Nike, grappling with further fallout from tariffs, now expects $1.5B in annualized costs
Nike is detailing further fallout from tariffs as it marks nearly one year into its turnaround under CEO Elliott Hill.
On Tuesday, the company revealed that it expects $1.5 billion in gross incremental costs, on an annualized basis, because of tariffs. That’s a 50% increase from Nike’s last estimate, provided in June, of $1 billion. Meanwhile, Nike’s gross margin for its first fiscal quarter of 2026 decreased 320 basis points, in part due to “increased product costs, including new tariffs, and channel mix headwinds,” EVP and CFO Matthew Friend said on a call with analysts.
Friend stated that Nike is revising its numbers because, since the company’s last earnings call, “new reciprocal tariff rates have been increased for certain countries.”
“Given the magnitude and timing of the most recent rate increases, we now expect the net headwind in fiscal ’26 to increase from approximately 75 basis points to 120 basis points to gross margin,” he added. “We are monitoring developments closely, and I remain confident in our ability to leverage our strengths, our scale and the deep experience of our leadership team to navigate through this disruption.”
Nike is still manufacturing in China, which has been the subject of some of the highest import tariffs under President Donald Trump’s administration. About 16% of Nike’s footwear imported into the U.S. comes from China and is therefore subject to a tariff of 30%. Nike has vowed to reduce its imports from China to the “high-single-digit range by the end of fiscal 2026.”
Still, Nike is still largely dependent on Cambodia, Vietnam and Indonesia, where tariffs are still in place. In August, the U.S. set a 19% tariff on Cambodian imports, down from a previous 49%. Tariffs on goods imported into the U.S. from Indonesia stand at 19%, as well. Tariffs on goods imported from Vietnam currently stand at 20%.
Even as they detailed further fallout from tariffs, Nike executives said they were optimistic that they could weather the storm under their ongoing “Win Now” plan, carried out under Hill.
Hill, a Nike veteran, returned to the company in October 2024 after retiring from a more than 30-year stint at Nike. His plan to revitalize the business involves restoring relationships with wholesale accounts, segmenting teams by sport (rather than men’s, women’s and kids’), and strengthening product innovation and design, particularly in running.
“There is significant work ahead,” Hill said on the earnings call. “And as I said to the team, progress won’t be perfectly linear, but the direction is. On our last call, I said it was time to turn the page, and I believe this quarter reflects the many ways we’re doing just that.”
Nike reported $11.7 billion in first-quarter revenue, up 1% year over year and above analysts’ expectations of $11 billion. Most of this came from Nike’s wholesale channel, where revenue totaled $6.8 billion, up 7% from a year ago. Meanwhile, revenue for Nike’s Direct channel, which includes its website and stores, came in at $4.5 billion, down 4% from the prior year. In Greater China, quarterly revenue was down 9% year over year.
Jessica Ramírez, co-founder of The Consumer Collective, told Modern Retail that Nike’s estimated hit of $1.5 billion from tariffs is “not great.” But, she said, “It’s also a massive company, so that number makes sense.” Overall, Ramírez believes that Nike’s plans to revive the business are heading in the right direction, but she’d like to see more from performance-wear and the Direct business, which she says are “lacking.”
“I really want them to work more on their in-store experience,” she said. “I feel like that’s gotten stagnant. I like all the marketing campaigns that they’ve done, and I like the collections that are coming out. But I think the store experience could be much better. … A few years back, when you walked in there, it was like you were shopping in the future. And it doesn’t feel that way anymore.”
One bright spot for Nike is its running business, where sales are up “over 20%” in the last quarter, Hill said. Nike is also focusing more on football, basketball, training and sportswear. Its bigger bet on wholesale is paying off, including on Amazon, where it is “driving stronger engagement and sales than anticipated,” Hill said. Customer response to the company’s new partnership with Skims is also “very strong,” he mentioned.
Still, in August, CNBC reported that Nike planned to lay off about 1% of its corporate staff. “The moves we’re making are about setting ourselves up to win and create the next great chapter for Nike,” the company said in a statement.