Markets tumbled when Trump’s tariff plan hit, and Nike’s (NKE) latest results laid bare the impact.

A roughly $1 billion tariff drag cut gross margins by over 400 bps, pushed EPS down to about $0.12 on $10.7 billion revenue, and forced deeper markdowns to clear high inventories.

Management plans to shift sourcing and phase in price hikes, but full relief won’t arrive until late fiscal 2026, leaving margins under pressure for several more quarters.

As a result, Nike shares have fallen about 50% since mid-2023, and the market now expects profitability to further slide, reflecting continued investor skepticism.

Investor Essentials Daily:
Friday News-based Update
Powered by Valens Research

When President Trump unveiled his extensive tariff plan, markets responded with immediate concern.

The S&P 500 fell by almost 5%, the Dow Jones Industrial Average dropped by 4%, and the Nasdaq plummeted by 6% in a single trading day.

Investors moved quickly to shed stocks with international exposure as they feared potential damage to corporate profits across industries.

The performance of Nike (NKE) shows the tangible consequences of international trade tariffs on a major global business.

The company’s latest quarterly report laid bare how tariffs are squeezing its margins and shaping investor sentiment.

Wall Street was braced for an 88% plunge in profits even before the results landed, and those forecasts proved all too real. Earnings per share came in around twelve cents on roughly $10.7 billion in revenue.

The most visible impact showed up in gross margins, which shrank by more than 400 bps. Management pinned much of that squeeze on the new tariffs, which alone added around $1 billion in incremental costs this quarter.

Those levies apply to key production hubs in Asia, forcing Nike to either swallow higher input costs or pass them along through promotions and markdowns.

The result is tighter margins on every pair of shoes and item of apparel it sells, whether through its own stores, digital channels, or wholesale partners.

Inventory levels remain stubbornly elevated. Despite a small 1% reduction, stocks still sit higher than the company would like, especially in regions where growth has lagged. To move that inventory, Nike leaned into discounting more heavily than investors had hoped.

Those markdowns further erode gross profit, reinforcing the view that tariffs are not a one-off drag but a recurring challenge until duties ease or supply chains shift.

On the earnings call, CFO Matt Friend noted that while Nike has weathered tariff cycles before, this round is different in scale and timing. He outlined plans to mitigate the burden over the next year through more aggressive sourcing moves and phased price actions.

Still, the full benefit won’t show up until the back half of fiscal 2026, meaning margins could stay under pressure for several more quarters.

Investor mood has carried that caution into the stock. Since mid-2023, Nike shares have slid by about half, driven partly by concern that the worst of the headwinds hasn’t yet passed.

We can see what the market thinks through our Embedded Expectations Analysis (“EEA”) framework.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

At the current stock price, the market predicts that the company’s Uniform return on assets ”ROA will drop to 18% from 27% last year.

Nike’s leadership has sought to reassure the market with strategic moves aimed at reclaiming growth.

CEO Elliott Hill highlighted a return to focused product launches and pointed to renewed partnerships, most notably with Amazon.

That deal could help shore up digital sales, but it offers no quick fix for the extra costs landed by tariffs.

Looking ahead, management forecasts mid-single-digit revenue declines in the coming quarter, with another 300 to 400 bps hit to margins.

Until those duties ease or until Nike fully retools its supply chain, investors may find little comfort from optimism around new product roll-outs or marketing initiatives.

In the meantime, sentiment remains skeptical. With stock levels heavy, margins under sustained pressure, the market is rightly cautious.

The coming months will test whether the moves to offset tariff costs can keep pace with the damage.

If they can’t, Nike’s shares may still have further to fall before the next clear buying opportunity appears.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research