Nike Inc. sign on the floor of the New York Stock Exchange, December 31, 2025.
Michael Nagle | Bloomberg | Getty Images
when nike After third-quarter results were released Tuesday night, investors were looking for evidence that the company’s recovery is on track.
In fact, the company’s turnaround is far from over, with its shares falling more than 15% on Wednesday.
Finance chief Matt Friend warned on a call with analysts that sales will continue to decline by low single digits through the end of this year as a decline in China is expected to offset strength in North America.
The company expects sales to fall 2% to 4% this quarter, worse than the 1.9% growth that analysts had expected, while sales in China are expected to fall 20%, even with a 2 percentage point benefit from foreign exchange rates. Nike’s efforts to clean up its inventory and promote full-price sales in China are expected to last through fiscal 2027, which is scheduled to end next spring, and remain a drag on revenue growth.
The company expects to start experiencing the impact of the tariff hikes in the first quarter of fiscal 2027, scheduled for this summer, which could make year-over-year profit comparisons easier. Executives expect gross margins, if they start expanding, could start expanding by the end of the year during the retailer’s fiscal second quarter of 2027.
Nike’s gross profit margin has declined year-over-year for seven consecutive quarters, and it may be difficult to improve this metric at this point as the Middle East wars could increase product input costs.
“Our environment is increasingly dynamic and we may experience unplanned fluctuations due to turmoil in the Middle East, rising oil prices and other factors that may impact input costs and consumer behavior,” Friend said. “We are focused on what we can control and these assumptions reflect the current macro environment.”
A slow turnaround, continued bad news, and the number of business units Nike needed to fix to stabilize the company as a whole spooked investors. There was some good news, including better-than-expected sales in China, higher wholesale revenue, and continued growth in North America, but it wasn’t enough to lift the stock price.
On Wednesday morning, three major Wall Street banks goldman sachs, JP Morgan and bank of americaall downgraded the stock, citing a slow recovery, growing headwinds, and declining patience.
“While we had expected growth to return in Q1 ’27 due to improved product innovation performance and wraparound Win Now initiatives, management has instead initiated guidance for sales to remain negative through Q3 ’27,” Bank of America analyst Lorraine Hutchinson said in a note to clients on Wednesday. “While strong performance in Running and NA was the reason for our patience, we believe there is little room for multiple expansions with the sales inflection point looming in nine months, leading to the downgrade.”
Throughout a conference call with Nike analysts on Tuesday, Friend and CEO Elliott Hill continued to predict a return to sustained growth, but was again vague about the timeline.
“In the near term, we are confident that we are on track to return to balanced growth in North America in both Nike Direct and wholesale channels,” Friend said.
In his remarks, Hill reiterated that the recovery is taking longer than expected.
“This is a complex task, and some tasks are taking longer than expected, but the direction is clear,” Hill said. “The urgency is real and the foundations are becoming stronger.”
