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Margin Headwinds Strengthen: Will Tariff Mitigation Be Enough for NKE?
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Key Takeaways
NKE's Q2 fiscal 2026 gross profit fell 6.3% as gross margin dropped 300 bps to 40.6% amid cost pressures.
Tariffs, inventory obsolescence in Greater China and weak demand weighed on margins and channel mix.
NKE is mitigating tariffs via manufacturing diversification, selective price hikes and cost controls.
NIKE, Inc. (NKE - Free Report) continues to face considerable margin pressure stemming from higher tariffs, unfavorable channel mix and soft demand in key markets. These pressures are further compounded by elevated promotional activity, a heightened competitive global athleticwear market and a heavier reliance on wholesale partners, which dilute margins compared with its higher-margin direct-to-consumer channel.
In second-quarter fiscal 2026, NIKE’s gross profit dipped 6.3% year over year to $5.05 billion, while the gross margin contracted 300 basis points (bps) to 40.6%. The gross margin decline was caused by elevated product costs, including higher tariffs in North America and inventory obsolescence in Greater China that was not anticipated 90 days ago. We anticipate gross margin to decline 180 bps for the fiscal third quarter.
In response, NIKE has rolled out a multi-pronged tariff mitigation strategy. Key actions comprise diversifying its manufacturing footprint away from China to reduce exposure, selectively raising prices across some markets to recapture costs and renegotiating terms with suppliers and strategic partners. The company is also making internal cost controls across sourcing, logistics and operating expenses to boost efficiency. NIKE is further resetting inventory levels, refining product assortments and prioritizing higher-return franchises.
At its core, NIKE’s tariff-mitigation actions play a critical role in margin recovery, but they are unlikely to be a standalone solution. Sustainable improvement will be further supported by disciplined execution of supply-chain diversification, careful and market-specific pricing actions and a meaningful rebound in consumer demand across major regions. NIKE’s ability to effectively balance cost management with growth initiatives and long-term brand strength will be a key factor in driving margin recovery.
NKE’s Competition
lululemon athletica inc. (LULU - Free Report) and Steven Madden, Ltd. (SHOO - Free Report) are the companies competing with NIKE.
Tariff-related pressures and sourcing complexities remain a key headwind for lululemon, creating uncertainty around its cost structure and margin outlook. Management has emphasized efforts to diversify sourcing and reduce dependence on any single country, a strategy that strengthens supply-chain resilience but entails higher near-term costs. Production shifts, new vendor onboarding and logistics adjustments have resulted in incremental expenses that are challenging to fully offset in the current environment.
lululemon’s tariff-mitigation efforts are centered on reducing exposure to trade-related risks while preserving long-term margin integrity. A key pillar of LULU’s strategy is diversifying sourcing and manufacturing to limit reliance on any single country.
Steven Madden has been witnessing tariff pressures for a while now. Wholesale and DTC gross margins were hurt by tariff woes in third-quarter 2025. These tariffs have fundamentally altered the cost structure, adding up to extra costs, resulting in substantial pressure on revenues and earnings in the third quarter. Going forward, SHOO will continue to see negative tariff impacts. However, Steven Madden’s tariff mitigation strategy centers on reducing exposure, protecting margins through disciplined pricing and reshaping its geographic revenue mix.
NKE’S Price Performance, Valuation and Estimates
Shares of NIKE have lost 7.9% in the past six months compared with the industry’s decline of 6%.
Image Source: Zacks Investment Research
From a valuation standpoint, NKE trades at a forward price-to-earnings ratio of 31.47X compared with the industry’s average of 28.50X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for NKE’s fiscal 2026 earnings implies a year-over-year plunge of 27.8%, while that of fiscal 2027 shows growth of 53.9%. The company’s EPS estimate for fiscal 2026 and 2027 has moved south in the past 30 days.
Image Source: Zacks Investment Research
NIKE stock currently carries a Zacks Rank #4 (Sell).
Image: Bigstock
Margin Headwinds Strengthen: Will Tariff Mitigation Be Enough for NKE?
Key Takeaways
NIKE, Inc. (NKE - Free Report) continues to face considerable margin pressure stemming from higher tariffs, unfavorable channel mix and soft demand in key markets. These pressures are further compounded by elevated promotional activity, a heightened competitive global athleticwear market and a heavier reliance on wholesale partners, which dilute margins compared with its higher-margin direct-to-consumer channel.
In second-quarter fiscal 2026, NIKE’s gross profit dipped 6.3% year over year to $5.05 billion, while the gross margin contracted 300 basis points (bps) to 40.6%. The gross margin decline was caused by elevated product costs, including higher tariffs in North America and inventory obsolescence in Greater China that was not anticipated 90 days ago. We anticipate gross margin to decline 180 bps for the fiscal third quarter.
In response, NIKE has rolled out a multi-pronged tariff mitigation strategy. Key actions comprise diversifying its manufacturing footprint away from China to reduce exposure, selectively raising prices across some markets to recapture costs and renegotiating terms with suppliers and strategic partners. The company is also making internal cost controls across sourcing, logistics and operating expenses to boost efficiency. NIKE is further resetting inventory levels, refining product assortments and prioritizing higher-return franchises.
At its core, NIKE’s tariff-mitigation actions play a critical role in margin recovery, but they are unlikely to be a standalone solution. Sustainable improvement will be further supported by disciplined execution of supply-chain diversification, careful and market-specific pricing actions and a meaningful rebound in consumer demand across major regions. NIKE’s ability to effectively balance cost management with growth initiatives and long-term brand strength will be a key factor in driving margin recovery.
NKE’s Competition
lululemon athletica inc. (LULU - Free Report) and Steven Madden, Ltd. (SHOO - Free Report) are the companies competing with NIKE.
Tariff-related pressures and sourcing complexities remain a key headwind for lululemon, creating uncertainty around its cost structure and margin outlook. Management has emphasized efforts to diversify sourcing and reduce dependence on any single country, a strategy that strengthens supply-chain resilience but entails higher near-term costs. Production shifts, new vendor onboarding and logistics adjustments have resulted in incremental expenses that are challenging to fully offset in the current environment.
lululemon’s tariff-mitigation efforts are centered on reducing exposure to trade-related risks while preserving long-term margin integrity. A key pillar of LULU’s strategy is diversifying sourcing and manufacturing to limit reliance on any single country.
Steven Madden has been witnessing tariff pressures for a while now. Wholesale and DTC gross margins were hurt by tariff woes in third-quarter 2025. These tariffs have fundamentally altered the cost structure, adding up to extra costs, resulting in substantial pressure on revenues and earnings in the third quarter. Going forward, SHOO will continue to see negative tariff impacts. However, Steven Madden’s tariff mitigation strategy centers on reducing exposure, protecting margins through disciplined pricing and reshaping its geographic revenue mix.
NKE’S Price Performance, Valuation and Estimates
Shares of NIKE have lost 7.9% in the past six months compared with the industry’s decline of 6%.
Image Source: Zacks Investment Research
From a valuation standpoint, NKE trades at a forward price-to-earnings ratio of 31.47X compared with the industry’s average of 28.50X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for NKE’s fiscal 2026 earnings implies a year-over-year plunge of 27.8%, while that of fiscal 2027 shows growth of 53.9%. The company’s EPS estimate for fiscal 2026 and 2027 has moved south in the past 30 days.
Image Source: Zacks Investment Research
NIKE stock currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.