Nike (NKE) Stock Plunges 10% as Margin Pressures Overshadow Earnings Beat

Nike just delivered a classic Wall Street magic trick: beat the earnings number, watch the stock drop double digits anyway.

The Numbers Game

The sportswear giant posted quarterly figures that technically topped analyst estimates. But the market's reaction was a brutal 10% sell-off. The culprit? Surging costs and supply chain snarls are squeezing profit margins—hard. Investors saw past the headline beat straight to the crumbling bottom line.

Margin Mayhem

It’s a stark reminder that in today's market, guidance and future profitability often trump backward-looking results. Rising freight, material, and labor expenses are eating Nike's lunch, proving that even a brand with global cachet isn't immune to macroeconomic gravity.

The Street's Verdict

Analysts are scrambling to adjust models, with downgrades likely on the horizon. The takeaway? A 'beat' means nothing if you can't protect the margin. It’s another lesson in why traders often sell the news—especially when that news comes with a side of deteriorating fundamentals. Just another day where the fine print costs shareholders more than the headline earns them.

TLDR

• Nike beat Q2 earnings expectations with EPS of $0.53 versus $0.37 expected and revenue of $12.43 billion versus $12.2 billion expected
• Stock dropped 10% in premarket trading despite the earnings beat due to gross margin compression of 300 basis points to 40.6%
• North America sales grew 9% to $5.6 billion while China sales plunged 17% to $1.42 billion, missing estimates
• Higher US tariffs and promotional activity to clear excess inventory drove margin pressure, with full-year tariff impact estimated at $1.5 billion
• Profits fell 32% to $792 million as the company works through inventory issues and attempts to revive the brand in China

Nike reported fiscal second-quarter results that topped Wall Street expectations, but investors weren’t buying it. The stock tumbled 10% in premarket trading Friday as margin concerns overshadowed the revenue and earnings beat.

$NKE (Nike) #earnings are out: pic.twitter.com/C81Jh9l9tZ

— The Earnings Correspondent (@earnings_guy) December 18, 2025

The sportswear giant posted earnings per share of $0.53 on revenue of $12.43 billion. Analysts had expected EPS of $0.37 on revenue of $12.2 billion. Despite the beat, profits dropped 32% to $792 million from the year-ago period.

The problem wasn’t the top line. It was what happened to the bottom line along the way.

NIKE, Inc., NKE

Gross margin fell 300 basis points to 40.6%. That compression came from two main sources: aggressive promotional activity to clear excess inventory in North America and higher tariffs.

CFO Matthew Friend estimated the full-year tariff hit at $1.5 billion. That’s unchanged from the company’s September projection. The tariff impact continues to eat into profitability as Nike manages elevated input costs.

North America Rebounds While China Struggles

North America delivered the bright spot in the quarter. Sales in the region jumped 9% to $5.6 billion. The running franchise performed well and helped offset weakness elsewhere.

China told a different story. Revenue in Greater China plunged 17% to $1.42 billion, missing analyst estimates of $1.6 billion.

CEO Elliott Hill acknowledged the China problem directly. “It’s going to take a fresh perspective, a new approach,” Hill said. He’s reorganized his executive team so the China division chief now reports directly to him.

Hill said the company is “in the middle innings” of its comeback. But the China turnaround “not happening at the pace we like.”

Inventory fell 3% to $7.7 billion. Friend said the inventory position has improved in North America compared with earlier quarters when excess merchandise depressed margins.

The promotional activity that hurt margins was necessary to clear that excess stock. Nike has been working through inventory glut issues that built up over previous quarters.

Friend said additional actions are needed in China to “break the cycle that we’ve been managing through.” The company has made progress but more work remains.

Analysts Express Concern

Jefferies analyst James Grzinic said “the market seems underwhelmed by the scale of sales acceleration and moderation of gm pressures to come in the months ahead.”

Neil Saunders, managing director of GlobalData, said Nike remains “behind the curve” in casual and fashion categories. The China weakness “reflects a brand that is not connecting culturally in a way that rivals are,” Saunders said.

Saunders noted Nike must find ways to replicate its running success across other sports. The company is making progress overall but “this quarter’s results underline how much work remains to be done.”

Hill plans product rollouts around the Olympics, World Cup and other major 2026 events. He’s promised to return Nike to “a beloved, premium and innovative brand in China.”

The revenue increase of 1% to $12.4 billion during the quarter showed modest growth. But the 32% profit decline highlighted the margin pressure the company faces from tariffs and promotional activity.