Nike Earnings: China Weakness and Tariffs Overshadow Progress

Key Morningstar Metrics for Nike

• Fair Value Estimate: $104.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Nike’s Earnings

Nike’s NKE fiscal 2026 second-quarter sales edged up 1% as 9% growth in North America (45% of total) offset a steep 17% decline in Greater China (12%). Due to higher tariffs, Nike’s gross margin declined to 40.6% and its EBIT margin declined to 8.1%. Overhead expenses fell 4%.

Why it matters: Now in his second year as CEO, Elliott Hill continues to implement the “Win Now” plan to drive sales and margin growth through sports. Hill has implemented several management and structure changes to strengthen product design and marketing for individual sports and regions.

• At 9%, Nike’s North America sales growth soared past our 2% estimate. We think the firm’s releases in running and other categories have gained acceptance from consumers and retailers. We also see signs that Nike’s products are attracting renewed interest in the collectors’ market.
• On the downside, Nike acknowledges that it is struggling to hold its premium positioning in China. Although timing is difficult to predict, we think the firm’s investments in marketing, merchandise, and stores will bring improvement in this sportswear market, which we expect to expand significantly.

The bottom line: Wide-moat Nike’s shares are very undervalued relative to our $104 fair value estimate, which we do not expect to change materially. Shares fell about 10% in postmarket Dec. 18 trading, but we think a turnaround is closer than investors believe.

• Specifically, we think Nike can return to annual sales growth above 5% and EBIT margins above 10% in fiscal 2028. We still believe the firm has significant advantages in its connections to sports, product development, marketing, and relationships with key retailers.
• In the near term, Nike expects tariffs and inventory problems in Greater China to continue to weigh on its sales and margins. However, the firm has a history of beating expectations; for example, its 8.1% operating margin was 290 basis points better than our forecast.