NIKE Faces $1.5B Tariff Hit: Can It Protect Margins & Loyalty?

NIKE Inc. NKE, the global sportswear leader, is navigating fresh challenges as newly imposed reciprocal tariffs add an estimated $1.5 billion in annual costs, a sharp increase from the $1 billion projected just 90 days earlier. These tariffs come at a pivotal moment when the company is rebuilding momentum through its “Win Now” and “Sport Offense” strategies.

Despite delivering first-quarter fiscal 2026 earnings above expectations, NIKE’s gross margins declined 320 basis points (bps) to 42.2% in first-quarter fiscal 2026, partly due to increased product costs and tariff-related headwinds. This rising cost pressure threatens to squeeze profitability just as the brand begins to regain traction in key markets like North America and Europe.

To protect margins, NIKE is aggressively deploying cost-control and pricing strategies. Management highlighted several mitigation efforts, including leveraging the company’s global scale, supply chain expertise and selective pricing adjustments.

NIKE is also rebalancing its channel mix by shifting focus toward wholesale partners and premium full-price sales, while reducing dependence on discount-driven digital traffic. These actions are crucial as the company faces an estimated 120 bps drag on gross margin in fiscal 2026 due to tariff costs alone. However, management remains confident that the “Win Now” playbook focusing on cleaner inventories, innovation-driven product lines and higher full-price realization will gradually offset these macroeconomic pressures.

NIKE’s ability to sustain consumer loyalty may prove just as vital as protecting margins. The brand’s strength lies in its deep emotional connection with athletes and consumers worldwide. By doubling down on performance categories like running, basketball and football, where demand and storytelling remain strong, NIKE aims to keep consumers engaged even amid potential price adjustments. While tariffs present a formidable cost challenge, the company’s mix of brand equity, innovation and disciplined execution could help it maintain both profitability and the trust of its global consumer base.

NKE’s Competition in the Global Arena

adidas AG ADDYY and lululemon athletica inc. LULU are the key companies competing with NIKE in the global market.

adidas continues to strengthen its global presence through innovation, digital expansion and strategic brand positioning. Following a period of restructuring and supply chain challenges, the company is refocusing on its core performance categories — running, football and lifestyle — with renewed emphasis on high-margin products and regional growth opportunities. adidas’ “Own the Game” strategy aims to drive sustainable growth by enhancing direct-to-consumer sales and expanding digital engagement. The company is working to rebuild momentum, especially in North America and China, through sharper product innovation and a more disciplined go-to-market approach.

lululemon has evolved from a niche yoga apparel company into a global premium performance lifestyle brand. The company continues to outperform peers with its focus on innovation, product quality and experiential retail. lululemon's “Power of Three ×2” growth plan emphasizes product diversification, digital expansion and international growth, particularly in menswear and footwear. As the brand continues to blend athletic performance with lifestyle appeal, its commitment to technical fabrics, wellness culture and personalized engagement positions it as a formidable challenger in the global athletic wear market.

NKE’s Price Performance, Valuation & Estimates

Shares of NIKE have lost 4.9% year to date compared with the industry’s decline of 7%.

From a valuation standpoint, NKE trades at a forward price-to-earnings ratio of 36.25X compared with the industry’s average of 30.12X.

The Zacks Consensus Estimate for NKE’s fiscal 2026 earnings implies a year-over-year decline of 23.2%, while that for fiscal 2027 indicates growth of 56.4%.

NIKE stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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