Nike Stock Drops 10% After Q2 Earnings Release; Here’s What Went Wrong With NKE

Nike’s stock took a sharp turn after the company reported its fiscal second-quarter earnings, with NKE shares sliding more than 10% in pre-market trading. This reaction came despite the headline numbers topping expectations, underscoring how deeply investors are focused on margins, China sales and growth momentum. For a brand long aligned with global athletic dominance, this quarter’s numbers exposed cracks that made Wall Street raise an eye.

For years, Nike was viewed as a near-unstoppable force in sportswear, but recent quarters have shown that even iconic brands are vulnerable to shifting consumer preferences, competitive pressures and macroeconomic headwinds.

Let’s break down with this blog what went wrong with Nike’s Q2 results, why the stock dropped sharply, and what investors should watch in the coming quarters.

Nike Q2 FY2026 Earnings Snapshot

Here’s how Nike performed in the fiscal second quarter ended November 30, 2025, compared to the prior year:

Source: Nike’s Earnings Release

Revenue grew slightly, up about 1% YoY. That alone would not usually trigger such a sharp reaction. The problem lay below the surface.

Earnings fell more than 30%. Net income dropped by a similar margin. Gross margins contracted by nearly 300 basis points, hit by higher tariff costs in North America and continued discounting as Nike worked through inventory.

The other issue was where growth came from. Nike Direct, the company’s higher-margin channel, saw an 8% decline. Wholesale revenues grew, but that shift diluted profitability. Investors were less impressed by the revenue number and far more concerned about what it took to get there.

Did Nike Beat Analyst Estimates?

Well, yes on paper Nike beat Wall Street expectations. Analysts had forecast earnings per share closer to around $0.37 and modest revenue growth or even a slight decline. Nike’s results exceeded those figures, with EPS of $0.53 and $12.43 billion in revenue.

Despite the beat, the context mattered more. A growing share of Nike’s revenues came from lower-margin wholesale channels. Continued weakness in Nike Direct and in key geographies made investors lose confidence.

Why did the NKE Stock Fall 10%?

So why did Nike’s stock plunge even after beating estimates?

• Margins moved sharply lower: Nike’s gross margins fell meaningfully, despite revenue growth. Tariffs and promotional activity continued to weigh on profitability. Management also indicated that margin pressure is likely to persist in the near term, which did little to calm investors.
• China remains a major drag: Sales in Greater China fell 17% during the quarter. This region was once one of Nike’s strongest growth engines. Instead, it has now seen six consecutive quarters of declining revenue. Local competition and slower progress in rebuilding Nike’s digital and retail presence have made the recovery uneven.
• Direct-to-consumer weakness stood out: Nike Direct revenues declined by roughly 8-9%, across both digital platforms and Nike-owned stores. Since this channel typically carries higher margins, its slowdown raised fresh concerns about Nike’s long-term profitability profile.
• The outlook lacked conviction: Nike guided for continued revenue pressure and further margin contraction in the third quarter. Investors hoping for clearer signs of stabilisation were left disappointed.

Put together, the quarter suggested that Nike’s challenges are not behind it yet, even if the company is making progress in parts of the business.

What Nike’s Management Is Saying

CEO Elliott Hill emphasized that Nike is still in the “middle innings” of its comeback, focusing on core sport categories, rebuilding wholesale partnerships and investing in product innovation. But his comments about a non-linear recovery and no clear timeline for a turnaround left some investors wanting more concrete progress.

CFO Matthew Friend highlighted resilience in the business despite repositioning efforts, but also acknowledged the challenges posed by tariffs and inventory resets.

What to Watch Next With Nike?

Looking ahead, a few factors will be critical for Nike’s stock:

• China performance: Any sign of stabilisation could materially improve sentiment. Continued declines would remain a major concern.
• Margin direction: Investors will be watching closely for signs that margins are bottoming out.
• Nike Direct trends: A return to growth in digital and owned stores would support Nike’s higher-margin strategy.
• Product execution: Stronger product launches and better consumer response could help Nike regain lost momentum.

Final Thoughts on Nike

Some analysts, even while acknowledging the earnings beat, expressed concerns that the scale of margin pressure and sales softness in China overshadowed the positives. A few firms have maintained cautious outlooks, while others see modest growth potential if Nike can execute its strategy and return to a more balanced channel mix.

Nike’s Q2 earnings report is a story of contrasts; beating estimates but alarming investors with margin erosion and regional weakness. The stock’s drop reflects a market hungry not just for numbers but for narrative clarity and confidence in a turnaround. For long-term investors, this moment could offer a deeper dive into what the next chapter of Nike’s evolution looks like.

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