Nike’s Earnings Plunge Raises Doubts Over Growth Trajectory

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Nike's latest quarterly results have severely tested investor confidence. While revenue and earnings per share narrowly surpassed already modest expectations, significant weakness in China and a gloomy forward outlook have cast a dark cloud over the athleticwear giant's prospects. The core issue for markets is not the past quarter's performance, but the enduring strength of Nike's long-term growth narrative.

On a group level, revenue saw a modest 1% increase to $12.43 billion. However, profitability metrics deteriorated sharply. The gross margin contracted by 300 basis points to 40.6%.

Company leadership pointed to two primary factors for this squeeze:
* Tariff Expenses: Nike is currently burdened by approximately $1.5 billion in annual tariff costs.
* Promotional Discounting: Elevated inventory levels forced the company to implement aggressive markdowns.

The consequence was a stark 32% year-over-year decline in net income, which fell to $792 million. Earnings per share of $0.53 did beat the consensus estimate of $0.38, but the severe drop in profitability is the dominant theme for equity investors.

This erosion of trust is reflected in the share price. The stock closed down approximately 10% at €50.28 on Friday and has declined nearly 30% since the start of the year, now trading well below its 200-day moving average.

China: A Former Engine Stalls

The most pronounced challenges are in Greater China, a region that served as a critical growth driver for years. In Q2 of fiscal 2026, sales there plummeted 17% to $1.42 billion.

The digital channel was notably weak, with Nike Direct sales in China collapsing by 36%. This directly impacted the bottom line, as the region's EBIT nearly halved, falling 49%. According to the report, intense competition from local rivals and a subdued consumer environment are creating substantial headwinds.

A Disappointing Forecast Intensifies Pressure

Market participants are particularly concerned by the guidance for the current third quarter. Rather than projecting a hoped-for recovery, Nike anticipates a low single-digit percentage decline in revenue. Furthermore, management expects another 175 to 225 basis points of gross margin compression.

In an attempt to provide context, CEO Elliott Hill described Nike as being in the "middle innings" of its intended comeback. This phrasing, however, underscores that a rapid turnaround is not imminent, a message that has arguably amplified selling pressure.

Analyst Sentiment Turns Cautious

The financial release on December 19, 2025, prompted an immediate reassessment from several investment banks, with a clear trend toward greater skepticism about a near-term rebound.

• Bank of America: Lowered its price target from $84 to $73.
• Piper Sandler: Reduced its target from $84 to $75.
• Barclays: Cut its valuation from $70 to $64.
• Stifel: Lowered its price target to $65.

The new range of targets is notably lower, reflecting concerns that the combination of Chinese softness, margin pressure, and cautious guidance could have a prolonged effect.

North America Provides Limited Solace

The sole clear positive was the performance in North America. Revenue in the home market grew 9% to $5.63 billion, with the wholesale segment showing particular strength and partially offsetting softer Nike Direct sales.

Ultimately, however, this regional resilience is insufficient to counterbalance the structural issues in China and the burdens of tariffs and discounting. The critical factors for the coming quarters will be whether Nike can regain its footing in the Chinese market and stabilize its gross margin. Only then is significant pressure on the share price likely to abate.