Nike rallies on efforts to tackle tariff costs as turnaround takes shape

By Joel Jose and Helen Reid

(Reuters) -Nike shares surged 10% in premarket trading on Friday as an encouraging forecast driven by an ongoing turnaround effort and plans to reduce China production for U.S.-bound goods bolstered investor confidence.

Major brands have spent years shifting away from Chinese factories for the U.S. market as political tensions between Washington and Beijing escalated, but President Donald Trump's latest import tariffs are pushing companies to hasten their retreat.

Nike plans to reduce imports from China into the U.S. to the high-single digit percentage range, from 16% currently, to absorb some of the $1 billion increase in tariff-related costs it anticipates.

"There was basically no profit, China was down 20%, that's not a good result... But as usual, the markets are pricing in what's coming and not what has been in the results," said Simon Jaeger, portfolio manager at Flossbach von Storch in Cologne, Germany, which holds shares in Nike.

Hill's focus on reclaiming the brand's sports roots through innovation and marketing was evident in the success of the newly launched Vomero 18 shoes lines in boosting the running category back into growth, analysts said.

"This one-time darling of investors has clearly been off its game in recent years, but we believe that the worst may nearly be over," said Needham Securities analyst Tom Nikic, adding that the CEO transition from John Donohoe to Nike veteran Hill was the biggest catalyst of change.

Nike has also doubled down on its return to a more multi-channel sales approach from its direct-to-consumer-focused strategy in 2020, including a return after six years to selling on Amazon as it looks to reach a wider customer base.

Inventory clearing through discounts on lifestyle brands such as Air Force 1 and Dunk has also put the company on track to exit the first half of fiscal 2026 in a "healthy and clean position", CFO Matthew Friend said on a post-earnings call on Wednesday.

That comes as a relief for rivals such as Adidas and Puma and sportswear retailer JD Sports, which were having to compete with aggressive discounting from the bigger sportswear brand, Jaeger said.

Stocks of Adidas, Puma and JD Sports were up between 3% and 7%.

Nike recorded its worst sales drop in five years in the fourth quarter, falling 12% to $11.10 billion, but beat estimates for a 14.9% fall.

It forecast first-quarter revenue to fall in the mid-single digits, slightly better than analysts' expectations of a 7.3% drop, according to data compiled by LSEG.

Nike shares are down 17.4% so far this year, while its 12-month forward price-to-earnings ratio is 1.90, compared with 1.58 and 0.64 for Adidas and Puma, respectively.

(Reporting by Joel Jose and Juveria Tabassum in Bengaluru, Helen Reid and Alun John in London)