Nike warns of a billion dollar hit from Trump tariffs
- Nike has warned of a significant financial hit from tariffs, projecting costs to reach $1 billion.
- The company is taking steps to mitigate these costs by increasing prices and reallocating supply chains.
- Despite experiencing a substantial revenue decline, executives express optimism about future sales performance.
Nike, headquartered in Beaverton, Oregon, announced significant financial challenges due to increased tariffs imposed by the U.S. government. The company projected an incremental cost increase of approximately $1 billion, attributing this estimate to the new tariffs implemented under President Donald Trump. As a response, Nike plans to mitigate these costs through various measures, including raising prices on certain products in the U.S. and reallocating a portion of its supply chain away from China, which currently accounts for about 16% of its footwear manufacturing. The company's chief financial officer, Matthew Friend, noted that while China remains an integral part of their global sourcing, they aim to lower dependency from the region to a 'high-single-digit range' by the end of fiscal 2026. As online sales peak, the move is seen as essential in maintaining competitive pricing amid rising production costs. Recent earnings reports showcase that Nike is experiencing a decline in quarterly revenues, with a 12% drop year over year, amounting to $11.1 billion in sales during the fourth quarter of fiscal 2025. Despite the fall, executives believe that the worst financial impacts are behind them, and they expect that revenues will stabilize going forward. Nevertheless, net income for the quarter has drastically reduced to $211 million from $1.5 billion reported in the same quarter in the previous year, illustrating the depth of the impact that tariffs and subsequent price adjustments may have on Nike's bottom line. Alongside these earnings, Nike's turnaround strategy has focused on realigning business operations to prioritize sports segments and regain relationships with wholesale partners. As part of this strategy, Nike has begun to sell products on Amazon again for the first time since 2019, indicating a shift back to e-commerce to increase accessibility and drive sales. High inventory clearance activities are also in motion, leading to gross margin compressions projected at 4 to 5 percentage points. The overall operational adjustments, including these price hikes and market modifications, are aimed at counteracting the tariff burdens while aiming for long-term growth and market share defense against emerging competitors in the athleisure space. CEO Elliott Hill has emphasized a renewed focus on sports and innovation, stating that the purpose of the company’s restructuring plans is to enhance competitiveness in the sportswear market. This has become crucial as new challenges arise from various market dynamics and consumer behavior shifts, particularly in the wake of increasing competition in the athletic wear sector. Analysts remain cautiously optimistic about the company's prospects, as Nike continues making strategic moves to navigate the difficult economic landscape created by external factors like tariffs, consumer spending shifts, and supply chain disruptions.