Nike (NYSE:NKE) delivered fiscal second-quarter results that topped market expectations on both earnings and revenue, but concerns over shrinking margins and rising cost pressures triggered a sharp sell-off in the stock.

The sportswear giant said improved performance in its North American business helped counter weaker demand in China, even as higher U.S. tariffs pushed up input costs and weighed on profitability. Gross margin fell by 300 basis points to 40.6%, reflecting increased promotional activity to clear excess inventory — particularly in North America — as well as the impact of higher tariffs.

Jefferies analyst James Grzinic said that “the market seems underwhelmed by the scale of sales acceleration and moderation of gm pressures to come in the months ahead.”

Nike shares dropped around 10% in U.S. premarket trading following the earnings release.

For the quarter, Nike posted earnings per share of $0.53 on revenue of $12.43 billion, comfortably ahead of analysts’ forecasts. Consensus estimates compiled by Investing.com had called for EPS of $0.37 on revenue of $12.2 billion.

Revenue outperformance was driven by solid growth in North America, where sales rose 9% year-on-year to $5.6 billion. While this marked a strong improvement, it came in below analyst expectations of $5.9 billion. China remained a notable drag, with sales falling 17% to $1.42 billion, missing forecasts of $1.6 billion.

Nike also reported that inventories declined by 3% to $7.7 billion, signaling some progress in managing stock levels despite the margin pressures.

Nike stock price

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