Nike shares dropped over 10% in premarket trading on Friday, as concerns over its performance in China overshadowed the company’s stronger-than-expected earnings.

On Thursday, the sportswear giant reported quarterly results that beat Wall Street forecasts, thanks to solid sales in North America, which helped offset a steep decline in China.

Investors are focusing on the disappointing numbers from China and the ongoing pressure from higher tariffs.

For its second fiscal quarter of 2026, Nike reported the following results, compared to consensus estimates from LSEG:

• Earnings per share: 53 cents vs. 38 cents expected
• Revenue: $12.43 billion vs. $12.22 billion expected

Nike said North American sales rose 9% to $5.63 billion, while revenue in Greater China fell 17% to $1.42 billion. Net income came in at $792 million, down 32% from $1.16 billion in the same period last year. Overall revenue increased slightly by 1%, from $12.35 billion to $12.43 billion.

The stock movement also affected European peers, with shares of Adidas and Puma dipping slightly on Friday, as concerns about Nike’s China performance reverberated across the market.

Investors in Western consumer discretionary sectors—including sportswear and luxury goods—are closely watching China, a crucial market that has seen volatile demand since the sharp post-pandemic slowdown. Adidas reported 10% growth in China for its third quarter, while Puma saw a 9% drop in sales across the Asia Pacific region, mainly due to a “significant decline” in the Greater China wholesale business.

Nike’s Turnaround Efforts

Nike is just over a year into CEO Elliott Hill’s turnaround plan, aimed at regaining growth and market share, clearing outdated inventory, and strengthening wholesale partnerships.

“Fiscal year 2026 is about taking action to rightsize our classics business, restore Nike digital to a premium experience, diversify our product portfolio, deepen consumer connections, and realign our teams and leadership,” Hill told analysts. “We’re in the middle innings of our comeback.”

He acknowledged that improvements in China are not yet progressing at the pace needed to drive wider change, though he emphasized the market remains a powerful long-term opportunity.

For fiscal third quarter, Nike anticipates a low single-digit revenue decline, with modest growth expected in North America. The company also projects a drop in gross margins of 1.75 to 2.25 percentage points, including a 3.15-point hit from tariffs.

During the quarter, wholesale revenue rose 8% to $7.5 billion, while direct-to-consumer sales fell 8% to $4.6 billion—a segment Nike had focused on heavily before Hill’s leadership.

Nike has been affected by tariff increases, which contributed to a 3-point decline in gross margin and a 3% decrease in inventories. The Converse brand has also struggled, with revenues dropping 30% in the second quarter following a 27% decline in the first fiscal quarter.

Areas of Strength and Upcoming Initiatives

Despite challenges, Nike highlighted several areas of growth. CFO Matt Friend noted that Nike.com had its best Black Friday performance ever, helped by the Air Jordan “Black Cat” release.

Nike also plans to introduce a new footwear platform called Nike Mind in January, designed to help athletes prepare for competition, Hill said.

The company has undergone internal restructuring under Hill’s leadership. Earlier this month, leadership changes were implemented to “remove layers,” including the departure of Chief Commercial Officer Craig Williams as part of the “Win Now” strategy. Hill described the moves as focused on growth and offensive positioning.

Nike shares had already fallen more than 13% year-to-date before Thursday’s close. Following the earnings report, Citi analysts expressed caution, noting that China’s weak performance is likely to continue throughout 2026 and could slow the company’s broader recovery in 2027.

“Management expects 2Q China weakness to persist as they reset the market, which will take time,” Citi said. “This underscores the complexity of Nike’s ongoing turnaround.”