Nike Expects $1bn Cost Increase Due to Tariffs as Revenues Slump 12%

Strategic Insights -

The sportswear company is bracing for a significant increase in costs as a result of Donald Trump's tariff war, which it estimates will amount to approximately $1bn. Nike is expected to reduce its manufacturing in China, with the market value of the company having plummeted by a third over the past year. The company is taking action to mitigate the impact, including price increases in the US and sourcing from other countries.

Key Takeaways:

  • Nike expects a gross incremental cost increase of approximately $1bn due to the new tariff rates.
  • The company plans to mitigate the impact of these headwinds over time by optimising its sourcing mix and allocating production differently across countries.
  • Almost 60% of all Nike-branded apparel was manufactured in Vietnam, China, and Cambodia last year, while 95% of all Nike brand footwear was manufactured in Vietnam, Indonesia, and China.
  • The company has strong relationships with its factory partners and is experienced in managing through disruption.
  • Nike plans to implement a "surgical price increase" in the US from this autumn.
  • The company is also looking at reducing overheads through "corporate cost reduction".
  • Nike has consistently been a top payer of US duties, accounting for about 16% of footwear imports to America.
  • The company reported its worst quarterly earnings in more than three years, with revenues slumping 12% to $11.1bn in the three months to the end of May.
  • Elliott Hill, the chief executive of Nike, stated that "The results are where we planned. That said, we're not happy with where we are."
  • Mamta Valechha, an analyst at Quilter Cheviot, said that Nike may nearly be at rock bottom after its fourth-quarter earnings.

Statistics:

  • 60%: The percent of all Nike-branded apparel manufactured in Vietnam, China, and Cambodia last year.
  • 95%: The percent of all Nike brand footwear manufactured in Vietnam, Indonesia, and China last year.
  • $11.1bn: The revenue slumped to $11.1bn in the three months to the end of May.
  • 12%: The percentage by which revenues slumped.
  • $1bn: The estimated cost increase due to the new tariff rates.
  • 16%: The percent of footwear imports to America accounted for by Nike.

Sources:

  • Byline: Mark Sweney
  • Photograph: Chris Willson/Alamy