00:00 Speaker A

Shares of Nike moving lower today as the company warns about the impact of tariffs, expecting sales to decline in the current quarter. This despite beating modest expectations for the third quarter. Yahoo finances Brooke DiPalma joins me now with a closer look at Nike’s exposure to China here. Brooke, we were breaking this down right after the close yesterday, right after the report dropped, we saw an initial pop on the report, but once the call got started, seems like investors and analysts started pricing in a few more things.

00:31 Brooke DiPalma

Yeah, investors certainly spooked about that Q4 guidance that they said on the call. But let’s kick off this conversation with really where their exposure is to China. If you take a closer look based upon the company’s annual reports, the amount of footwear that the company manufactures in China is down from back in 2016 when Trump initially took office from 29% back then to 18% in their last year annual report. Now apparel, also a significant decrease in just the amount of apparel that’s manufactured in China. That number from 26% down to 16%. Now despite this limited exposure, it was not enough to convince investors that they won’t be hit by tariffs and the company certainly warning of that on the call that 20% of tariff on China, the 25% tariff on Mexico will impact their Q4 earnings. In the call CFO Matthew Friend laying out quote, we are also navigating through several external factors that create uncertainty in the current operating environment including geopolitical dynamics, new tariffs, volatile foreign exchange rates, and tax regulations as well as the impact of this uncertainty and other macro factors on consumer confidence. All these headwinds up against the company. While Nike is also leaning into this turnaround strategy, what they’re calling this win now strategy, it also expects the biggest impact from that to cause headwinds to Q4 revenue and gross margin. In Q4, the company expects to see revenue down in the mid teens range, albeit at the low end, fourth quarter gross margins also expected to be down approximately 400 to 500 basis points. Now a big thing here is the CEO echoing on the call that these headwinds are expected to increase, or rather continue into fiscal year 2026. All this certainly spooking investors this morning. Shares down now nearly 9% an early open.

03:01 Speaker A

All right, a lot to continue to track throughout the trading session and going forward during this quarter. Brooke, thanks so much.