Nike to raise costs as Trump's tariffs on China bite

Al Jazeera

4 hours ago

Nike has said it will cut its reliance on production in China for the United States market to mitigate the impact from US tariffs on imports, and forecast a smaller-than-expected drop in first-quarter revenue.
The sportswear giant's shares zoomed 15 percent at the opening bell on Friday morning after it announced the change in conjunction with its earnings report released on Thursday.
US President Donald Trump's sweeping tariffs on imports from key trading partners could add about $1bn to Nike's costs, company executives said on a post-earnings call after the sportswear giant topped estimates for fourth-quarter results.
China, subject to the biggest tariff increases imposed by Trump, accounts for about 16 percent of the shoes Nike imports into the US, Chief Financial Officer Matthew Friend said. However, the company aims to cut the figure to a 'high single-digit percentage range' by the end of May 2026 as it reallocates Chinese production to other countries.
'We will optimise our sourcing mix and allocate production differently across countries to mitigate the new cost headwind into the United States,' he said on a call with investors.
Consumer goods are one of the most affected areas by the tariff dispute between the world's two largest economies, but Nike's executives said they were focused on cutting the financial pain. Nike will 'evaluate' corporate cost reductions to deal with the tariff impact, Friend said. The company has already announced price increases for some products in the US.
'The tariff impact is significant. However, I expect others in the sportswear industry will also raise prices, so Nike may not lose much share in the US,' David Swartz, analyst at Morningstar Research, told the Reuters news agency.
CEO Elliott Hill's strategy to focus product innovation and marketing around sports is beginning to show some fruit, with the running category returning to growth in the fourth quarter after several quarters of weakness.
Having lost share in the fast-growing running market, Nike has invested heavily in running shoes such as Pegasus and Vomero, while scaling back production of sneakers such as the Air Force 1.
'Running has performed especially strongly for Nike,' said Citi analyst Monique Pollard, adding that new running shoes and sportswear products are expected to offset the declines in Nike's classic sneaker franchises at wholesale partner stores.
Marketing spending was up 15 percent year on year in the quarter.
On Thursday, Nike hosted an event in which its sponsored athlete Faith Kipyegon attempted to run a mile in under four minutes. Paced by other star athletes in the glitzy event that was livestreamed from a Paris stadium, Kipyegon fell short of the goal but set a new unofficial record.
Nike forecast first-quarter revenue to fall in the mid-single digits, slightly better than analysts' expectations of a 7.3 percent drop, according to data compiled by LSEG. Its fourth-quarter sales fell 12 percent to $11.10bn, but still beat estimates of a 14.9 percent drop to $10.72bn.
China continued to be a pain point, with executives saying a turnaround in the country will take time as Nike contends with tougher economic conditions and competition.
Looming trade deal as prices rise
Nike's woes come as a trade deal with China could be on the horizon. US Treasury Secretary Scott Bessett said on Friday that the administration could have a deal with Beijing by Labor Day, which is on September 1.
Under the deal, the US will likely impose 55 percent tariffs across the board on Chinese goods, down from 145 percent, still a significant burden on businesses.
According to a survey from Allianz Global Trade last month, 38 percent of businesses say they will need to raise prices for consumers, with Nike being the latest.
In April, competitor Adidas said it would need to eventually raise prices for US consumers.
'Cost increases due to higher tariffs will eventually cause price increases,' CEO Bjorn Gulden said at the time.
Walmart said last month that its customers will see higher price tags in its stores as the nation's biggest big box retailer prepares for back to school shopping season.
Target, which had a bad first quarter driven by boycotts and the looming threat of tariffs, also has been hit as the big box retailer gets 30 percent of its goods from China.