Nike Beats — and Gets Punished: Why Wall Street Is Sending NKE Back Toward the $52 Danger Zone

Nike’s fiscal second-quarter report delivered exactly the kind of result that frustrates investors the most: a clean beat on earnings and revenue, paired with guidance and commentary that undercut confidence in the near-term trajectory. Shares are down roughly 11% in premarket trading, hovering around $58, as the market looks past the headline beat and refocuses on margins, China, tariffs, and the still-unfinished nature of the company’s turnaround under CEO Elliott Hill. With the stock now flirting with levels that invite comparisons to the April tariff-driven low near $52, the question is no longer whether Nike beat expectations this quarter, but whether investors are willing to wait through what management openly calls the “middle innings” of the recovery.

On the surface , Nike’s Q2 results were better than feared. Earnings per share came in at $0.53, comfortably ahead of consensus expectations near $0.38, while revenue of $12.43 billion topped estimates of $12.22 billion and rose 1% year over year. North America once again provided the bright spot, with revenue up 9% to $5.63 billion, reinforcing management’s claim that the region is “leading the way” and offering a blueprint for what success could look like elsewhere. Wholesale revenue climbed 8% to $7.5 billion, reflecting improved relationships with partners after years of strategic whiplash. However, those positives were overshadowed by continued weakness in Greater China, where revenue fell 17% to $1.42 billion, an acceleration from the prior quarter’s decline and a clear signal that the China reset is not progressing fast enough to satisfy investors.

That China weakness sits at the center of today’s selloff. Management was candid on the call, acknowledging that improvements in the region “are not happening at the level or the pace we need to drive wider change.” Analysts quickly picked up on that message, with several highlighting that China is now expected to remain a drag through the remainder of fiscal 2026. Bank of America estimates that China will comprise just 13% of sales in FY26, down meaningfully from peak levels, while Citi warned that the extended reset complicates expectations for a smooth recovery in FY27. In a market that has grown intolerant of open-ended turnarounds, that lack of a clear China inflection point weighed heavily.

Margins added another layer of discomfort. Nike reported a gross margin of 40.6%, down 300 basis points year over year. While that decline was slightly less severe than the 320-basis-point contraction seen in the prior quarter, it still reinforced the reality that profitability remains under pressure. Management attributed the margin erosion primarily to higher tariffs in North America, inventory obsolescence in Greater China that was not anticipated 90 days ago, and continued promotional activity tied to clearing older product. Importantly, this was not framed as a one-off issue. Looking ahead, Nike guided for gross margin to decline another 175 to 225 basis points in the fiscal third quarter, including an estimated 315-basis-point hit from tariffs alone. Excluding tariffs, management argued that margins would actually expand, but investors showed little appetite for “ex-tariff” narratives when reported margins are still moving in the wrong direction.

The mix shift within the business is also complicating the margin story. Wholesale growth has returned, but that comes at the expense of higher-margin direct channels. Nike Direct revenue fell 8% to $4.6 billion, with Nike Digital down 14% and Nike-owned stores down 3%. This reversal is partly intentional, as management works to restore a more balanced distribution strategy, but it has near-term consequences for profitability. Clearing excess inventory and resetting assortments has helped reduce inventories by 3% year over year to $7.7 billion, yet higher product costs driven by tariffs mean inventory dollars remain elevated even as unit counts fall.

Against this backdrop, Nike’s guidance was the decisive blow. The company expects fiscal third-quarter revenue to decline by a low single-digit percentage, compared with analyst expectations that had been leaning toward modest growth. North America is projected to deliver modest gains, while Greater China and Converse are expected to perform similarly to Q2, implying no near-term relief from those troubled areas. Converse, in particular, remains a persistent drag, with revenue down 30% year over year this quarter, following a 27% decline in Q1. The lack of full-year guidance, a pattern Nike has maintained throughout the turnaround, further amplified uncertainty.

Tariffs remain a critical overhang. Nike manufactures roughly half of its footwear in Vietnam, and management was explicit that tariffs on imports from the region are continuing to pressure gross margins and inflate product costs. Executives quantified the tariff impact repeatedly, framing it as a multi-hundred-basis-point headwind that overwhelms underlying operational improvements. While Nike is taking actions to mitigate these costs over time, the current environment leaves little room for optimism that tariffs will ease meaningfully in the near term.

From a turnaround perspective, the plan itself appears coherent, if incomplete. CEO Elliott Hill emphasized progress under the “Win Now” strategy, including rightsizing the Classics business, rebalancing the product portfolio, investing in sport-led innovation, and restructuring leadership to accelerate decision-making. North America’s performance offers tangible proof points, and new product initiatives such as Structure 26, Nike Mind, and Aero-FIT are intended to reignite innovation momentum. However, management was clear that recovery will be nonlinear, with different geographies moving at different speeds — language that rarely reassures a market looking for cleaner timelines.

At roughly $58 in premarket trading, Nike shares are approaching a critical technical juncture. A decisive break lower could bring the April low near $52 back into focus, a level established during the height of tariff-related anxiety. For now, investors appear unconvinced that the worst is over, choosing instead to demand clearer evidence that margins can stabilize and China can recover. Until those boxes are checked, Nike’s earnings beats may continue to be met with skepticism rather than celebration — a reminder that in a turnaround story, guidance and credibility matter far more than a single quarter’s upside surprise.