Shares of Nike, Inc. were losing around 10 percent in the overnight trading after the athletic apparel and footwear major warned on weak revenues in its fourth quarter, after reporting a sharply lower profit in the third quarter. Weak margin due to higher tariffs in North America, and higher expenses hit the quarterly profit, amid nearly flat revenues.
In the third-quarter earnings call, Matthew Friend, Executive VP & CFO, stated, "We expect revenues in Q4 to be down 2 percent to 4 percent, with modest growth in North America despite lapping a value liquidation in the prior year largely offset by declines in Greater China and Converse. We expect Greater China to be down approximately 20 percent in the fourth quarter, reflecting reduced sell-in that we highlighted last quarter, as well as accelerated actions to clean up the marketplace."
Friend added that Win Now actions will continue to create near-term pressure and impact results over the balance of the calendar year, but these right actions will strengthen NIKE for the long term and that it remains confident for profitable growth long-term.
Nike further said that the tariff environment has been uncertain, but assuming no significant changes, it expects the first quarter of fiscal 2027 to be the final quarter where higher tariffs continue to be a material year-over-year headwind to gross margin.
The company projects gross margin expansion to begin in the second quarter due to actions to mitigate tariffs and recovery of transitory impacts from Win Now.
In the third quarter, the company's net income came in at $520 million or $0.35 per share, down 35 percent from $794 million or $0.54 per share last year.
The latest quarter results included $230 million charge incurred due to employee-related severance costs primarily in supply chain and technology.
Pre-tax income fell 23 percent year-over-year to $650 million, as selling and administrative expenses increased 2 percent from last year to $3.98 billion.
Gross margin also decreased 130 basis points to 40.2 percent from 41.5 percent a year ago, primarily due to 300 basis points associated with higher tariffs in North America.
The company's revenue for the period, however, edged up 0.1 percent to $11.279 billion from $11.269 billion last year. Revenues fell 3 percent on a currency-neutral basis.
NIKE Brand revenues of $11.0 billion grew 1 percent on a reported basis, but dropped 2 percent on a currency-neutral basis, primarily due to declines in EMEA and Greater China, partially offset by growth in North America.
In the quarter, Wholesale revenues were $6.5 billion, up 5 percent on a reported basis and up 1 percent on a currency-neutral basis primarily due to growth in North America.
NIKE Direct revenues of $4.5 billion dropped 4 percent on a reported basis and 7 percent on a currency-neutral basis due to a 9 percent decrease in NIKE Brand Digital and a 5 percent decrease in NIKE-owned stores.
Revenues for Converse were $264 million, down 35 percent due to declines across all territories.
Inventories for NIKE dropped 1 percent year-over-year to $7.5 billion, primarily reflecting a decrease in units and product mix shifts, partially offset by increased product costs, primarily due to higher tariffs in North America.
Nike plans to provide full year and long-term guidance at its Investor Day in the fall.
In the overnight trading, Nike shares were losing around 9.6 percent, trading at $47.76, after closing Tuesday's regular market 3.1 percent higher, at $52.82.
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