Nike shares rose nearly 6% after the company reported that revenue rose 1% in its fiscal first quarter, after previously forecasting sales would fall by a mid-single digit percentage in the period.
However the good news was fairly limited with the company saying it expects a low-single-digit drop in sales in the quarter ending in December. The drop may be worse than it looks because a falling USD has boosted international sales.
“I’m encouraged by the momentum we generated in the quarter, but progress will not be linear as dimensions of our business recover on different timelines,” said CEO Matt Friend. “While we navigate several external headwinds, our teams are focused on executing against what we can control.”
That sounds like trouble is coming ahead.
For the broader macro picture, Nike offer some insight into the impact of tariffs. Executives forecast that tariffs will cost $1.5 billion and hit its gross margin by 1.2 percentage points in its current fiscal year. That’s up from the $1 billion and 0.75 percentage point gross margin impact it projected in June.
All told though, a 1.2 pp hit isn't that bad for an international company that manufactures its shoes abroad. The company has seen a bigger hit from discounting, other inflationary factors and competition.
I would estimate that Nike's number bode well for importers but I worry they're disguised by the big retail markup that Nike adds and that companies that import machinery and low-markup goods will have much higher hits to margin that they will need to pass on.
As for Nike shares, they trade at 42x P/E on this fiscal year's earnings, which is very rich but the consensus bakes in a fall to 28X and 23.8x on FY 28. That's still rich but if tariffs are dropped or somehow avoided, they could rise markedly. I don't see any way the company could profitably manufacture in the USA.
