Nike (NKE) reported fiscal third-quarter earnings on Tuesday that easily topped Wall Street estimates. But on Wednesday, the stock cratered more than 15%, falling below $50 for the first time in nearly nine years.
The reason? Not the past – but the future. And that future looks increasingly grim in China.
For the quarter ended Feb. 28, Nike posted EPS of $0.35, well above the $0.28 consensus, on revenue of $11.23 billion, roughly in line with expectations. Yet the market reacted as if the company had missed badly. By mid-day trading, the stock was down more than 15%, erasing any goodwill from the earnings beat.
What spooked investors was management’s forward guidance – specifically, one number: a roughly 20% year-over-year sales decline in Greater China for the current fourth quarter.
Just a quarter ago, sales in the region were already down 12%. Now Nike is guiding for an even steeper drop. CFO Matt Friend explained the revision as a result of “reduced sell-in” and “accelerated actions to clean up the marketplace.” In plain English: Nike is actively shrinking its presence in China to clear inventory and reset its channel strategy.
But inventory is only part of the story. The deeper problem is that Chinese consumers are moving on.
For a decade, China was Nike’s most celebrated growth story. That story has now reversed. Local brands like Anta and Li-Ning are gaining ground, fueled by rising geopolitical tensions and a surge in domestic pride. The shift is structural, not cyclical. Lululemon, by contrast, continues to grow in China – proving that the issue isn’t “international brands” in general, but Nike’s own fading appeal.
Globally, Nike wasn’t withoutspotlight. Wholesale revenue rose 5% year over year to $6.5 billion, a sign that the company’s renewed focus on retail partners – after years of prioritizing direct-to-consumer – is paying off. But that was overshadowed by weakness elsewhere. Nike Direct revenue fell 7%, with digital sales down 9%. The company also guided for overall fourth-quarter revenue to decline 2% to 4%, walking back earlier hints of a second-half improvement.
The selloff has brought out the usual debate: is Nike now a buy?
Bulls point to the balance sheet. Nike still has $8.1 billion in cash and equivalents. At current prices, the dividend yield has surged to over 3.4% – a rare level for this iconic brand. New CEO Elliott Hill, who took the helm only recently, could potentially reinvigorate product innovation and channel strategy, making today’s valuation a historic entry point.
Bears, however, argue that China is deteriorating faster than any model predicted. The region accounts for roughly 15% of Nike’s global revenue. A 20% contraction there will weigh heavily on overall profits for the next two to three quarters. Worse, this isn’t a macro blip – it’s a structural shift in consumer preference. Fixing that takes years, not quarters.
Nike’s 15% plunge tells a clear story: investors once paid a premium for the China narrative. That narrative is now being rapidly unwound. As long as Greater China guidance keeps worsening – from minus 12% to minus 20% – any talk of a valuation bottom is premature.
A 3.4% dividend yield can provide some shelter. But it won’t stop the wind.
