Nike Lowers Q3 Revenue Outlook, Shares Drop Over 10% After Hours
Softer than feared CPI data and better than expected results out of Micron overnight had helped restore bullish sentiment recently dented by concerns with debt-fueled AI capex cycle as S&P 500 ended the day up 0.8% while Nasdaq jumped 1.4% - bolstered by Tech, Consumer Discretionary, and Internet names. Treasury yields also slipped across the curve, with fixed income traders pricing in a higher probability of a two-to-three 2026 rate cut scenario vs. the FOMC's expected one-cut outcome.The opening hour of the evening session is striking a more cautious tone however, with Dow Industrials futures slipping 0.2% and S&P 500 e-minis down a decimal, with investors reacting to disappointing quarterly update from Nike - while the company beat on earnings and revenue for Q2, its management forecast Q3 revenue oulook to be down low single digits from last year against consensus estimate of a 1% y/y increase. Shares of Nike were off by over 10% afterhours, with other athletic apparel names also down.Across commodities, growth worries are dominating again in the Energy space, with WTI Crude Oil reversing the Venezuela-blockade driven rally to retreat below $56 per barrel, while precious metals are consolidating recent gains.Check out this evening's top movers from around Wall Street, compiled by The Fly.HIGHER AFTER EARNINGS -FedExup 1.4%HEICO Corporationup 1.1%ALSO HIGHER -WhiteFiberup 12.5% after signing 10-year 40 MW colocation agreement for NC-1 data center campusDOWN AFTER EARNINGS -Nikedown 10.5%; Deckersdown 2.4%, ON Holdingdown 1.6%, Dick's Sportingdown 1.7% in sympathyBlackBerry Limiteddown 6.7%KB Homedown 4.6%Scholasticdown 1.3%
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Nike Faces Challenges with Weak Revenue Growth
- Revenue Growth Slowdown: Nike's revenue grew at a compound annual rate of 6% from fiscal 2019 to 2024, but saw a 10% year-over-year decline in fiscal 2025, with only a 1% growth expected in fiscal 2026, indicating weak demand trends, particularly with a 17% drop in Greater China sales.
- Gross Margin Compression: The company's gross margin decreased from 43.6% in Q2 2025 to 40.6% in the latest quarter, primarily due to trade policy changes and tariffs adding $1.5 billion in costs, although Nike is working to reduce discounts to improve pricing trends.
- Increased Demand Creation Expense: Nike's marketing expenditure reached $1.3 billion in Q2 2026, a 13% year-over-year increase, reflecting the company's ongoing investment in brand maintenance, which is expected to account for 10% of revenue to enhance competitive branding.
- Distribution Strategy Adjustment: After relying heavily on e-commerce during the pandemic, Nike is now strengthening relationships with wholesale accounts to optimize its distribution strategy, aiming to restore healthy growth and increase market share.
Nike and Lululemon Struggle Amid Consumer Spending Challenges
- Stock Performance Comparison: Nike's stock has dropped about 63% from its previous highs, with a 13% decline over the past 12 months, while Lululemon has seen a 50% drop, indicating Nike's relative resilience amid market volatility.
- Revenue Pressure Analysis: Both companies face revenue pressures from tariffs and soft demand, with Nike reporting a 16% year-over-year sales decline in Greater China, while Lululemon achieved a 7% revenue increase in the last quarter, showcasing its stronger recovery potential.
- Inventory Management Advantage: Lululemon successfully sold excess inventory during the holiday season, positioning itself with leaner inventory ahead of the spring product refresh, which could help tighten margins by avoiding promotional sales pressure.
- Valuation Comparison: Lululemon's forward price-to-earnings ratio is around 15, significantly lower than Nike's 42, indicating that Lululemon shares are perceived as better value in the current market environment.
