President Donald Trump's imposition of what he considers "reciprocal tariffs" last week on virtually every other nation sent the U.S. stock into a historically steep sell-off as investors fret about the potential impacts those new import taxes will have on inflation and economic growth. The big uncertainty is how these tariffs and the trade war that they are triggering may reorder the global economy.
Few U.S. stocks have been spared in the marketwide slump, but one that investors have been watching closely is footwear and athletic apparel giant Nike (NKE 1.66%), which was already slumping and trying to pull off a turnaround.
The company is early in its transformation
Nike has long been an iconic brand, but the company has struggled recently. Over the last five years, shares are trading down by more than 36% (as of Monday). Nike's board, fed up with that dismal performance, lured company veteran Elliott Hill out of retirement to lead a turnaround effort. Hill started at Nike as an intern, then spent more than 30 years there, rising all the way to president of the company's consumer and marketplace division before retiring in 2020.
Hill certainly has his work cut out for him. Nike has ceded market share to other competitors in the luxury retail and footwear space. Hill plans to refocus Nike's marketing and brand strategy back on the athlete, and once again put the company's obsession with sports on full display. Hill also wants to rebuild the company's relationship with its wholesale buyers and focus less on its promotional online activity.
Getting the company back on track is going to be a multiyear effort. Along the way, Nike will be forced to contend with tariffs, which were already impacting its results in its fiscal 2025 third quarter (which ended Feb. 28). Tariffs were cited as a reason management lowered its outlook for the current quarter.
The impact of tariffs
Even before Trump's latest tariffs went into effect, he had already imposed tariffs of about 20% on China, a country where Nike does a significant amount of business. In its most recent quarter, Nike's sales in China fell by about 17% year over year, missing analysts' expectations. Hill said he spent some time in the country recently and found the competition to be "a bit more aggressive than what I remembered." CNBC reported that roughly 24% of suppliers and manufacturers that Nike works with are in China, meaning it will either need to raise its prices or accept shrinking margins.
NYSE: NKE
Key Data Points
Last week, Trump added another 34% in taxes on Chinese imports, bringing its tariff rate to 54%. China responded Monday by threatening 34% retaliatory taxes on all U.S. goods. Soon after, President Trump signaled a 50% additional retaliatory tariff if China carries through on its threat. There are also worries that the ratcheted-up trade war could provoke anti-American sentiment in China and lead officials to recommend that Chinese consumers avoid American products.
Trump's reciprocal tariffs also included a 46% tax on imports from Vietnam, which adds another layer of difficulty for Nike. According to The Wall Street Journal, Nike makes 95% of its shoes in China, Vietnam, and Indonesia (which Trump hit with a 32% tariff).
Patient investors can still be optimistic
Even prior to Trump's tariffs, Nike wasn't going to be able to turn things around in just a quarter or two, and these new taxes and trade issues won't help its timeline. However, investors with a longer outlook -- say, five or 10 years -- still have a lot to be optimistic about. The brand that Nike has built is still one of the most iconic in the world, and that won't be easy for competitors to replicate.
There is also confidence in Nike's new products and innovation, which many consider a necessity if the company is to reclaim its throne. On Foot Locker's latest earnings call last month, executives noted that customers have been responding well to Nike sneakers made in partnership with popular athletes like Ja Morant. Executives also said there was huge excitement around Nike's Kobe Bryant franchise. Roughly 60% of Foot Locker's sales involve Nike shoes and apparel, so many analysts covering Nike see the retailer's performance as a good proxy for the apparel giant's in some ways.
Foot Locker Executive Vice President Frank Bracken said his company feels that Nike has "reset," and expects to see recovery in gross margins with its Nike partnership. He also said Foot Locker is supportive of Nike's actions. "[We are] very excited about the future in terms of innovation. Nike Shox, the running construct with Peg, Vomero, and Structure all looks incredible, and the recent launches have been well received by the consumer," he said.
