MW Nike says what others won't: Tariffs will hurt margins. The stock heads for a 5-year low.

By Steve Gelsi

The sporting-apparel giant is one of only a few companies to include an estimate for how margins will trough due to tariffs on China and Mexico

Nike Inc.'s stock fell sharply Friday, to put it on track for a five-year low, as Wall Street grappled with the apparel giant's warning that higher tariffs on imports from China and Mexico will eat into its profit margins in the coming quarter.

While many companies are taking more of a wait-and-see approach to tariff costs, Nike $(NKE)$ said it expects gross margins to drop by 400 to 500 basis points in its fourth quarter, due partly to trade-policy factors. Wall Street analysts had expected a gross margin decline of about 360 basis points.

"We have included the estimated impact from newly implemented tariffs on imports from China and Mexico," the company said.

On the plus side, Nike said it expects headwinds to revenue and gross margin to moderate after the fourth quarter.

Nike's stock fell about 6% on Friday on the heels of the company's quarterly results, putting it on track for its lowest close since March 23, 2020, assuming the losses hold.

J.P. Morgan analyst Matthew Boss, who has a neutral rating on the stock, lowered Nike's price target to $64 from $73 and said the company faces headwinds in greater China, Europe, the Middle East and Africa.

"We see an elongated timeline for Nike to re-accelerate revenue growth in the midst of a franchise product lifecycle transition with the global macro backdrop (notably headwinds in Greater China & EMEA) further complicating the path forward," Boss said.

Raymond James analyst Rick B. Patel reiterated a market-perform rating on Nike and said the company "remains in transition with low visibility on when or how much revenue, margins, and earnings will rebound."

BofA analysts were more upbeat. They reiterated a buy rating for Nike and said the company's order books are beginning to draw optimism from retailers, and that its performance and innovation efforts are starting to yield green shoots.

"Retail partners are seeing pockets of improved sell-through and have confidence in the upcoming product pipeline," the analysts said.

For the third quarter, Nike reported a decline in gross margins of 300 basis points, to 41.5%, due to channel-mix headwinds, higher wholesale discounts, markdowns on Nike Direct, inventory obsolescence and product costs, the company said.

Including Friday's moves, Nike's stock is down 10.3% in 2025, while the S&P 500 SPX has fallen 4.5%.

-Steve Gelsi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

March 21, 2025 12:24 ET (16:24 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.