Despite a challenging financial quarter characterized by a 12% revenue drop, Nike made waves in the stock market on Friday. With shares skyrocketing by 15%, investors showed their faith in the sportswear giant’s future. CEO Elliott Hill voiced his optimism for the coming fiscal year in a call with analysts, despite an anticipated tariff-fueled cost increase estimated at $1 billion.
Projected Turnaround Despite Tariff Costs
During the Q4 earnings call, Nike’s leadership prepared investors for cost increases driven by tariffs, along with reduced profit margins. However, the company’s quarterly report surpassed Wall Street forecasts, leading to a surge in share prices.
Although earnings per share fell 86% to 14 cents, they still beat Wall Street predictions by one cent. Despite a drop in revenue to $11.1 billion, it surpassed expectations of $10.7 billion.
While acknowledging that the earnings results were “not up to the Nike standard,” Hill expressed confidence in the company’s turnaround strategy.
Strategizing to Offset Tariff Costs
CFO Matt Friend estimated that tariff costs will be around $1 billion. He assured analysts that Nike aims to “fully mitigate” these costs over the next fiscal year. The company plans to reduce U.S. imports of Chinese-made products, implement price increases from the fall, and cut back on corporate costs.
According to the company, Q4 gross margins declined primarily due to steeper discounts. Nike’s leadership expects these margins to decrease even further in the fiscal year 2026, with the most significant impact in the first half.
Trade Deal Implications
Last Thursday, President Donald Trump and his Commerce Secretary Howard Lutnick announced a new trade deal with China. However, 30% tariffs will remain in place.
As it stands, approximately 16% of Nike’s footwear imports originate from China. Friend anticipates this figure will “reduce to the high-single digit range by the end of fiscal ’26.” He added that despite the high tariffs for Chinese products imported into the U.S., “manufacturing capacity and capability in China remains important to our global source base.”
Analyst Reactions
Following the earnings report, Goldman Sachs analysts wrote they were “incrementally encouraged” by Nike’s better-than-expected fourth quarter and Hill’s strategic plans. However, skepticism about the brand persists.
“Nike has ended a tough fiscal year on a rather discordant note,” noted Neil Saunders, managing director of GlobalData, in a Friday statement. “While the sportswear giant beat expectations, it also put in a deteriorated sales performance that suggests that it continues to fall out of favor with consumers.”
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