Nike has exceeded modest earnings expectations under the guidance of its new CEO, Elliott Hill. However, concerns about the impact of tariffs imposed by President Donald Trump continue to unsettle investors. The sportswear giant reported its fiscal third-quarter earnings on Thursday, revealing revenue of $11.27 billion, surpassing the estimated $11.03 billion. Despite this, the figure still reflects a decline from last year’s $12.43 billion. Adjusted earnings per share were reported at $0.54, exceeding forecasts of $0.30, though this too marks a decrease from the $0.98 per share reported a year earlier.
Following Hill’s appointment on October 14, this is the second earnings report under his leadership. Nevertheless, shares fell by 4% in after-hours trading. “We’ve been through a lot of change, but what’s encouraging is that in the 150 days since I’ve been back, we’ve reclaimed our identity. We know who we are. NIKE, Inc. is a sports company,” Hill stated during the earnings call.
Chief Financial Officer Matthew Friend highlighted concerns over Trump’s tariffs, particularly a 20% levy on imports from China. “We expect fourth-quarter gross margins to be down approximately 400 to 500 basis points, including restructuring charges during the same period last year. We have included the estimated impact from newly implemented tariffs on imports from China and Mexico,” Friend explained. This quarter, Nike’s gross margins dipped to 41.5%, falling short of the anticipated 43%. Friend also predicted that fourth-quarter revenue would decrease “in the mid-teens range, albeit at the low end.” Last year’s fiscal 2024 fourth-quarter revenue was $12.61 billion.
Nike’s fiscal third-quarter results, compared to Bloomberg consensus estimates, showed adjusted earnings per share at $0.54 versus $0.30, revenue at $11.27 billion against $11.03 billion, and Nike brand revenue at $10.89 billion compared to $10.6 billion.
The company faces challenges in a competitive market, with brands like On Holding, Skechers, and Hoka gaining traction. Recent tariff news has reignited inflation fears and eroded consumer confidence, which saw a sharp decline in February. CFRA analyst Zachary Warring believes Hill can rejuvenate the company, though he cautions that growth will not mimic the rapid expansion seen 10 to 15 years ago due to Nike’s current market cap of $108 billion, which dwarfs competitors like Adidas at $43 billion, Hoka owner Deckers at $18 billion, and Skechers at $8.4 billion.
Needham & Company analyst Tom Nikic, who maintains a Buy rating on Nike shares, expressed confidence in Hill’s leadership. “I’ve spoken to a lot of industry contacts who all tell me that Elliot’s the real deal. He’s the right person to turn the ship around,” said Nikic. Hill aims to refocus on core sports offerings, according to Nikic, who noted that Nike had strayed too far from its foundational sports apparel and footwear.
Hill’s strategy includes managing inventory to restore the scarcity and desirability of iconic brands like Jordan and Nike Dunks, which had become too easily accessible. Additionally, Nike plans to shift its digital platform to a full-price model with fewer promotions. Hill noted an end to promotional days in North America, highlighting “more elevated content.” CFO Friend anticipates a double-digit decline in digital traffic by fiscal 2026, but expects stabilization and growth with new product launches.
Recently, Nike collaborated with Kim Kardashian’s Skims brand as part of Hill’s push for innovation in both performance and style. Hill is also focused on rebuilding partnerships with retailers such as JD Sports, Dick’s Sporting Goods, and Foot Locker, following Nike’s previous focus on direct-to-consumer strategies. “A lot of people who, when they walked into a Foot Locker … they didn’t find what they were looking for from Nike [and] said, ‘Okay, well, as long as I’m here … I’m going to buy a pair of Adidas or I’m going to buy a pair of New Balance, I’m going to buy a pair of Hokas,’” Nikic commented.
Financial Fallout
The recent developments at Nike present several implications for consumers and the broader market:
- The introduction of tariffs could lead to price increases for Nike products, potentially affecting consumer purchasing decisions.
- Declines in consumer confidence could impact overall spending in the retail sector, influencing sales beyond Nike.
- Nike’s focus on full-price models may limit discount opportunities, affecting affordability for cost-conscious shoppers.
- Partnerships with retailers could enhance product availability and improve consumer experience in stores like Foot Locker.
- As the company emphasizes its digital transformation, consumers might expect more direct engagement and tailored experiences online.
