Nike Q3 Revenue Beats Expectations but Profit Margins Take a Hit Amid Weak China Sales

Nike’s Q3 2025 Earnings: Revenue Beats Expectations, But Margin Pressures Raise Concerns

Nike’s third-quarter fiscal 2025 earnings report reveals a mixed picture—strong revenue performance but concerning profitability trends. With revenue surpassing expectations yet margins under pressure, investors are left to navigate the balance between short-term resilience and long-term strategic challenges.

Key Highlights of Nike’s Q3 2025 Report

Revenue: Total revenue reached $11.27 billion, exceeding analysts’ expectations of $11.03 billion but reflecting a 9% year-over-year decline on a reported basis (7% currency-neutral).
Nike Brand Revenue: Came in at $10.89 billion, above the expected $10.6 billion.
Earnings Per Share : Declined to $0.54, down from $0.77 in the same period last year.
Gross Profit Margin: 41.5%, slightly below expectations of 41.9%, indicating discounting pressures and cost inflation.
Greater China EBIT: Reported at $421 million, significantly missing analyst projections of $559.4 million.
Inventory: Held at $7.5 billion, in line with expectations ($7.48 billion), reflecting better inventory management.

Revenue Strength vs. Profitability Pressures

Nike’s revenue strength underscores the resilience of its brand, yet deeper financial trends suggest underlying operational and strategic hurdles. While the company successfully surpassed top-line estimates, profitability continues to be under pressure.

Decline Across Key Segments: Nike Direct saw a 12% drop (10% currency-neutral), with digital sales declining 15%. The company’s emphasis on direct-to-consumer sales has faced setbacks despite industry-wide e-commerce growth.
Wholesale Performance: Declined by 7% reported (4% currency-neutral), showing that even traditional retail partners faced demand challenges.
Converse: Struggled significantly, with an 18% revenue decline and a 60% drop in EBIT.

Nike’s revenue outperformance is a positive signal, but the broader context of margin pressures and digital struggles suggests the company must recalibrate its growth strategy.

Margins and Cost Pressures: A Major Concern

Nike’s gross margin contraction—falling by 330 basis points to 41.5%—is a major red flag. This decline is attributed to:

Higher discounting and promotions to clear inventory.
Increased product costs amid inflationary pressures.
Inventory obsolescence reserves, signaling slower-moving stock.
Shift in channel mix, with digital sales underperforming expectations.

Additionally, net income plunged 32%, while EBIT margins dropped from 10.9% to 7.3%—a clear indication of operating profitability challenges.

Regional Disparities: Greater China Struggles, North America Mixed

Nike’s Greater China revenue and EBIT performance were notably weak, with a 17% drop in key categories and a 42% EBIT decline. This shortfall raises concerns over economic headwinds, competitive pressures, and changing consumer preferences in one of Nike’s most crucial markets.

North America: Footwear revenue dropped by 9%, while apparel and equipment showed modest growth (7% and 10%, respectively).
Europe, Middle East & Africa : Witnessed double-digit declines in footwear and apparel.
Greater China: A steep EBIT drop of 42% signals strategic challenges in a key growth market.
Converse: A weak performance across all regions, pointing to brand-specific issues.

Nike continues its aggressive capital return strategy, repurchasing 119.3 million shares for $11.8 billion. While this boosts EPS in the short term, it raises concerns about whether financial engineering is masking deeper operational weaknesses.

Interestingly, while Nike cut selling and administrative expenses by 8%, it increased demand creation spend by 8%—a move that suggests management is betting on brand reinforcement to counter sales slowdowns.

Hidden Insights: One-Time Tax Benefit and Forward-Looking Statements

Nike’s effective tax rate plummeted to 5.9%, compared to 16.5% last year, due to a one-time deferred tax benefit. While this improved reported earnings, it is a temporary boost and is not sustainable in future quarters.

Moreover, management's “Win Now” strategic initiative remains a central narrative, but its tangible impact is yet to be fully realized. The reaffirmation of prior outlooks suggests that the company is still navigating through uncertainty.

Investor Outlook and Takeaways

Nike’s Q3 2025 report presents a mixed investment case:

Positive Signals: Revenue outperformance and disciplined cost control provide some confidence in the company’s ability to navigate demand fluctuations.
Red Flags: Declining profitability, struggling digital sales, and weak Greater China performance suggest deeper structural challenges.
Key Watchpoints: Investors should closely monitor Nike’s ability to recover margins, adapt its digital strategy, and reverse performance declines in China and Converse.

Cautious Optimism with Key Risks

While Nike remains a powerhouse in global sportswear, short-term headwinds in profitability, digital channels, and regional performance warrant caution. The stock may face near-term volatility, but long-term growth prospects hinge on how well the company executes its turnaround efforts in key strategic areas.