Nike's stock dives, as sales warning shows turnaround plan still isn't working

By Bill Peters

'This is complex work, and parts of it are taking longer than I'd like,' CEO says of Nike's rebound efforts

Nike reported quarterly results on Tuesday afternoon.

Shares of Nike sank toward an 11-year low in early Wednesday trading, as executives at the sneaker giant forecast more falling sales in the months ahead and conceded that the company's turnaround efforts were taking longer than they'd wanted.

Management made the forecast as gains in running shoes, soccer gear and a rebound in North America run up against an array of other problems. Those issues include efforts to sell off an excess of casual sneakers that have fallen out of style; weakness in sportswear; U.S. tariffs that continue to fluctuate; struggles in China, and plans to address them that will likely hurt sales.

"This is complex work, and parts of it are taking longer than I'd like," CEO Elliott Hill said of Nike's comeback efforts on the company's earnings call late Tuesday.

The stock (NKE) dropped 10.6% in Wednesday's premarket, enough to pace the S&P 500 index's SPX early decliners. The selloff put the stock on track to open at the lowest price seen since February 2015.

In North America, management said it was not yet seeing any signs of consumer hesitation as the Iran war drives up gas prices and rattles markets. But it did say disruptions in the Middle East and heavy discounting in Europe could leave it with extra unsold product in those regions.

Nike is trying to recover from weaker demand in recent years, as higher prices for basics steer people away from sneaker purchases, and as it squares off against rival brands like Hoka and On Running. The company's stock as of last week hovered at nine-year lows. On Monday, the stock closed at its lowest price since October 2017.

Analysts have debated the state of Nike's efforts to cut costs, make more products that suit athletes' needs, and push further into running shoes and women's apparel. But ahead of Tuesday's results, UBS analysts said that data showed some of Nike's newer offerings weren't catching on with customers.

Hill on Tuesday said that Nike expects to finish taking actions related to its turnaround by the end of the calendar year. But through the end of that period, Nike also said it expects revenue to be down in the low-single-digit percentage range.

For its fiscal fourth quarter, which runs through May, Nike expects sales to fall 2% to 4%, weighed down by weaker trends in its Converse segment and difficulties in China, whose economy has been shaky. The current average analyst sales estimate compiled by FactSet of $10.92 billion implies a decline of 1.6%.

In December, Nike said it had underinvested in stores in China, and had thrown itself too heavily into the discounting fray there, rather than trying to position itself as a hub for premium products. Nike is currently testing out new stores in the region and is trying to clear out older products, and it has brought in new leadership for its business there. But as it tries to make improvements in China through the next fiscal year - its fiscal 2027 - management said sales growth there would likely be more subdued as a result.

Nike on Tuesday reported quarterly results that were a bit better than Wall Street's expectations. But Hill said progress was "different" across various areas of the business.

Nike said that for its fiscal third quarter that ran through February, sales were flat from the previous year at $11.28 billion, as gains in North America offset continued struggles in China. The company earned 35 cents a share, down from 54 cents a share the prior year.

The average estimates among analysts polled by FactSet were for sales of $11.23 billion and earnings per share of 29 cents.

Sales for Nike's business with outside retailers rose 5% during the quarter. However, sales at its own physical and online stores fell 4%. Gross margin, a measure of the profitability of sales, fell to 40.2%, from 41.5%.

After trying to sell more products itself over recent years, Nike has tried to work more with retail chains to recharge sales growth. And after competition and discounting hurt online sales, the company has tried to turn its own stores and its e-commerce business into a destination for higher-end, full-priced products.

Under Hill's leadership, Nike has also tried to thin down or sell off its stockpiles of its classic casual sneakers, like Dunks and Air Force 1s, whose popularity has waned after Nike flooded the market with them. But those efforts weighed on results. Hill, on Tuesday, said that by the end of Nike's current fiscal year, "we will have intentionally reduced over $4 billion of revenue from the peak levels of classic footwear franchises."

Nike's results also came after the Supreme Court in February struck down President Donald Trump's emergency-powers tariffs. Last year, Nike said it faced an extra $1.5 billion in tariff-related costs.

On Tuesday, Nike Chief Financial Officer Matthew Friend said barring any major changes to the U.S.-led trade war, the first quarter of the company's next fiscal year would likely be the last quarter in which higher tariffs would be a significant threat to gross margins.

He also said that Nike would resume offering full-year and long-term financial forecasts at its investor day in the fall.

As of Tuesday's close, Nike's stock had dropped 18.4% over the past 12 months, while the S&P 500 had gained 15.9%.

-Bill Peters

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04-01-26 0711ET