What Happened?
Shares of athletic apparel brand Nike (NYSE: NKE) fell 2.7% in the morning session after credit rating agency Moody's downgraded several of the company's debt ratings, citing cost pressures and heightened competition. In its report, Moody's noted that factors including tariffs and a more competitive market were expected to result in weaker cash flow and higher leverage for the footwear giant. The rating agency projected that while Nike's profit margins would recover, the process would be slow.
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What Is The Market Telling Us
Nike’s shares are not very volatile and have only had 8 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 5 months ago when the stock gained 16.1% on the news that the company reported fiscal fourth-quarter 2025 results that beat Wall Street's expectations and outlined plans to mitigate costs. Although Nike's fourth-quarter revenue fell 12% to $11.1 billion, the figure was still better than analysts had feared. The company reported earnings per share of $0.14, topping the consensus estimate of $0.12. Investors were particularly encouraged by the company's strategic plans, including efforts to reduce its reliance on manufacturing in China. Nike announced it expects to lower the proportion of US-bound footwear sourced from China from 16% to the high single-digits by the end of fiscal 2026. This move is aimed at mitigating the impact of tariffs, which the company warned could add about $1 billion in costs. Despite the sales decline and the significant drop in gross margin, the market reacted positively to the earnings beat and the proactive steps to re-align the supply chain for future growth.
Nike is down 12.6% since the beginning of the year, and at $64.38 per share, it is trading 21.2% below its 52-week high of $81.72 from February 2025. Investors who bought $1,000 worth of Nike’s shares 5 years ago would now be looking at an investment worth $494.80.
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