Nike Beats on Earnings But Struggles in China and Faces Tariffs

Key Points

• Nike beat revenue and EPS estimates in its latest earnings report but still showed underlying operational weaknesses.
• The company’s DTC strategy faces challenges, especially in China, while wholesale and running product lines are performing well.
• Nike’s long-term recovery hinges on its Sport Offense strategy and managing tariff impacts, but investor confidence remains shaky.

The last three years have not been kind to U.S. apparel giant Nike NYSE: NKE. As of the Dec. 18 close, shares had dropped approximately 34%, with sales, margins, and profits all down significantly over the same period.

A series of strategic missteps contributed to this, including weak product innovation versus emerging competitors like ON NYSE: ONON. The company’s direct-to-consumer (DTC) push also had unintended consequences. As Nike focused on its own sales channels, competitors gained visibility through retailers like Foot Locker, which had to fill shelves with alternative products.

Additionally, excess inventory and tariffs have put pressure on margins.

Still, analyst price targets are forecasting solid upside potential in Nike shares. Below, we’ll dive into the company’s Dec. 18 earnings release to evaluate its path to recovery. 

Nike Beats on Top and Bottom Lines

In its latest quarter, Nike reported revenue of $12.4 billion. This equated to a growth rate of 1% (or flat on a currency-neutral basis). This beat Wall Street expectations of just under $12.2 billion.

Nike's diluted earnings per share (EPS) came in at 53 cents, a decline of 32% versus the prior year. This was much better than Wall Street forecasts of 38 cents, which called for a decline of almost 53%.

Next quarter, the company expects revenue to fall by low single digits. It also sees gross margin falling 200 basis points at the midpoint, due to significant tariff headwinds.

Mixed Operational Metrics Highlight Strengths and Weaknesses

Gross margin fell by 300 basis points to 40.6%, largely due to tariff-related headwinds. Nike anticipates that tariffs will continue to have a significant impact on the business, though it is taking measures to reduce the impact on gross margins to 120 basis points in FY2026.

While North American sales grew strongly by 9%, a bright spot in the report, every other region posted negative currency-adjusted growth. Greater China was particularly weak, with sales falling by 16%.

Wholesale revenues rose by 8%, showing improvement within the company’s partner ecosystem. However, Nike Direct Digital, its DTC e-commerce channel, saw sales fall 14%. A particularly troubling aspect of this was the 36% decline in Chinese Nike Direct Digital revenue.

CEO Elliott Hill himself notes that Chinese customers take an e-commerce-first approach to consumption.

Thus, it is disappointing to see Nike perform so poorly here. The company hopes to “reset its approach to the China marketplace" as part of its broader recovery strategy.

A notable positive was the company’s running product line saw 20% sales growth for the second quarter in a row, with double-digit growth in both wholesale and DTC. This is a solid early sign for the company’s Sport Offense strategy.

Through this strategy, the company is reorganizing into several teams that target specific sports. Nike believes that Sport Offense will allow it to create products that resonate with specific consumers consistently. As a multi-sport brand, this could help Nike regain consumer relevance—but implementation is still in early stages.

Nike Tanks After-Earnings as Recovery Is Slow-Going

Despite posting top and bottom-line beats, markets did not like Nike’s results. In after-market trading on Dec. 18, Nike shares were down nearly 10%. The company’s guidance for negative growth next quarter disappointed, and concerns about operational weakness dampened sentiment.

Trading near $59 after hours, Nike still needs to undergo a substantial rebound in free cash flow growth long-term to justify a higher valuation. Management appears committed to long-term investment, but the pace of progress is slower than markets would prefer.

Nike remains one of the most recognizable sports apparel brands globally, a brand advantage that gives it a strong foundation for recovery. If the company can overcome weakness in Chinese sales, tariff challenges, and strengthen its DTC segment, it could stage an incredible rebound.