Nike China: Cleanup & Discounting to Hurt Revenue Growth

Nike’s turnaround efforts are faltering as sales in China continue to decline, sending the sportswear giant’s stock tumbling and raising concerns about CEO Elliott Hill’s strategy. Shares fell by as much as 13% on Wednesday, reaching an 11-year low, despite the company exceeding Wall Street’s quarterly earnings and revenue expectations.

The company anticipates a low single-digit percentage decline in revenue for the remainder of 2026, with gains in North America being offset by continued weakness in Greater China. Nike expects a revenue drop of between 2% and 5% in the current quarter, significantly worse than the 1.9% growth analysts had predicted.

China Sales Plummet

Sales in Greater China are projected to plunge approximately 20% next quarter, even accounting for a 2 percentage point benefit from favorable exchange rates. This decline is attributed to reduced sell-in and ongoing efforts to revamp Nike’s product assortment in the Chinese market, aiming to prioritize full-price sales.

According to CNBC, efforts to clean up Nike’s assortment in China and drive full-price sales are expected to continue to hinder revenue growth through fiscal 2027, which concludes next spring. Finance chief Matt Friend warned analysts that the company’s recovery in China is expected to last through fiscal 2027.

Turnaround Taking Longer Than Expected

CEO Elliott Hill acknowledged that the turnaround is taking “longer” than initially anticipated, but maintains that the company’s “direction is clear.” However, investors are losing patience, as evidenced by the significant drop in share price following the earnings report. The company’s third-quarter earnings and revenue did exceed expectations, fueled by growth in North America and the resumption of wholesale partnerships.

Despite the positive performance in North America, higher tariffs are impacting profit margins. Nike reported adjusted earnings per share of $0.35, surpassing analyst estimates of $0.31, and revenue of $11.3 billion, slightly above the expected $11.34 billion. However, revenue was down 3% year-over-year when adjusted for currency impacts.

Broader Economic Concerns

Nike CFO Matthew Friend also highlighted broader economic concerns, stating, “We also recognize that the environment around us has become increasingly dynamic and could experience unplanned volatility due to the disruption in the Middle East, rising oil prices, and other factors that could impact either input costs or consumer behavior.”

The company anticipates gross margins could begin to expand by the end of the year, during the fiscal 2027 second quarter, but this is contingent on various factors. Nike expects to benefit from easier year-over-year profit comparisons starting in the first quarter of fiscal 2027 as it laps the period when higher tariffs began to impact results.

Analysts remain cautious. CFRA analyst Zachary Warring noted, “They’re in the middle of a turnaround. They’re working on a lot of different things, which is why I think you’ve seen a muted reaction. There’s just not much to get excited about.”

Greater China revenue tumbled 7% with equipment sales experiencing a particularly steep decline of 27%, followed by footwear, and apparel. Nike, which generates around 15% of its global revenue from Greater China, its second-largest market outside North America, faces a significant challenge in regaining its footing in the region.