Nike Drops 9% as China Sales Collapse, Turnaround Delayed
Nike warns of 20% China sales decline this quarter as Elliott Hill's turnaround faces first real setback. Stock falls in extended trading.
Nike shares fell 9% in extended trading Tuesday after the company warned that sales will continue declining through fiscal 2026, with Greater China expected to drop 20% this quarter.
The guidance overshadowed a modest revenue beat. Nike reported $11.27 billion in third-quarter sales against the $11.22 billion consensus, with earnings per share of $0.54 versus $0.29 expected. But investors zeroed in on what comes next.
The China Problem
Greater China revenue fell 7% year-over-year to $1.62 billion in Q3. That's bad. The forward guidance is worse.
Management projects China will decline roughly 20% in the current quarter as the company reduces sell-in levels and works to "streamline the marketplace." Translation: they're clearing inventory and resetting expectations before attempting a real recovery.
This is Elliott Hill's first quarterly report since taking over as CEO last October. As we noted in our earnings preview, the call was always about trajectory rather than one quarter's numbers. The trajectory looks challenging.
Hill inherited a mess. His predecessors shifted away from wholesale partnerships in favor of direct-to-consumer sales, a strategy that worked until competitors like On Running and Hoka filled the retail shelf space Nike vacated. Rebuilding those wholesale relationships takes time—time the market isn't sure it wants to give.
Tariff Headwinds
The external environment isn't helping. Nike manufactures primarily in Vietnam, Indonesia, and China, exposing the company to an estimated $1.5 billion in annual tariff costs under the current regime.
Gross margin came in at 41.5%, down 330 basis points year-over-year. Some of that reflects promotional activity to clear aging inventory. Some reflects cost pressures that aren't going away.
Management said they're implementing pricing actions and supply chain adjustments to offset tariff impacts, but didn't provide specific margin guidance. That ambiguity spooked investors already nervous about the China outlook.
What's Working
Converse posted decent results, with flat revenue after several quarters of declines. That's not exciting, but it suggests the restructuring efforts are stabilizing the worst-performing segment.
Innovation is starting to flow again. Hill highlighted upcoming launches in running and basketball, categories where Nike needs to reclaim mindshare lost to competitors. The Air Max Dn and Pegasus 41 received positive early feedback.
Wholesale partners spoke constructively on their own earnings calls this quarter. Foot Locker and Dick's Sporting Goods both noted improved engagement with Nike. The reset is happening, it's just not showing up in quarterly results yet.
The Turnaround Math
Nike at $52 is either a generational buying opportunity or a value trap. The stock has fallen roughly 60% over five years while competitors have thrived.
| Metric | Q3 FY2026 | Q3 FY2025 | Change |
|---|---|---|---|
| Revenue | $11.27B | $12.43B | -9.3% |
| Gross Margin | 41.5% | 44.8% | -330 bps |
| China Revenue | $1.62B | $1.74B | -7% |
| EPS | $0.54 | $0.77 | -30% |
Wall Street's consensus price target of $76 implies 45% upside from current levels. Twenty-five of 40 covering analysts rate Nike a Buy. But conviction is fragile—several firms have cut targets in recent weeks.
The bull case requires believing that Hill can execute the wholesale rebuild, launch compelling products, stabilize China, and navigate tariff pressures simultaneously. It's a lot to ask in twelve months.
The bear case notes that Nike's problems are structural, not cyclical. The brand lost cultural relevance. Competitors caught up on product innovation. The direct-to-consumer pivot damaged retail relationships that took decades to build.
Looking Ahead
Q4 guidance calls for overall revenue to decline low single digits, with the 20% China drop dragging down results. Management expects margin pressure to continue as they work through inventory.
The real test comes in fiscal 2027. Consensus estimates call for $2.37 EPS on approximately $48.6 billion in revenue, representing meaningful recovery from the current trough. Hit those numbers and the stock works. Miss them and the turnaround narrative collapses.
Hill emphasized patience on the call. "We're making the right investments in brand, product, and marketplace," he said. "The results will follow." Investors have heard that before from Nike CEOs. This time, they're not sure they believe it.
The market's verdict was swift: down 9% after hours, giving back gains from Monday's broader rally. Nike needs to show progress, not promise it. Until then, the turnaround remains a hypothesis rather than a fact.
For more on retail and consumer stocks, see our Earnings coverage.