Nike Shares Slide as Margins Fall Again Amid China Slump and Costly Turnaround

Nike shares dropped sharply after the sportswear giant reported its second consecutive quarterly decline in gross margins, highlighting the challenges of its ongoing turnaround as weak sales in China, higher tariffs, and strategic shifts continue to pressure profitability. The results, while slightly better than management’s earlier expectations, underscored that Nike’s recovery remains incomplete and expensive.

For the quarter ended November 30, Nike’s gross margin fell by 300 basis points, and the company warned that margins could decline another 175 to 225 basis points in the current quarter. Sales in China fell 17%, marking the sixth straight quarterly decline in the key market. Although Nike has repeatedly said that China’s recovery would lag behind North America, analysts are growing increasingly concerned about the prolonged weakness.

CEO Elliott Hill, who took over in 2024, said the company is still in the “middle innings” of its turnaround. His strategy centers on refocusing Nike on core sports such as running and football, rebuilding relationships with wholesale partners like Dick’s Sporting Goods, and shifting attention away from legacy sneaker lines toward newer products. While this approach aims to restore Nike’s cultural relevance and compete with fast-growing rivals like On and Hoka, it has come at a short-term cost to margins. Wholesale distribution typically carries lower pricing, and efforts to clear older inventory have relied heavily on discounts.

Tariffs remain another major headwind. CFO Matthew Friend reiterated that U.S. tariffs on Southeast Asian manufacturing hubs are expected to cost Nike about $1.5 billion this year, further weighing on earnings.

Despite these challenges, Nike showed some resilience. Second-quarter revenue reached $12.43 billion, beating analyst estimates, while adjusted earnings per share of 53 cents topped forecasts. However, net income fell 32% year over year, reflecting the strain on earnings power. Looking ahead, Nike expects third-quarter revenue, including the crucial holiday season, to decline in the low-single digits.

Overall, investors were left with a clear message: Nike’s turnaround is progressing unevenly, costing real money, and will take time before growth and margins fully recover.