Nike shares fell nearly 10% after the company reported another decline in gross margins, underscoring the challenges facing the sportswear giant as it works through an ongoing turnaround. Weak demand in China, coupled with restructuring efforts around product mix and distribution, continued to weigh on performance, according to reports citing Reuters.

For the second consecutive quarter, Nike posted lower gross margins. Chief Executive Officer Elliott Hill said during the post-earnings call that while results were marginally better than expectations set three months ago, the company was still operating well below its full potential. He reiterated that Nike remains in the “middle innings” of its turnaround journey.

China remains a key concern for investors. Sales in the region fell 17% during the quarter, marking the sixth straight quarterly decline. Although Nike has consistently stated that recovery in China would trail North America, analysts are growing impatient. Morningstar analyst David Swartz noted that the continued weakness in China is increasingly troubling and raises questions about the pace of recovery.

Since taking over in 2024, Hill has focused on restoring Nike’s cultural relevance by prioritizing core sports such as running and football, strengthening ties with wholesale partners like Dick’s Sporting Goods, and shifting attention away from legacy footwear lines toward newer products. However, this approach has pressured margins, as wholesale channels typically generate lower returns than direct-to-consumer sales, while excess inventory clearance has required aggressive discounting.

Adding to the strain are higher costs from US tariffs on Southeast Asian manufacturing hubs. Nike estimates these tariffs could impact earnings by approximately $1.5 billion this year. With margins expected to decline further in the current quarter, investors remain cautious, seeking clearer timelines and stronger signals of recovery, particularly in China.