Nike's Turnaround Stalls as China Sales Plunge, Prompting Wall Street Downgrades

Nike's stock plummeted over 14% in mid-day trading on Wednesday after the company revealed that its turnaround is taking longer than anticipated, with sales expected to decline through the end of the calendar year. During an analyst call, CFO Matt Friend highlighted that the decline in China will offset growing strength in North America, projecting a low single-digit sales drop for the current quarter. The company anticipates China sales will fall by 20%, even with a two-point benefit from foreign exchange rates. Executives noted that efforts to revamp Nike's product offerings in China and focus on full-price sales will continue to weigh on revenue growth through fiscal 2027. The challenges are compounded by the impact of higher tariffs, which are expected to affect profit comparisons starting in the first quarter of fiscal 2027. Despite some positive signs, such as better-than-expected sales in China and growing wholesale revenues, investors remain skeptical. Three major Wall Street banks—Goldman Sachs, JPMorgan, and Bank of America—downgraded Nike's stock, citing the prolonged turnaround and growing headwinds. Bank of America analyst Lorraine Hutchinson stated that the company's sales inflection is now nine months away, leading to a downgrade due to limited potential for multiple expansion. Nike's gross margin has declined for seven consecutive quarters, and rising product input costs due to the Middle East conflict could further strain profitability. CFO Matt Friend acknowledged the dynamic environment, noting potential volatility from the Middle East disruption and rising oil prices. CEO Elliott Hill reiterated that the recovery is taking longer than expected but emphasized that the direction is clear and the foundation is strengthening. However, the lack of a concrete timeline for sustained growth has left investors impatient and the stock vulnerable to further declines.