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Nike’s (NKE-5.58%) stock fell about 7% on Friday morning after the shoemaker conceded that President Donald Trump’s new tariffs are putting pressure on its operations, affecting its earnings outlook.
The company beat modest earnings expectations for last quarter, reporting $11.3 billion in revenue and 54 cents per share in profit.
“Geopolitical dynamics, new tariffs, volatile foreign exchange rates, and tax regulations” are among the challenges Nike faces, CFO Matthew Friend told the earnings call on Thursday. “Our fourth-quarter guidance includes our best assessment of these factors based on the data we have available to us.”
That includes the estimated impact of newly implemented tariffs on imports from China and Mexico, Friend said, according to according FactSet’s (FDS+0.20%) transcript. The 20% duty on imports from China affects about 24% of Nike’s suppliers, which could hurt margins if Nike can’t offset the cost or raise prices.
Fourth-quarter gross margins may drop between 400 and 500 basis points, partly due to restructuring charges from last year, Friend added.
CEO Elliott Hill didn’t address whether the company would ask its Chinese suppliers to absorb U.S. tariffs — which retailers including Costco and Walmart have pushed their manufacturers in the country to to do. Nike’s sales in the country dropped 17%, largely on tariffs and weaker consumer demand.
Hill, on the earnings call, said he’d recently visited contractors’ factories and Nike colleagues in Asia to observe supply chain operations, particular involving new product innovations. Hill emphasized strengthening Nike’s culture and focusing on top priorities like sports.
Margins remain under pressure as Nike works through inventory challenges, including deep discounts on classic styles, Hill said, but added he’s confident that the company’s renewed focus on sports is “the right path forward.”