Nike’s sales held steady this winter, but profits fell 35% as tariffs and China weakness squeezed margins

Nike sold roughly the same amount of sportswear this winter as it did a year ago. It made about one-third less money doing it.

Profits fall despite flat sales

In a quarterly report filed late March 31, Nike Inc. said revenue for its fiscal third quarter ended Feb. 28 was essentially flat at $11.28 billion, up a fraction from $11.27 billion a year earlier. Net income dropped 35% to $520 million, and profit margins narrowed as higher costs and weakening demand in key businesses outweighed modest sales gains in North America.

The results, disclosed in a Form 8-K with the Securities and Exchange Commission, underscore the strain on the world’s largest sportswear company as it tries to reset its strategy amid rising tariffs, intensifying competition in China and a retreat from a once-aggressive direct-to-consumer push.

Nike slightly beat Wall Street’s subdued expectations on both revenue and earnings per share, but the company warned that sales will decline again in the current quarter and said the full benefit of its restructuring will not show up until its 2027 fiscal year. The stock, which initially rose in after-hours trading on the beat, later fell as investors focused on the outlook for continued revenue declines and squeezed margins.

“We took meaningful actions to improve the health and quality of our business in the third quarter,” President and Chief Executive Elliott Hill said in a news release. “The work is not finished, but the direction is clear.”

Brand and regional results

The quarter offered a detailed snapshot of that work—and of the problems Nike is still trying to solve.

Revenue from the Nike brand, which includes its core footwear and apparel, edged up 1% to $11.01 billion on a reported basis but fell 2% when adjusted for currency. Sales of Converse, the company’s decades-old lifestyle sneaker brand, plunged 35% to $264 million, with declines across all major regions. Converse swung from a $39 million operating profit in the prior year’s quarter to a $40 million loss.

Geographically, Nike posted 3% reported revenue growth in North America to $5.03 billion, led by a 6% increase in footwear, while apparel sales in the region slipped 2%. Revenue in Europe, the Middle East and Africa rose 2% on a reported basis but declined when currency effects were stripped out. Asia Pacific and Latin America were effectively flat.

Greater China remained a weak spot. Sales there fell 7% to about $1.62 billion, or 10% on a currency-neutral basis, marking the seventh consecutive quarter of revenue decline in a market that for years had been one of Nike’s fastest-growing and most profitable. Nike said segment operating income in China rose 11% in the quarter, suggesting aggressive cost controls, but profit for the region is still down sharply for the fiscal year to date.

Tariffs and costs hit margins

The pressure was most visible in Nike’s margins. Gross margin—the share of sales left after product costs—dropped to 40.2% from 41.5% a year earlier. The company said the 1.3-percentage-point decline was “primarily due to higher tariffs in North America,” referring to increased duties on imported footwear and apparel tied to U.S. trade policy.

Nike and other global brands have warned for more than a year that new and higher U.S. tariffs on Chinese-made goods would drive up their costs by hundreds of millions of dollars. In response, Nike has raised prices on many popular models, adding roughly $5 to pairs in the $100 to $150 range and about $10 to more expensive shoes, and has shifted more production from China to factories in Vietnam, Indonesia and other countries. The company has said it aims to cut China’s share of Nike footwear imported into the United States to the high single digits by the end of its 2026 fiscal year, down from the mid-teens.

Even with those moves, cost of sales rose 2% in the quarter, outpacing revenue. Selling and administrative expenses also increased, up 2% to $3.98 billion, as severance and currency effects added to operating overhead. Net margin fell to 4.6% of sales from 7%.

Matthew Friend, Nike’s executive vice president and chief financial officer, said the company’s self-imposed restructuring, branded internally as “Win Now,” is weighing on near-term results but is intended to simplify the product lineup and restore profitability.

“‘Win Now’ actions will continue to impact results over the balance of the calendar year,” Friend said. “We are confident these steps are positioning Nike for profitable growth long-term.”

Wholesale rebound, direct sales slide

Those steps mark a shift from Nike’s recent past. In the years leading up to the pandemic, the company emphasized a “Consumer Direct Acceleration” strategy, investing heavily in its own stores and digital platforms and reducing its reliance on retailers such as Foot Locker and regional sporting goods chains. Direct-to-consumer sales typically deliver higher margins because they cut out the wholesale middleman.

That bet has been dialed back. In the latest quarter, revenue from Nike’s wholesale business—sales to third-party retailers—rose 5% to $6.5 billion on a reported basis. Revenue from Nike Direct, which includes the company’s own stores and digital channels, fell 4% to $4.5 billion, and was down 7% excluding currency. Brand digital sales were down 9%, while sales at company-owned stores declined 5%.

The reversal is being watched closely across the retail industry. After many large brands spent years trying to steer shoppers to their own websites and apps, Nike’s renewed emphasis on wholesale has reassured mall chains and specialty retailers that had been squeezed by earlier pullbacks. At the same time, the company’s softer digital performance raises questions about how much growth remains in its direct channels as consumers juggle more options and heightened promotional activity online.

Strategy reset and leadership changes

Nike is juggling those strategic choices against a weaker financial backdrop. For the fiscal year ended May 31, 2025, the company’s revenue fell 10% to $46.3 billion, and net income dropped 44% to $3.2 billion, hurt by slowing demand, inventory clean-up and decisions to scale back some product lines. Management has said it plans to deliberately remove more than $4 billion in annual revenue tied to older “classic” footwear franchises by the end of fiscal 2026 in order to focus on newer products and higher-margin categories.

Hill, a more than 30-year Nike veteran who became chief executive in October after previously running the company’s global consumer and marketplace operations, has reshaped his leadership team as he pushes that agenda. Nike has elevated Amy Montagne to president of the Nike brand, created a chief growth initiatives role and shuffled other senior posts in what analysts describe as one of the company’s most aggressive internal shake-ups in years.

Cash returns continue

The third-quarter filing also highlighted how Nike is balancing its turnaround with continued cash returns to shareholders. Inventories were trimmed 1% from a year earlier to $7.5 billion. Cash and short-term investments totaled $8.1 billion, down about $2.3 billion as operating cash flow was more than offset by capital spending, bond repayment, share repurchases and dividends.

Nike returned approximately $609 million to shareholders through dividends in the quarter, an increase of 3% from a year earlier. The company said it has now raised its dividend for 24 consecutive years.

Outlook: more declines before a payoff

Looking ahead, Nike told investors it expects revenue in the current quarter, which ends in May, to decline 2% to 4% from the same period a year ago. Friend said the company does not anticipate the full benefit of its cost cuts and product reset to flow through its financial statements until fiscal 2027.

That leaves Hill asking for time in a market that has grown less patient with extended turnarounds. For now, the numbers show a company still in transition: sales flat, profits lower, and the payoff from “Win Now” still over the horizon.