As Wall Street struggled with Nike Inc.’s warning that rising taxes on imports from China and Mexico will eat into its profit margins in the next quarter, the stock dropped drastically Friday and set itself on route for a five-year low.
Moreover, some analysts warned that Nike’s (NKE) attempts to offer significant discounts on its classic lifestyle sneakers – including Air Force 1s, Air Jordan 1s and Dunks – will damage its reputation as it tries to clear the way for newer products and compete with likes of On and Hoka.
Nike said it anticipates gross margins to dip by 400 to 500 basis points in the fourth quarter, mainly owing to trade-policy considerations, while many businesses are waiting-and-seeing on tariff charges. Expected by Wall Street analysts was a gross margin drop of roughly 360 basis points.
“We have included the estimated impact from newly implemented tariffs on imports from China and Mexico,” the firm said. Nike reportedly anticipates challenges to revenue and gross margin to moderate later.
Following its quarterly reports, Nike’s shares dropped almost 5.5% on Friday; assuming the losses maintain, this puts the company on path for its lowest closing since March 23, 2020.
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With a neutral rating on the stock, J.P. Morgan analyst Matthew Boss reduced Nike’s price target from $73 to $64 and remarked the firm faces challenges in greater China, Europe, the Middle East and Africa.
“We see an elongated timeline for Nike to re-accelerate revenue growth in the midst of a franchise product lifestyler transition with the global macro backdrop (notably headwinds in Greater China & EMEA) further complicating the path forward,” Boss added.
Reiterating a market-perform rating on Nike, Raymond James analyst Rick Patel said it “remains a company in transition with low visibility on when or how much revenue, margins, and earnings will rebound.”
Higher living expenses over the past three years have kept customers concentrated on paying for the fundamentals, which has affected demand for items like sneakers. After a run of too many lifestyle sneakers, which are less targeted toward sports, Nike’s new chief executive, Elliott Hill, has indicated he wants the firm refocused on athletes’ requirements and reinvigorate consumers’ excitement for new goods.
To be a destination for more expensive shoes and other accessories, the firm is also redesigning its own physical and web stores. And it wants to rely less on many of its older lifestyle footwear, which it intends to sell off.
Many of those older sneakers would probably be sold at off-price stores and elsewhere, clearing at a significant discount in the next months, Patel added. He noted, however, the markdowns might conflict with Nike’s more upscale goals.
“We also worry [that] the significant discounting for classics could damage the brand, even while we agree that [Nike] needs to lean more aggressively into innovation,” he remarked.
“Consumers seeing classics on sale for a multi-quarter period could think twice about transacting at full-price for other products (i.e., why not wait for Nike’s discount?),” he advised.
The BofA analysts were more cheerful. They reaffirmed Nike’s buy rating and claimed that the company’s order books are starting to inspire hope from stores as well as that its initiatives in performance and innovation are starting to show green shoots.
The analysts remarked, “Retail partners are seeing pockets of improved sell-through and have confidence in the upcoming product pipeline.”
Nike stated in the third quarter that channel-mix challenges, increased wholesale discounts, markdowns on Nike Direct, inventory obsolescence and product expenses had caused a drop in gross margins of 300 basis points to 41.5%.
With Friday’s changes included, Nike’s stock is down 10.3% in 2025; the S&P 500 SPX has dropped 4.5%.
