Nike’s stock dropped sharply in premarket trading on Friday, falling more than 10%, as investor concerns over the company’s performance in China overshadowed an otherwise strong quarterly earnings report. Despite beating Wall Street expectations on both revenue and profit, the sportswear giant faced renewed pressure from signs of continued weakness in one of its most important international markets.

On Thursday, Nike released its latest quarterly results, reporting earnings and revenue that exceeded analyst forecasts. Strong demand in North America helped compensate for a significant decline in sales across Greater China. However, for investors, the disappointing China numbers and the ongoing impact of higher tariffs proved more influential than the earnings beat.

The early stock sell-off reflects growing unease about Nike’s ability to regain momentum in China, where consumer demand has remained unstable in the years following the Covid-19 pandemic. At the same time, higher tariffs are continuing to weigh on profitability, adding another layer of complexity to the company’s turnaround efforts.

For the second fiscal quarter of 2026, Nike reported earnings per share of 53 cents, well above the 38 cents analysts had expected, according to LSEG consensus estimates. Revenue reached $12.43 billion, topping the anticipated $12.22 billion. While these headline figures appeared solid, a closer look at regional performance revealed a stark contrast between markets.

Sales in North America rose 9% year over year to $5.63 billion, highlighting continued strength in Nike’s core market. In contrast, revenue from the Greater China region fell 17% to $1.42 billion, reinforcing concerns that the company is struggling to reconnect with Chinese consumers amid intense competition and a challenging retail environment.

Nike reported net income of $792 million for the quarter, representing a 32% decline from $1.16 billion in the same period a year earlier. Overall revenue increased slightly, rising 1% from $12.35 billion to $12.43 billion. The drop in profit was driven by higher costs, including the impact of tariffs, as well as investments tied to the company’s broader restructuring efforts.

The market reaction was not limited to Nike alone. Shares of European sportswear brands Adidas and Puma also edged lower on Friday morning, as concerns about Nike’s China performance rippled across the global athletic apparel sector. Investors appeared to interpret Nike’s results as another sign of persistent uncertainty in the Chinese consumer market.

For Western consumer discretionary companies, particularly those in sportswear and luxury goods, China remains a critical growth engine. However, demand has been uneven since the pandemic, and companies have struggled to predict when a sustained recovery might take hold. Recent earnings reports from Nike’s competitors underscore these mixed conditions.

Adidas reported 10% growth in China revenue in its third-quarter results, suggesting it has managed to gain some traction in the region. Puma, on the other hand, painted a more cautious picture, noting that sales in the Asia-Pacific region fell 9% due largely to what it described as a significant decline in its Greater China wholesale business.

Nike’s results sit somewhere in the middle of this spectrum, reflecting both the potential and the difficulty of operating in the Chinese market at this stage of the economic cycle.

The company is now more than a year into a turnaround plan led by CEO Elliott Hill, who took the helm with a mandate to restore growth, rebuild market share, and simplify operations. Key elements of the strategy include clearing excess inventory, reinvesting in wholesale partnerships, and reshaping Nike’s digital and product strategies.

During a call with analysts, Hill emphasized that fiscal year 2026 is focused on decisive action rather than quick wins. He said the company is working to resize its core classics business, elevate the Nike digital experience, broaden its product portfolio, strengthen relationships with retail partners, and realign internal teams and leadership.

Hill described the company’s progress as being in the “middle innings” of its comeback, acknowledging that Nike is still far from realizing its full potential. He was candid about the challenges in China, noting that improvements there are not occurring at the scale or speed needed to drive broader change. Even so, he reiterated that China remains one of Nike’s most significant long-term growth opportunities.

Looking ahead, Nike expects revenue in the third fiscal quarter to decline by a low single-digit percentage. The company forecasts modest growth in North America but anticipates continued pressure elsewhere. Gross margins are projected to fall between 1.75 and 2.25 percentage points, including an estimated 3.15 percentage point hit from tariffs alone.

Nike’s revenue mix also highlights the strategic shifts underway. Wholesale revenue increased 8% during the quarter to $7.5 billion, reflecting renewed investment in partnerships with third-party retailers. Meanwhile, direct sales fell 8% to $4.6 billion. Direct-to-consumer had been a major focus for Nike in prior years, but Hill has deliberately moved the company away from an overreliance on that strategy.

Tariffs remain a notable headwind. Nike said its gross margin declined by 3 percentage points in the quarter, with higher tariffs cited as a primary factor. Inventories fell 3%, partly as a result of these increased costs.

Another area of concern has been the Converse brand, which Nike owns. The company has consistently reported weakness in this segment. In the first fiscal quarter, Converse sales dropped 27%, and in the latest quarter, revenue for the brand fell by 30%, signaling ongoing challenges in revitalizing its appeal.

Despite these pressures, Nike highlighted several bright spots and upcoming initiatives. Chief Financial Officer Matt Friend noted that Nike.com delivered its strongest Black Friday performance ever, driven in part by the release of the Air Jordan “Black Cat” model. The strong online sales suggest that targeted product launches can still generate significant consumer excitement.

Nike also plans to introduce a new footwear platform called Nike Mind in January. According to Hill, the platform is designed to support athletes in preparing for competition and performance, signaling continued investment in innovation and product differentiation.

Internally, Nike has been making structural changes aimed at speeding up decision-making and sharpening its competitive edge. Earlier this month, the company announced leadership changes intended to remove management layers and streamline operations. As part of its “Win Now” strategy, Chief Commercial Officer Craig Williams will depart the company.

Hill described the leadership shakeup as a move centered on growth and a more aggressive, offense-driven approach. He said the changes are intended to better position Nike to deliver impact in ways that only the brand can.

Before Friday’s premarket decline, Nike shares were already down more than 13% for the year. The latest sell-off underscores how sensitive investors remain to signals about China and the broader recovery story.

In a research note following the earnings release, analysts at Citi said the continued weakness in China weighed heavily on their outlook for Nike’s turnaround. They noted that management expects the softness seen in the second quarter to persist through the remainder of fiscal 2026 as the company works to reset the market, a process they cautioned will take time.

The analysts said this outlook keeps them cautious about the pace of recovery in fiscal 2027 and highlights the complexity of the transformation Nike is currently undertaking. For now, strong performance in North America and selective product successes are not enough to fully offset investor concerns about China, tariffs, and the long road back to sustained global growth.