices are testing investor resolve. The company's shares, trading near €54, remain substantially below their 52-week peak of approximately €78.

Regulatory Scrutiny Over Diversity Initiatives

Adding to the operational challenges, Nike is now facing legal scrutiny from a U.S. government agency. On February 4, 2026, the Equal Employment Opportunity Commission (EEOC) filed an enforcement action against the company. The suit demands detailed information regarding Nike’s diversity, equity, and inclusion programs. The investigation aims to determine whether these initiatives may have led to discrimination against white employees.

In response, Nike characterized the legal move as a "surprising and unusual escalation," noting it had already supplied "thousands of pages of information" to the agency. Legal observers at Bloomberg Law identified the case as a potential landmark, setting the stage for broader EEOC examination of corporate diversity programs across industries.

The Whiplash Effect of Shifting Tariff Policy

Trade policy has delivered a series of sharp reversals for the import-dependent retailer. A significant, albeit temporary, reprieve came on February 20, 2026, when the U.S. Supreme Court, in a 6-3 ruling, struck down emergency tariffs previously enacted by President Trump. The court found the President lacked the authority to impose such duties under the International Emergency Economic Powers Act. With Nike heavily reliant on overseas manufacturing—particularly in Vietnam—its stock surged briefly above $68 on the news.

The relief proved short-lived. The Trump administration promptly responded by instituting a new 10% global tariff under a different legal statute (Section 122), later increased to 15%. This provision can remain in effect for up to 150 days without congressional approval. Nike’s share price gave up its gains by the close of that same trading session.

A $1.5 Billion Cost Burden

The financial impact of these tariffs is severe. An analysis published by Zacks on February 24, 2026, estimates that Nike will face approximately $1.5 billion in additional product costs annually. This translates to a gross margin headwind of roughly 320 basis points for the 2026 fiscal year. Although management has initiated countermeasures intended to reduce the net effect to about 120 basis points, the remaining drag on profitability is still considerable.

The company's financial results for Q2 FY2026 (ended November 30, 2025) highlighted these pressures:

• Revenue: $12.4 billion, a 1% increase.
• Gross Margin: 40.6%, a contraction of 300 basis points.
• Earnings Per Share: $0.53, a decline of 32%.
• Net Income: $0.8 billion, also down 32%.
• Wholesale Channel: Grew 8%, powered by 24% growth in North America.

Looking ahead, Nike's guidance for the third quarter anticipates a further gross margin decline of 175 to 225 basis points. This forecast includes an estimated 315 basis points of pressure directly attributable to higher tariff costs.

A Tale of Two Markets: North America vs. China

Geographically, Nike’s performance is sharply divided. The North American market showed robust health in Q2, with sales advancing 9% and the wholesale segment jumping over 20%. The running shoe category was a standout, posting growth exceeding 20% across all sales channels.

In stark contrast, China remains the company's most significant challenge. Revenue in the region plummeted 16%, with operating income nearly halving. The struggles extend to the Converse subsidiary, where revenue fell 30% to $300 million. Company executives expect persistent challenges in China for the remainder of the fiscal year.

The Path Forward: Awaiting Q3 Results

The coming weeks are pivotal for Nike. Investors are keenly awaiting the next quarterly report, scheduled for March 18, 2026. The market will scrutinize any updated margin guidance, concrete details on cost-saving measures to mitigate tariff impacts, and potential commentary on the ongoing EEOC investigation. Until then, Nike remains in a defensive posture—operationally on track in its home market but under sustained pressure on multiple other fronts.