Higher Tariffs and Production Costs: Is NIKE Ready to Adapt?

NIKE, Inc. NKE, like other industry players, remains exposed to the impact of rising tariffs and production costs. Management highlighted rising tariffs as a major structural headwind affecting the financial performance and cost structure. Higher tariffs and product costs have already contributed to declining gross margins and reduced profits.

In second-quarter fiscal 2026, NIKE’s gross profit dipped 6.3% year over year, while the gross margin contracted 300 basis points (bps) to 40.6%. The gross margin decline was caused by elevated product costs, including higher tariffs in North America and inventory obsolescence in Greater China. The company’s earnings per share of 53 cents plunged 32% from the year-ago level.

However, NKE is implementing mitigation strategies to manage the impact of elevated tariffs and product costs. NIKE is improving efficiency across its value chain by integrating technology and streamlining operations spanning product creation, planning, manufacturing, distribution and sales. Such efforts target enhancing productivity and improving overall cost management, helping offset increased sourcing and production costs.

Overall, NIKE’s tariff-mitigation efforts are centered on reducing cost pressures through operational improvements, efficiency gains and marketplace optimization. The company is making smooth progress on its Win Now strategy, which emphasizes execution discipline and operational stabilization. For the third quarter of fiscal 2026, NKE expects gross margin to decrease 175-225 bps. Excluding roughly 315 bps impacts of elevated gross product costs with respect to new tariffs, the gross margin is expected to be positive in the fiscal third quarter. 

NIKE is navigating new structural headwinds from the $1.5 billion of annualized higher product costs owing to increased U.S. tariffs. This represents a gross headwind of nearly 320 bps to the gross margin in fiscal 2026. Although the company has taken steps to reduce the impact to roughly 120 bps, tariff-related costs remain a significant headwind, continuing to pressure near-term EBIT margins as the company navigates its turnaround in a highly dynamic operating backdrop.

NKE’s Competition

lululemon athletica inc.’s LULU performance is impacted by higher markdowns, tariff impacts and elevated selling, general & administrative expenses. LULU is implementing several strategies to manage rising tariffs, sourcing pressures and higher production costs while protecting margins and sustaining growth. While lululemon continues to implement cost-control measures and maintain disciplined pricing, tariff-related and sourcing pressures are likely to persist. lululemon continues to benefit from the progress with its Power of Three X2 growth strategy. 

adidas AG's ADDYY strategy focuses on strengthening brand appeal, driving product innovation, improving operational efficiency and accelerating growth. ADDYY prioritizes operational efficiency, inventory discipline and sustainability to improve profitability and long-term competitiveness. adidas is implementing strategies to manage the impact of rising tariffs, supply-chain costs and sourcing pressures, while protecting profitability and maintaining competitive positioning.

NKE’S Price Performance, Valuation and Estimates

Shares of NIKE have lost 20.3% in the past six months compared with the industry’s decline of 19.6%.

From a valuation standpoint, NKE trades at a forward price-to-earnings ratio of 28.79X compared with the industry’s average of 26.86X.

The Zacks Consensus Estimate for NKE’s fiscal 2026 earnings implies a year-over-year plunge of 27.3% while that of fiscal 2027 shows growth of 54.1%. The company’s EPS estimate for fiscal 2026 has been stable while that of fiscal 2027 has moved south in the past 30 days.

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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