Early trading plunge of 14% as Nike warns of revenue decline in 2026, with Middle East tensions and high inflation hindering recovery progress

Nike issued a pessimistic earnings outlook that far exceeded market expectations, raising investor concerns about whether the athletic brand's multi-year transformation plan can proceed as scheduled.

The company warned that revenue for fiscal year 2026 could decline, and the current quarter also faces pressure. Dragged down by disruptions in its European business and geopolitical instability in the Middle East, Nike's outlook fell far short of expectations, triggering a sell-off, with its stock price plummeting by over 14% in early trading.

Although third-quarter results slightly surpassed Wall Street's expectations, this disappointing forward-looking guidance significantly diminished the positive impact of the quarter's performance. CEO Elliott Hill stated that while he is "not satisfied" with the company's current performance, he is optimistic about progress in priority areas such as running and football, believing these achievements "point to the eventual direction for our entire portfolio."

Quarterly Performance Exceeds Expectations, But Guidance Dampens Market Confidence

For the third fiscal quarter ending in February, Nike's revenue was flat at approximately $11.3 billion, slightly higher than analysts' expectations. Sales in the North American market increased by 3% year-on-year, showing some resilience; net profit was $520 million, a year-on-year increase and significantly exceeding Wall Street's expectations.

However, management's outlook for the current quarter disappointed the market. Nike expects fourth-quarter revenue to decline by 2% to 4%, with sales in Greater China projected to fall by about 20% as the company continues its inventory clearance efforts in the Chinese market.

Chief Financial Officer Matthew Friend stated on a conference call with analysts that the operating environment has become "increasingly volatile" and warned that factors such as geopolitical instability in the Middle East and rising oil prices could impact input costs and consumer behavior.

Multiple Regional Pressures Compound, Middle East Situation Becomes New Variable

Nike faces regional pressures from multiple directions. Business in Europe, the Middle East, and Africa was also disrupted – Friend indicated that due to promotional discounts and the situation in the Middle East, inventory levels in the EMEA region are expected to remain high by the end of the current quarter.

Notably, Nike's fourth fiscal quarter coincides with the outbreak of conflict in the Middle East. CEO Elliott Hill stated that while they have not yet observed a significant impact on North American consumer behavior from the Gulf conflict, the North American market accounts for about 45% of Nike's global revenue.

Regarding tariffs, Friend indicated that the first fiscal quarter ending in August of next year is expected to be the "last quarter where higher tariffs will materially drag on gross margin on a year-over-year basis," suggesting that tariff pressure is expected to gradually ease thereafter.

Transformation Process Continues, CEO Admits Dissatisfaction

Nike CEO Elliott Hill candidly stated on the conference call that he is "not satisfied" with the company's current performance, but at the same time, he believes progress in priority areas like running and football shows potential to drive the overall product portfolio. Hill, a Nike veteran who was recalled from retirement in 2024, is leading the company's transformation. He pointed out that business in Greater China, the sportswear category, and the Converse brand are still in the "early stages of recovery."

He also pledged that the company will resume providing full-year and long-term financial guidance at its investor day this fall, a move seen as an important step for management to rebuild market confidence. However, this unexpected downward revision of sales expectations undoubtedly adds new uncertainty to this transformation narrative.