Nike Beats Q3 Estimates, But Shares Drop 4% on Margin Pressure Warning

Morgan Stanley lowered its price target on Nike (NYSE:NKE) to $61 from $70 while maintaining an Equal Weight rating, citing a lengthening path to recovery amid macroeconomic pressures and underwhelming brand momentum.

The firm noted that recent tariff developments and broader economic conditions are likely to delay Nike’s turnaround efforts. Adding to the cautious outlook, Morgan Stanley reported limited positive feedback from wholesale partners regarding consumer demand or upcoming product innovations. Additionally, the brand’s visibility and momentum—often referred to as "brand heat"—showed no meaningful improvement over the past three months.

Analysts now believe consensus estimates for fiscal 2026 earnings may be too optimistic, and management could be forced to temper expectations of a post–fourth quarter rebound. While Nike’s strategic execution appears to be gaining some initial traction based on wholesale and specialty retail checks, the broader recovery remains both slow and unpredictable.

Complicating the narrative is Nike’s elevated valuation—trading at 32 times earnings versus its pre-COVID average of 24—making it harder for investors to justify a near-term bet on a turnaround. Still, Morgan Stanley acknowledges that expectations are currently low heading into the next earnings report, leaving room for any positive surprises to act as short-term catalysts.

Nike (NYSE:NKE) shares dropped more than 6% in pre-market today, as a disappointing revenue forecast for the fourth quarter erased initial gains sparked by a stronger-than-expected third-quarter report.

The company reported Q3 earnings per share of $0.54 on revenue of $11.27 billion, beating analyst estimates of $0.29 EPS and $11.02 billion in revenue. The upside was fueled by strong demand for new footwear launches, a bright spot under new CEO Elliott Hill’s early leadership as he works to revitalize the brand.

However, optimism was short-lived after CFO Matthew Friend signaled a mid-teens percentage decline in Q4 sales, steeper than the 12.2% drop expected by analysts. The company also warned that discounting efforts to clear excess inventory could further weigh on fourth-quarter performance.

The update triggered a sharp reversal in sentiment, as investors digested the impact of continued demand softness, especially in key markets. In Q3, overall revenue fell 9%, with North American sales plunging 21% to $1.1 billion, and Greater China revenue dropping a staggering 42% to $421 million.

Despite exceeding profit expectations this quarter, Nike is clearly navigating a challenging retail environment, with regional headwinds and margin pressures clouding its near-term outlook.

Nike (NYSE:NKE) shares dropped more than 6% in pre-market today, as a disappointing revenue forecast for the fourth quarter erased initial gains sparked by a stronger-than-expected third-quarter report.

The company reported Q3 earnings per share of $0.54 on revenue of $11.27 billion, beating analyst estimates of $0.29 EPS and $11.02 billion in revenue. The upside was fueled by strong demand for new footwear launches, a bright spot under new CEO Elliott Hill’s early leadership as he works to revitalize the brand.

However, optimism was short-lived after CFO Matthew Friend signaled a mid-teens percentage decline in Q4 sales, steeper than the 12.2% drop expected by analysts. The company also warned that discounting efforts to clear excess inventory could further weigh on fourth-quarter performance.

The update triggered a sharp reversal in sentiment, as investors digested the impact of continued demand softness, especially in key markets. In Q3, overall revenue fell 9%, with North American sales plunging 21% to $1.1 billion, and Greater China revenue dropping a staggering 42% to $421 million.

Despite exceeding profit expectations this quarter, Nike is clearly navigating a challenging retail environment, with regional headwinds and margin pressures clouding its near-term outlook.

Piper Sandler analysts upgraded Nike (NYSE:NKE) from Neutral to Overweight, raising the price target on the stock to $90 from $72. The upgrade reflects growing confidence in Nike's recovery trajectory as the company takes decisive steps to address inventory challenges and reposition for future growth.

Under the leadership of CEO Elliott Hill, Nike has accelerated efforts to clean up its marketplace by reclaiming products and offering markdown support to retail partners. These measures aim to streamline inventory and restore a pull-market dynamic, which could lead to a visible turnaround entering fiscal 2026. Despite lingering negativity in buy-side sentiment—evidenced by a significant increase in short interest since September—this proactive approach positions Nike for long-term success, according to the analysts.

The timeline for transitioning back to a pull-market environment, driven by renewed product innovation, remains a central debate among investors. Piper Sandler’s analysis outlines a bottom-up sales scenario in which Nike halves its penetration of classic franchise products and achieves an 80/20 full-price-to-off-price sales mix. This shift could realistically materialize within three quarters, accelerating the company’s path to recovery.

Piper Sandler analysts upgraded Nike (NYSE:NKE) from Neutral to Overweight, raising the price target on the stock to $90 from $72. The upgrade reflects growing confidence in Nike's recovery trajectory as the company takes decisive steps to address inventory challenges and reposition for future growth.

Under the leadership of CEO Elliott Hill, Nike has accelerated efforts to clean up its marketplace by reclaiming products and offering markdown support to retail partners. These measures aim to streamline inventory and restore a pull-market dynamic, which could lead to a visible turnaround entering fiscal 2026. Despite lingering negativity in buy-side sentiment—evidenced by a significant increase in short interest since September—this proactive approach positions Nike for long-term success, according to the analysts.

The timeline for transitioning back to a pull-market environment, driven by renewed product innovation, remains a central debate among investors. Piper Sandler’s analysis outlines a bottom-up sales scenario in which Nike halves its penetration of classic franchise products and achieves an 80/20 full-price-to-off-price sales mix. This shift could realistically materialize within three quarters, accelerating the company’s path to recovery.

Nike (NYSE:NKE) shares dropped more than 7% in pre-market today despite exceeding expectations for its fiscal second-quarter earnings. While the company’s initial results impressed, disappointing guidance and updates during the earnings call weighed heavily on investor sentiment.

For the quarter, Nike reported earnings per share of $0.78, surpassing analyst estimates of $0.65. Revenue totaled $12.4 billion, also ahead of the $12.18 billion expected. However, the numbers reflected challenges, with revenue down 8% year-over-year and Nike brand sales declining 7% to $12 billion. Gross margin contracted by 100 basis points to 43.6%, impacted by steeper discounts and shifts in sales channels.

China emerged as a weak spot for the sportswear giant, with sales plummeting 27% to $375 million, underscoring persistent difficulties in one of Nike’s key growth markets.

Looking forward, Nike’s projections for the third and fourth quarters added to concerns. The company expects Q3 revenue to drop by a low double-digit percentage, missing market expectations of an 8% decline. Additionally, it warned of an even steeper revenue decline in the fourth quarter, falling short of the anticipated 6% drop.

Nike (NYSE:NKE) shares dropped more than 7% in pre-market today despite exceeding expectations for its fiscal second-quarter earnings. While the company’s initial results impressed, disappointing guidance and updates during the earnings call weighed heavily on investor sentiment.

For the quarter, Nike reported earnings per share of $0.78, surpassing analyst estimates of $0.65. Revenue totaled $12.4 billion, also ahead of the $12.18 billion expected. However, the numbers reflected challenges, with revenue down 8% year-over-year and Nike brand sales declining 7% to $12 billion. Gross margin contracted by 100 basis points to 43.6%, impacted by steeper discounts and shifts in sales channels.

China emerged as a weak spot for the sportswear giant, with sales plummeting 27% to $375 million, underscoring persistent difficulties in one of Nike’s key growth markets.

Looking forward, Nike’s projections for the third and fourth quarters added to concerns. The company expects Q3 revenue to drop by a low double-digit percentage, missing market expectations of an 8% decline. Additionally, it warned of an even steeper revenue decline in the fourth quarter, falling short of the anticipated 6% drop.