Nike Shares Plunge as Profitability Pressures Mount

Nike Inc. released its Q2 fiscal 2026 results, triggering a severe market selloff that pushed its stock price to a seven-month low near $58. The dramatic decline was fueled by a sobering forward outlook, weighed down by significant tariff headwinds and a historic downturn in the critical Chinese market. The pressure is now squarely on CEO Elliott Hill to demonstrate the efficacy of his ongoing turnaround plan for the sportswear giant.

A surface-level review of the quarterly figures shows a mixed picture. Nike reported earnings per share (EPS) of $0.53, notably surpassing analyst consensus estimates of $0.38. Revenue saw a marginal increase of 1%, reaching $12.4 billion. However, the company's future guidance contained the distressing news that rattled investor confidence.

Management issued a stark warning regarding substantial pressure from import tariffs, projecting an estimated impact of approximately $1.5 billion for the current fiscal year. This announcement was the primary catalyst for the sharp decline in share value. A deeper look reveals a significant contraction in profitability, with the gross margin collapsing by 300 basis points to 40.6%, signaling severe strain on the company's cost structure.

China: From Growth Engine to Major Headache

The most alarming development is the continued free-fall in Greater China, Nike's once-reliable growth pillar. Revenue in the region declined for the sixth consecutive quarter, plummeting 17% to $1.42 billion. The footwear segment was hit even harder, posting a 21% drop. This dramatic reversal of fortune has transformed the region into the company's most pressing challenge.

During the analyst call, CEO Elliott Hill conceded that Nike's current strategy in China is failing. The brand is losing ground to agile local competitors while simultaneously battling a weak consumer spending environment. Hill's lack of a detailed, concrete plan for a necessary "reset" in the region further unnerved the investment community.

Should investors sell immediately? Or is it worth buying Nike?

Key Financial and Operational Metrics:

• Total Revenue: $12.4 billion (+1% year-over-year)
• Earnings Per Share (EPS): $0.53 (-32% year-over-year)
• Gross Margin: 40.6% (-300 basis points)
• Greater China Revenue: -17%
• Projected Tariff Impact: ~$1.5 billion
• Direct-to-Consumer (DTC) Sales: -8%

Direct Sales Strategy Shows Cracks

Nike's strategic pivot toward its direct-to-consumer (DTC) channels is also exhibiting weakness. Sales through owned channels fell by 8%, with digital sales experiencing a steeper 14% decline. While the company is shifting back toward greater wholesale distribution, this strategic rebalancing has so far failed to protect margins. The data suggests Nike's pricing power is eroding across its sales ecosystem.

Market experts view these results as an indication that the company's "Win Now" strategic overhaul remains in its early stages. Tangible evidence of success may be slow to materialize—a luxury of time the market appears unwilling to grant Nike at present.

The technical picture for the stock is decidedly bearish. The equity has broken through key support levels and is trading near its annual low. Institutional investors are reducing their positions. Although some buyers are attracted by the now-elevated dividend yield of around 2.8%, this interest is insufficient to counter the prevailing selling pressure. Until the China business stabilizes and margins begin to recover, the path of least resistance for the shares remains downward.