Nike rebound gains momentum as China, tariffs cast a cloud

By Juveria Tabassum and Nicholas P. Brown (Reuters) -Nike CEO Elliott Hill vowed to return the company to its sportswear roots when he took the helm last year in a much-touted change and his efforts are bearing fruit, but a sluggish recovery in China and uncertainty over tariffs remain a drag. The company, which reported a surprise rise in quarterly revenue and topped Street's low profit expectations, has aggressively cleared out aged inventory, as well as some lifestyle product lines, to focus on more innovative shoes focused on sports. "Nike is in the early innings of its turnaround and momentum is building," said Jefferies analyst Randal Konik in a note. The company said on Tuesday its order book for spring was up year-over-year, driven by its sports category as launches such as Vomero and Pegasus and P-6000 running bring back customers. Running, training, and basketball categories each reported double-digit growth in the quarter in North America, enabling a return to sales growth in the region after about a year. "We think retailers—like the combined Foot Locker and Dick's Sporting Goods—are reacting positively to Nike's new running shoe lineup," said Morningstar analyst David Swartz. Nike's shares were up about 4.5% in early trading on Wednesday as investors welcomed a 2% reduction in inventory. "I am very pleased with inventory levels. Units are down more than dollars as inflation starts to come through. They have largely cleared through older franchises," said Mari Shor, senior equities analyst at Columbia Threadneedle. THE PRESSURE POINTS Progress will not be linear, Hill warned on a post-earnings call, with tariffs now expected to cost about $1.5 billion, versus the $1 billion Nike estimated previously, and weigh on margins already strained by heavy discounting to clear stock. China, which makes up about 15% of Nike's total revenue, remains a challenging market with intense competition from cheaper local brands such as Anta and Li-Ning adding to a weaker economic recovery and a struggling wholesale business. "We can invest to keep the marketplace clean and healthy, but it's an expensive operating model if sell-throughs don't improve to the levels that we need to see on a season-in, season-out basis," said Chief Financial Officer Matthew Friend on a post-earnings call. Customer engagement also remains weak in the company's digital business, with revenue falling 12% in the quarter. Hill said the global digital business was still working to find solid ground with the company paring back promotions on the channel. Nike's direct-to-consumer business is not expected to return to growth in fiscal 2026, executives said, as the unit recovers from steep discounts to clear out inventory of some of its classic labels such as Air Force One and Air Jordans. Tariffs and still-high inflation are also dampening consumer sentiment ahead of the all-important holiday shopping season. Meanwhile, Nike is gearing up for the key soccer World Cup in North America next year with intensive marketing efforts and product innovation. "I originally thought that Nike would be further along. I was looking at this fall as the real breakout point but it's clearly not going to happen until calendar '26," said Swartz. (Reporting by Juveria Tabassum in Bengaluru; Editing by Sriraj Kalluvila)

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