Nike Faces 20% Tariff Hike, Prices May Rise

Nike Inc. (NKE.US) is facing increased pressure to raise prices due to a new trade agreement between the United States and Vietnam, which has reportedly raised tariffs. According to Rick Patel, an analyst at Raymond James, the agreement will result in higher costs for Nike, which could lead to increased prices for consumers. Patel noted that the new tariffs will make it more expensive for Nike to manufacture its products in Vietnam, a key production hub for the company. This could force Nike to pass on some of these costs to consumers in the form of higher prices.

Patel stated that Nike has already implemented a strict pricing strategy and that this strategy is expected to continue, with the potential for price increases to exceed previous plans. The analyst also suggested that Nike may need to explore alternative production locations to mitigate the impact of the new tariffs. However, this could take time and may not be a viable option in the short term. Patel concluded that Nike will need to carefully manage its costs and pricing strategy in response to the new trade agreement.

The new trade agreement, announced by U.S. President Trump, will impose a 20% tariff on goods coming from Vietnam. This tariff rate is double the rate implemented by the U.S. in April (10%). During Trump's second term, the U.S. has imposed tariffs of approximately 8% on non-agricultural products from Vietnam. Patel noted that the increased tariffs will also lead to a greater-than-expected decline in the gross profit margins of Nike and other companies that source materials from Vietnam, including Under Armour (UAA.US), Skechers USA (SKX.US), On Running (ONON.US), Lululemon (LULU.US), and Dick's Sporting Goods (DKS.US).

On Wednesday, when Trump discussed the agreement on social media, Nike's stock price rose by approximately 4%. Investors may be relieved that the tariff rate on Vietnam is only 20%. Patel noted that the market had initially expected tariff rates to be in the range of 25% to 30%.