Nike says U.S. tariffs will add US$1 billion to costs, plans to reduce China production

In this file photo dated Tuesday, Sept. 4, 2018, a Nike company logo is displayed outside a Nike store in Charlotte, N.C. (AP Photo/Chuck Burton, FILE)

Nike expects U.S. tariffs on imports to add around US$1 billion to its costs, the sportswear giant said on Thursday, detailing how it aims to reduce its reliance on production in China and mitigate the impact.

U.S. President Donald Trump’s sweeping tariffs on key trading partners have forced many retailers, including Hoka owner Deckers Brands to withdraw their forecasts as they brace for a slowdown in non-essential spending from consumers.

China, subject to the biggest tariff increases imposed by Trump, accounts for about 16 per cent of the shoes Nike imports into the United States, chief financial officer Matthew Friend said.

But the company aims to cut the figure to a “high single-digit percentage range” by end-May 2026 by shifting production to other countries.

“We are partnering with our suppliers and our retail partners to mitigate this structural cost increase in order to minimize the overall impact to the consumer,” Friend added in a call with analysts.

Nike has also already announced price increases to partly mitigate the impact of tariffs.

Nike’s shares gained 11 per cent in extended trading after the company forecast first-quarter revenue to fall in the mid-single digits, slightly better than estimates of a 7.3 per cent drop.

The company also reported a smaller-than-expected drop in fourth-quarter revenue and beat profit estimates as CEO Elliott Hill’s strategy to focus product innovation and marketing around sports begins to pay off.

Having lost share in the fast-growing running market, Nike has scaled back production of sneakers such as the Air Force 1 and invested heavily in running shoes such as Pegasus and Vomero. Friend said the running category returned to growth in the fourth quarter.

Under Hill, who joined in October last year, Nike is investing more into sport-focused marketing to regain its edge as a sports brand. On Thursday, it hosted an attempt by sponsored athlete Faith Kipyegon to run a mile in under four minutes.

Paced by other star athletes in the glitzy, live-streamed event in a Paris stadium, Kipyegon fell short of the goal but set a new unofficial record.

Nike’s fourth-quarter sales fell 12 per cent to US$11.10 billion, compared with analysts’ expectation of a 14.9 per cent drop to US$10.72 billion, according to data compiled by LSEG.

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.

The company’s inventory was flat as of May 31, compared with a year ago, at US$7.5 billion.

“Nike’s inventories are still too high considering the sales declines. It was a tough quarter, but this was widely anticipated,” said David Swartz, analyst at Morningstar Research.

(Reporting by Juveria Tabassum in Bengaluru and Helen Reid; Editing by Shinjini Ganguli)