Nike shares sank to a seven‑month low after fiscal Q2 2026 results. China sales fell again, tariffs squeezed margins, and Converse slumped—raising pressure on the turnaround.
NEW YORK — December 20, 2025 — Nike’s latest earnings report delivered a familiar, frustrating mix for investors: the top line held up better than feared, but the pieces that power long-term confidence—China momentum, pricing power, and margins—moved in the wrong direction.
On Friday, December 19, Nike shares closed down about 11% at $58.71, a seven‑month low and the stock’s biggest one‑day drop since early April’s tariff-driven selloff, according to market coverage and reporting. [1]
The selloff followed Nike’s fiscal second-quarter 2026 results (quarter ended November 30, 2025) and management commentary that—while emphasizing progress in North America—reinforced that the company’s recovery is likely to be uneven and expensive, with China still the toughest battleground and tariffs creating another layer of cost pressure. [2]
Nike earnings: Revenue edged up, but profit and margins fell
Nike reported $12.4 billion in second-quarter revenue, up 1% year over year, with diluted EPS of $0.53. The company pointed to strength in North America and ongoing wholesale momentum, but margins fell sharply. [3]
The headline that spooked markets most: gross margin fell 300 basis points to 40.6%, which Nike said was driven “primarily” by higher tariffs in North America—a notable phrasing that underscores how policy-driven costs are now showing up directly in consumer-brand profitability. [4]
Nike also increased spending to reignite demand and brand energy. Selling and administrative expense rose to $4.0 billion, with demand creation expense up 13% to $1.3 billion (brand and sports marketing were key drivers). [5]
The channel shift is real: Wholesale grows, Nike Direct declines
One of the clearest signals in this quarter was the continued pivot in where Nike is selling product:
- Wholesale revenue:$7.5 billion, up 8%
- Nike Direct revenue:$4.6 billion, down 8% (down 9% currency-neutral) [6]
Nike attributed the Nike Direct decline to a 14% drop in Nike Brand Digital and a 3% decline in Nike-owned stores. [7]
Strategically, rebuilding wholesale relationships can broaden distribution and reduce reliance on discount-heavy DTC cycles. Financially, it’s a tradeoff: wholesale typically carries lower margin per unit than direct-to-consumer sales. Reuters highlighted this tension as part of why investors remain impatient with the pace of improvement. [8]
Regional performance: North America strong, China still sliding
Nike’s geographic split explains a lot about the market reaction.
North America remained the bright spot, with quarterly revenue up 9% to $5.633 billion. [9]
Europe, Middle East & Africa (EMEA) was modestly higher on a reported basis, with revenue of $3.392 billion versus $3.303 billion a year ago (reported change +3%). [10]
Greater China was the problem: quarterly revenue fell to $1.423 billion from $1.711 billion, a 17% decline (currency-neutral decline similar). [11]
Asia Pacific & Latin America also declined, with revenue down 4% to $1.667 billion. [12]
This divergence—U.S. strength against China weakness—is central to why Nike can “beat” expectations and still see the stock punished.
China: Nike’s toughest market is getting tougher—and management says it needs a reset
Reuters reported Nike’s China sales fell for a sixth consecutive quarter, deepening investor concern that what was once Nike’s key growth engine has become its most persistent drag. [13]
The category details make the challenge even clearer. Nike’s own divisional table shows Greater China footwear revenue down 21% for the quarter. [14]
CEO Elliott Hill acknowledged the need to change approach, saying on the earnings call that Nike needs to “reset” its China strategy. [15]
Two pressures stand out:
1) Local competition and price compression
Reuters pointed to intensifying competition from domestic champions including Anta and Li‑Ning, combined with consumer fatigue and price pressure. [16]
Hill also framed a more existential issue for Nike’s positioning in China, saying the brand has drifted into lifestyle-price competition rather than winning through sport-led premium innovation. [17]
2) Digital slowdown
Nike’s struggles aren’t limited to stores. Reuters reported that online sales in China were down 36%, a sharp signal that Nike’s digital playbook is not keeping pace in a market where discovery and conversion are increasingly platform-driven. [18]
Business Insider’s reporting echoed the same theme from a cultural angle, describing a growing “cultural lag” as younger consumers gravitate toward homegrown brands and locally resonant storytelling—often amplified through China’s dominant digital ecosystems. [19]
Tariffs: A “significant headwind” turning into margin reality
If China is the demand problem, tariffs are the cost problem—and together they create a squeeze that’s hard to “market” out of.
Reuters reported that Nike’s CFO Matthew Friend reiterated expectations that steep U.S. tariffs affecting the Southeast Asian countries where Nike manufactures much of its product could cost the company about $1.5 billion this year. [20]
Nike’s own earnings release makes clear that tariffs were not a minor factor: the company said gross margin fell 300 basis points primarily due to higher tariffs in North America. [21]
Investopedia also noted investor sensitivity to the tariff backdrop and tied the size of Nike’s one-day drop to the broader tariff shock earlier this year. [22]
Converse: A major drag that investors can’t ignore
Beyond China and tariffs, Nike has another problem: Converse.
Nike reported Converse revenue of $300 million, down 30% year over year (declines across all territories). [23]
Reuters added that Converse is undergoing a reset following a leadership change in July, highlighting that the turnaround is not just about Nike’s core brand—it’s also about stabilizing key subsidiaries and franchises. [24]
For investors, Converse matters because it’s both:
- A signal of brand heat (or lack of it) in classic sneaker culture
- A margin and inventory-management challenge if the product cycle isn’t landing
Guidance: Why “beat and raise” didn’t happen—and the market reacted
A big reason Nike stock fell despite a revenue beat is forward expectations.
Reuters reported Nike expects third-quarter revenue to be down in the low-single digits, which includes the December holiday period—when investors typically want to see strength and operating leverage. [25]
Nike also expects further margin pressure: Reuters reported the company guided for gross margins to fall by 175 to 225 basis points in the current quarter. [26]
Investopedia similarly emphasized that Nike’s weaker-than-expected outlook—and the possibility that China headwinds persist through the fiscal year—helped drive Friday’s selloff. [27]
The “Win Now” turnaround: What Nike says is working—and what still isn’t
Nike’s leadership continues to describe the recovery as underway but incomplete. Reuters quoted Hill saying results were “slightly better” than anticipated, yet still “nowhere near” Nike’s potential, and again used the phrase that the company is in the “middle innings” of its comeback. [28]
From the quarter’s details, several “working” elements are visible:
- North America growth is returning, especially through wholesale partners. [29]
- Nike is investing in marketing (demand creation up 13%) to rebuild momentum. [30]
- Inventories fell 3% to $7.7 billion, suggesting progress managing stock levels even as the company rebalances assortments. [31]
But the quarter also underscored that the reset has costs:
- Nike is selling through older inventory with discounting and shifting mix toward wholesale—both of which can pressure margins in the near term. [32]
- China is not just weak—it may be structurally more complex to fix quickly, given retail dynamics, platform ecosystems, and local competition. [33]
Sports Business Journal highlighted Nike’s argument that even with tariff impacts, the North America playbook is improving profitability trajectory—while also documenting how deeply China profitability has weakened. [34]
Market context: Nike sank even as the broader market rose
Nike’s plunge stood out because it happened on a day when U.S. stocks ended higher, led by a tech rebound.
Reuters reported the major indexes closed up on Friday, and specifically called out Nike’s steep decline as one of the consumer-sector drags amid the broader rally. [35]
That contrast—market strength vs. Nike weakness—helped reinforce the idea that this was a company-specific reset, not just macro noise.
What’s new on December 20: The story investors are watching this weekend
With markets closed Saturday, the Nike conversation has shifted to “what comes next.” Weekend analyst notes and summaries are largely circling the same set of variables: margin stabilization, China reacceleration, and whether Nike can rebuild premium pricing while reducing promotions. [36]
Nike’s next major test is whether management can show tangible improvement in China—especially in digital and footwear—without sacrificing too much profitability to discounting and tariffs.
Key questions heading into the next quarter
Can Nike regain traction in China without competing on price?
Nike leadership has been blunt that brand positioning has slipped in China, and that the fix requires a reset—not just more product. [37]
How quickly can margins stabilize if tariffs remain in place?
With Nike itself citing tariffs as the primary driver of the 300-basis-point gross margin decline, even small policy or sourcing shifts could have outsized earnings implications. [38]
Is Converse a temporary slump—or a deeper brand problem?
A 30% revenue decline is severe. Investors will look for evidence that the leadership reset and product pipeline can stop the slide. [39]
FAQ: Nike earnings and stock drop (December 2025)
Why did Nike stock fall after beating earnings expectations?
Because investors focused on weaker forward guidance, continued China declines, and sharp margin pressure tied to tariffs and channel mix—factors that could keep profits under pressure even if revenue holds up. [40]
How bad was Nike’s China performance this quarter?
Greater China revenue fell 17% year over year, with footwear down 21%, and Reuters reported online sales down 36%—marking a sixth straight quarterly decline in China sales. [41]
What happened to Converse?
Nike reported Converse revenue fell 30% to $300 million, with declines across all territories; Reuters noted the brand is in reset mode after a leadership change earlier this year. [42]
How big is the tariff impact on Nike?
Reuters reported Nike expects about $1.5 billion in costs from tariffs this year, and Nike said higher tariffs in North America were the primary reason gross margin fell 300 basis points. [43]
References
1. www.reuters.com, 2. investors.nike.com, 3. investors.nike.com, 4. investors.nike.com, 5. investors.nike.com, 6. investors.nike.com, 7. investors.nike.com, 8. www.reuters.com, 9. investors.nike.com, 10. investors.nike.com, 11. investors.nike.com, 12. investors.nike.com, 13. www.reuters.com, 14. investors.nike.com, 15. www.reuters.com, 16. www.reuters.com, 17. www.reuters.com, 18. www.reuters.com, 19. www.businessinsider.com, 20. www.reuters.com, 21. investors.nike.com, 22. www.investopedia.com, 23. investors.nike.com, 24. www.reuters.com, 25. www.reuters.com, 26. www.reuters.com, 27. www.investopedia.com, 28. www.reuters.com, 29. investors.nike.com, 30. investors.nike.com, 31. investors.nike.com, 32. www.reuters.com, 33. www.reuters.com, 34. www.sportsbusinessjournal.com, 35. www.reuters.com, 36. www.tipranks.com, 37. www.reuters.com, 38. investors.nike.com, 39. investors.nike.com, 40. www.reuters.com, 41. investors.nike.com, 42. investors.nike.com, 43. www.reuters.com
