Nike’s stock surged 15.2% on Friday as investors reacted to signs that the company’s recent sales and profit declines may soon slow, even though new U.S. tariffs are expected to cost Nike nearly $1 billion. The company is working to diversify its manufacturing away from China to offset these rising costs.
For the quarter ending May 31st, Nike’s revenue dropped 12% to $11.1 billion, which was better than Wall Street’s forecast of a nearly 15% decline. Gross margins fell by 4.4 percentage points (or 440 basis points) and are expected to decrease further by 3.5 to 4.25 percentage points this quarter. Adjusted earnings per share were $0.14, much lower than the $1.01 reported in the same quarter last year, but slightly above analyst predictions. Same-store sales at Nike-owned stores rose 2%, beating expectations.
CFO Matthew Friend described the new tariffs as a “meaningful cost headwind,” with a $1 billion impact and a 1 percentage point hit to gross margins. He said Nike plans to fully offset these costs over time.
Nike is reducing its reliance on Chinese suppliers, which currently account for 16% of U.S. footwear imports. The company aims to lower this to the high single digits by year-end. A targeted U.S. price increase is also planned for this fall.
Nike’s struggles in China continued, with a 20% revenue drop in the region last quarter. The company has been diversifying its manufacturing since 2016, cutting its apparel and footwear production in China by significant margins.
Despite ongoing challenges—including weaker consumer confidence and stiff competition—Nike’s CEO expressed optimism about the company’s progress and future prospects. Nike is also launching new products and strengthening partnerships with key retailers as it works to regain momentum.