Nike’s Q1 Earnings Miss Sparks 12% Stock Plunge Amid Tariff Fears and Softening Demand

Share of Nike Inc. (NKE): Shares of Nike Inc. (NKE) collapsed 12% in pre-market trading today after the company issued its fiscal first-quarter earnings report that showed a revenue contraction and margins strangled by escalating costs, more than previously predicted.

Athletic apparel giant posted a decline in quarter-ended revenue of 10 per cent to $11.2 billion, compared to the previous year, and short of estimates of $11.5 billion suggested by analysts. Adjusted earnings per share were lower at $0.45 compared to the consensus of 0.70, which caused shockwaves in the consumer discretionary market.

The earnings fall marks the culmination of a challenging month for Nike, whose stock is already down 8 per cent year-to-date, amid broader concerns about declining consumer spending and intensifying competition from newcomers such as On Holding and Hoka.

The current decline pushed the stock to its bottom since early 2023, as they were traded at around 78 per share in initial indications. Its sell-off destroyed about $15 billion in market capitalisation, which underscored investor concern about the firm managing a shaky macroeconomic environment.

Breakdown of Revenue Bares Worldwide Tailwinds

Going into the figures, Nike sales in North America dropped by 5 per cent to 4.8 billion, dwindled by a 15 per cent decline in the online sales to back stores to their physical stores following economic uncertainty.

In Europe, the Middle East, and Africa, the revenue dropped 12 per cent to $3.1 billion, which was made worse by the currency variations and decreased demand for performance footwear. Greater China, which was in the past a bright spot, declined by 20% to $1.8 billion as normalisation after the pandemic and even local competition between brands such as Anta intensified.

According to the executives, the margin erosion was caused by factors such as unfavourable shifts in the input costs and supply chain disruption. Gross margins narrowed to 42.1 per cent versus 44.5 per cent a year earlier because of the increased freight costs and advertising to sell surplus inventory.

In the earnings call, CEO John Donahoe stated that the company is actively controlling its inventory levels, which are currently at $7.6 billion, a decrease of 9 per cent over the past year but higher than they were before the pandemic.

The report is issued against the backdrop of increasing U.S. trade tensions, where the administration of President Donald Trump will impose 30 per cent tariffs on imported clothing and footwear beginning October 1.

Nike, which outsources more than 90% of its products to Asia, threatened that such steps would incur an increase of $500m in the annual expenditure and thus could compel it to raise prices in demand-dampening terms. We are also looking at diversification of our supply chain, said Donahoe, more production in Vietnam and Indonesia, but analysts point out that such changes would be years away unless they happen.

Wall Street Resorts to Downgrades, Price Target Reductions

The fallout on earnings was a cause that led to an immediate response by the analyst fraternity. Piper Sandler lowered its rating of Nike to its Neutral rating of Overweight, cutting the price target to 85 instead of 105, due to perceived continuing risks in execution in the high-interest-rate environment.

Bank of America subsequently reduced its target by cutting it to $90 and saying that tariff headwinds would squeeze margins by 200 basis points in fiscal 2026. Bullish analysts such as JPMorgan had a Buy rating but reduced expectations, predicting only 2 per cent of revenue growth over the entire year.

According to Wedbush analyst Tom Nikic, the brand moat of Nike is there, but macro pressures over the next few years obscure the immediate visibility. The company should speed up innovation in the lifestyle category to regain market share with streetwear competitors. Stocks of those rivals, such as Lululemon Athletica and Under Armour, dropped 3-5% on sympathy, and the S&P 500 Consumer Discretionary Select Sector Index dropped 1.2%.

The social media investor mood reflected despondency, as on-hashtags such as NikeEarnings trended, with retail traders complaining about the stock’s poor performance. One of the frequent posts was wailing, “High in Jordan, low in tariff–NKE must turn on a dime. The volume of trading was increased to an excess of 50 million shares within the first hour, which is evidence of high institutional selling.

Strategic Overhaul: Innovation and Cost-Cutting in Focus

Nike, in reaction to the quarterly debacle, had come up with a multi-pronged turnaround strategy to help it regain growth. The company also declared a two-year, two-billion-dollar savings program of saving overheads in the marketing and administrative segments, but not in research and development. This involves reducing its global corporate workforce by 5 per cent, which will impact about 2,000 employees based mainly in Beaverton, Oregon.

On the product side, Nike spoke to future releases in its sustainability category, such as a recycled-material Air Force 1 that will launch in November. The company even hinted at growth in female athlete apparel and direct-to-consumer services, where sales currently make 45 per cent of total revenues.

The Chief Marketing Officer, Heidi O’Neill, said they were doubling their efforts on athlete-led storytelling to reach their core consumers, citing their work with celebrities like Serena Williams and LeBron James.

Subsequently, Nike projected in the future that revenue would be down 8-10 per cent versus the previous year in the fiscal second quarter, with EPS of $0.50 to $0.60. Year-round forecasts were also muted, with revenue growth pegged at low single digits to flat, and operations margins at 11-12. The management was optimistic about the Olympics in 2028 as a trigger, but said that geopolitical risks were the wild card.

Broader Market Implications Amid Fed Watch

The Nike rout today is conducted as Wall Street digests new inflation data with an increase of core PCE prices in August by 0.3, slightly higher than expected. This pushed Treasury yields in the upward direction, and the 10-year note rose to 4.2, straining growth stocks.

The S&P 500 barely managed to advance 0.12 per cent and ended at 6,669, with improvement by tech giants such as Alphabet but underperforming consumer names.

As a possible government shutdown is looming after a deadline of midnight today, investors are preparing for volatility. Economists caution that the continued fiscal stalemate would take 0.5 per cent off GDP growth in Q4, with discretionary spending being the worst hit. To Nik,e this is another twist of fate to an already tight rope of recovery.