Nike shares fell sharply in extended trading after the company warned that sales are expected to decline through the rest of the calendar year, with China emerging as the biggest drag on performance. The outlook overshadowed an otherwise better than expected fiscal third quarter, suggesting that investors remain more focused on the pace of the company’s recovery than on a single quarter’s earnings beat.
The market reaction reflected that tension. Nike exceeded Wall Street expectations on both earnings and revenue for the quarter ended Feb. 28, yet the stock dropped more than 8% after management signaled that the path forward remains difficult. Chief Financial Officer Matt Friend said the current fiscal fourth quarter is expected to bring a sales decline of between 2% and 4%, compared with analyst expectations for a 1.9% increase.
The warning points to a broader challenge facing the sportswear giant. Nike is trying to execute a large scale turnaround under Chief Executive Elliott Hill while also navigating weaker demand in China, pressure on margins, and a global environment clouded by tariffs, geopolitical instability, and the risk of more cautious consumer spending.
Guidance overshadows an earnings beat
For its fiscal third quarter, Nike reported earnings per share of 35 cents, above analyst expectations of 28 cents. Revenue came in at $11.28 billion, also slightly ahead of forecasts of $11.24 billion. On the surface, those figures suggested that parts of the business were holding up better than expected.
However, the underlying profitability picture was less encouraging. Net income fell 35% to $520 million, down from $794 million a year earlier. Gross margin also weakened, sliding 1.3 percentage points to 40.2%, which the company said was primarily due to higher tariffs in North America. That margin pressure shows that even when sales hold relatively steady, the cost base is becoming harder to manage.
Revenue was essentially flat year over year, rising only marginally from $11.27 billion to $11.28 billion. For investors, that helped reinforce the idea that Nike is still in a transition phase where operational progress is visible in places, but not yet strong enough to deliver broad based acceleration across the business.
China remains the biggest source of weakness
The company’s most troubling signal came from its regional outlook. Friend said Nike expects sales in China to decline by about 20% in the current quarter, making it the main reason the company expects overall sales to remain down for the rest of the year. That is especially important because China has long been one of Nike’s most significant growth markets.
Greater China revenue fell 7% during the quarter to $1.62 billion. Although that total still beat analyst expectations of $1.50 billion, the direction remains negative. The weakness suggests Nike is still struggling to regain momentum in a market where consumer behavior, competition, and macroeconomic conditions have become less favorable.
By contrast, North America continued to provide some support. Revenue in Nike’s largest market rose 3% to $5.03 billion, close to expectations. Management said it remains encouraged by order trends in the region and is not yet seeing a clear pullback in North American consumer behavior tied to the conflict in the Middle East. That relative resilience is helping offset some of the pressure elsewhere, but not enough to change the broader sales outlook.
Turnaround progress remains uneven
Nike is still deep in a complex turnaround under Elliott Hill, who has been in the chief executive role for roughly a year and a half. He has focused on repairing key parts of the business, but has also been explicit that change will not happen evenly across a company of Nike’s size. In the latest update, Hill said the pace of progress differs across the portfolio, even as the company continues to gain momentum in the areas it prioritized first.
One of the clearest examples of that uneven progress is the company’s channel mix. Wholesale revenue rose 5% to $6.5 billion, suggesting Hill’s push to strengthen relationships with external retail partners is gaining traction. At the same time, direct sales through Nike’s own stores and website fell 4% to $4.5 billion, showing that not every part of the business is recovering at the same speed.
Friend warned that turnaround efforts themselves will continue to weigh on results for the rest of the calendar year. That means investors should expect ongoing disruption as Nike reshapes operations, even if management remains confident that the long term direction is improving.
Economic risks are adding to the pressure
Nike’s recovery is also unfolding in a more difficult macroeconomic backdrop than the company would likely prefer. Friend said the current guidance assumes today’s global conditions, but acknowledged that the situation could shift because of rising oil prices, disruption in the Middle East, and other geopolitical factors that may affect both input costs and consumer behavior.
That warning is important because Nike already faces a delicate balancing act. The company is trying to rebuild profitability at a time when shoppers are still sensitive to inflation and may cut back on discretionary purchases such as shoes and apparel if fuel and living costs continue rising. Higher gasoline prices and broader price pressure could make that challenge more severe in the months ahead.
For now, Nike says it is focused on what it can control. But the message from the quarter was clear: while the company is making progress in parts of the business, the turnaround is taking time, China remains weak, and the external environment is becoming more uncertain. That combination, more than the earnings beat itself, is what investors reacted to most strongly.
