What Happened?
Shares of athletic apparel brand Nike (NYSE: NKE) fell 14.5% in the afternoon session after its first-quarter earnings report revealed deeper business weaknesses that overshadowed a profit beat.
While revenue of $11.28 billion was flat year on year and met expectations, and earnings per share of $0.35 beat analysts' estimates, investors focused on deteriorating fundamentals. Profitability shrank significantly, with the company's operating margin falling to 5.6% from 7% in the same quarter last year.
A key area of concern was the 3% year-on-year decline in constant currency revenue, which strips out the effects of foreign exchange rates to provide a clearer picture of underlying demand. This continued a worrying trend of sales declines over the last two years. The results also highlighted poor long-term performance, as earnings per share have declined annually over the last five years, suggesting the company has become less profitable. Overall, the quarter's weaknesses in sales and profitability appeared to alarm investors, leading to a significant sell-off.
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What Is The Market Telling Us
Nike’s shares are not very volatile and have only had 8 moves greater than 5% over the last year. Moves this big are rare for Nike and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 9 months ago when the stock gained 16.1% after the company reported fiscal fourth-quarter 2025 results that beat Wall Street's expectations and outlined plans to mitigate costs.
Although Nike's fourth-quarter revenue fell 12% to $11.1 billion, the figure was still better than analysts had feared. The company reported earnings per share of $0.14, topping the consensus estimate of $0.12. Investors were particularly encouraged by the company's strategic plans, including efforts to reduce its reliance on manufacturing in China. Nike announced it expects to lower the proportion of US-bound footwear sourced from China from 16% to the high single-digits by the end of fiscal 2026. This move is aimed at mitigating the impact of tariffs, which the company warned could add about $1 billion in costs. Despite the sales decline and the significant drop in gross margin, the market reacted positively to the earnings beat and the proactive steps to re-align the supply chain for future growth.
Nike is down 28.4% since the beginning of the year, and at $45.31 per share, it is trading 42.8% below its 52-week high of $79.24 from July 2025. Investors who bought $1,000 worth of Nike’s shares 5 years ago would now be looking at only $341.87.
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