Nike Shares Tumble as Profit Plunge Alarms Market

Investors were met with an unwelcome surprise as Nike's latest quarterly earnings revealed a stark divergence between top-line stability and bottom-line distress. The sportswear giant's stock plummeted to a seven-month low following the report, pressured by a toxic combination of punitive tariffs and persistent weakness in the critical Chinese market. The sell-off was exacerbated by signs that major institutional holders are beginning to exit their positions.

For the recent quarter, Nike's revenue showed modest resilience, climbing 1% to $12.4 billion, a figure that slightly exceeded analyst projections. However, this superficial stability masked a severe erosion in profitability. The company's earnings per share collapsed by 32% year-over-year to $0.53. Net income followed a similar trajectory, falling by nearly one-third to $0.8 billion. This alarming gap between steady sales and evaporating profits triggered intense selling pressure, making Nike the worst performer in the Dow Jones Industrial Average.

Tariff Headwinds Weigh Heavily on Results

A primary driver behind the profit contraction is a significant burden from trade tariffs. These charges compressed the gross margin by 300 basis points to 40.6%. Management has quantified the full-year tariff-related costs for fiscal 2025 at approximately $1.5 billion, a fiscal drag that completely consumes the minimal revenue growth. Guidance for the upcoming third quarter points to continued pressure, with an anticipated further margin decline of 175 to 225 basis points.

Strategic Pivot Amid Persistent China Weakness

The company's challenges in China remain a focal point for concern. Revenue in the region declined by 17% in Q2, marking the sixth consecutive quarter of contraction. Market experts interpret this trend not as a temporary setback but as indicative of deeper structural issues within one of Nike's most vital growth engines.

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

Concurrently, Nike is undergoing a notable, if involuntary, shift in its distribution strategy. After years of prioritizing its direct-to-consumer "Nike Direct" channel, the dynamics have reversed:
* Nike Direct sales fell by 8%, with the digital business within that segment dropping sharply by 14%.
* In contrast, revenue from the wholesale business grew by 8%.

This reversal suggests the company is increasingly reliant on partner retailers to clear inventory, as its own digital channels lose momentum.

Valuation Concerns and Institutional Selling

Confidence among professional investors appears to be wavering. Reports indicate that Thrivent Financial, for example, drastically reduced its stake in Q2 by almost 96%, divesting over 1.3 million shares. Despite the sharp decline in share price, Nike's valuation remains elevated with a price-to-earnings (P/E) ratio of approximately 34. This contrasts with an industry average near 20, potentially limiting the scope for a near-term recovery.

A rapid turnaround seems unlikely. CEO Elliott Hill characterized the current situation as the "middle phase" of a comeback. The company's own forecast for the next quarter anticipates a revenue decline in the low single-digit percentage range, suggesting the challenging period for shareholders is set to continue.

Key Price Data & Metrics

• Friday Closing Price: €50.28
• 7-Day Change: -12.81%
• Year-to-Date (YTD) Performance: -29.96%
• 52-Week Low: €47.03 (April 16, 2025)
• Distance from 52-Week High: -35.30%
• 200-Day Moving Average: €57.98