Sometimes you can do everything right and still lose. That's essentially what happened to Nike Inc. (NKE) on Friday, when a legitimately impressive earnings beat got completely overshadowed by one uncomfortable word: tariffs.
The numbers themselves looked great. Nike posted second-quarter revenue of $12.43 billion, beating expectations, while earnings per share hit 53 cents versus the 38-cent consensus. That's a meaningful beat. Nike Brand revenue climbed 1% to $12.1 billion, and wholesale revenue jumped 8% to $7.5 billion, helping offset an 8% decline in Nike Direct sales to $4.6 billion as the company continues rebalancing its distribution strategy.
So what's the problem? Well, the future is the problem.
The Tariff Talk That Changed Everything
CFO Matt Friend delivered the news that sent the stock sliding: third-quarter revenue is expected to decline in the low single digits, with gross margin projected to contract by 175 to 225 basis points. But the real gut punch came when Friend spelled out the tariff situation. Reciprocal tariffs are expected to create a $1.5 billion annualized headwind and pressure margins by more than 300 basis points. And those corrective actions everyone's hoping for? They'll take time to materialize.
That's the kind of guidance that makes investors forget about your great quarter and start doing some uncomfortable math about the quarters ahead.
China Keeps Getting Worse, North America Looks Better
The geographic story is getting harder to ignore. Greater China revenue dropped 16%, with digital sales absolutely cratering at down 36%. CEO Elliott Hill didn't sugarcoat it, describing China as "a longer road to a healthier business" and acknowledging the recovery is moving slower than anyone wanted. Heavy promotions and weaker demand continue to plague the region.
North America, on the other hand, is actually pulling its weight. Regional revenue climbed 9%, offering at least one bright spot in an otherwise cautious outlook.
Analysts Slash Targets But Hold Their Ratings
Following the earnings call, analysts scrambled to revise their forecasts downward while mostly maintaining their ratings. Bank of America Securities' Lorraine Hutchinson kept her Buy rating but slashed her price target to $73 from $84. Piper Sandler's Anna Andreeva maintained an Overweight rating while cutting her target to $75 from $84.
Telsey Advisory Group's Cristina Fernandez reiterated Market Perform with a $72 target, down from $75, and Needham's Tom Nikic held onto his Buy rating but dropped his forecast to $68 from $78.
The stock tells the story clearly enough. Nike shares closed Thursday at $65.63, then tumbled in after-hours trading and kept falling into Friday's premarket session.
NKE Price Action: Nike shares were down 11.34% at $58.19 during premarket trading on Friday.
