Nike's stock extended its decline in after-hours trading following the company's projection of an unexpected revenue drop in the current quarter. This has intensified investor concerns that the war in Iran could undermine its recovery efforts. The earnings report revealed that Nike's revenue for the third quarter ending February 28 was $11.3 billion, surpassing average expectations but remaining flat compared to the same period last year. Earnings per share were $0.35, exceeding the anticipated $0.28.

While Nike's quarterly sales growth showed signs of recovery after a period of weakness, Chief Financial Officer Matthew Friend stated on the post-earnings conference call that revenue for the fiscal fourth quarter starting in March is expected to decline by 2% to 4%. This downturn is likely to persist throughout the calendar year. Analysts had previously forecast sales growth of at least 2% beginning this quarter. As of the latest update, Nike's stock was down 8.9% in after-hours trading. The stock has declined 17% year-to-date as of Tuesday's close.

Nike indicated that inventory levels are elevated in Europe and the Middle East due to promotional activities and transportation disruptions caused by the conflict. These negative factors, combined with weakness in Greater China and other business segments, overshadowed strong performance in North America. Management is focused on steering Nike's core business back on track by increasing investments in areas like basketball and running. However, the urgency to reverse the sales declines in Greater China and at Converse, whose sales fell more than expected, is growing.

Chief Executive Officer Elliott Hill reaffirmed that Nike is working "country by country" and "sport by sport." Hill told analysts on the call, "This is complex work, and some of it is progressing slower than I had anticipated, but the direction is clear, the urgency is real, and the foundation is getting stronger." Analyst Poonam Goyal commented, "The war could have an impact on the Europe, Middle East, and Africa (EMEA) region and affect margins through tariffs," predicting that this pressure "will persist in the near term."

The company's gross margin contracted for the sixth consecutive quarter, falling 130 basis points to 40.2%, primarily due to tariffs. The slowdown in gross margin growth in the recent quarter is among the challenges facing the company. This includes Greater China, where sales are projected to decline by approximately 20% this quarter. In China, Nike's third-quarter sales fell by 10%, hampered by operational missteps and intense domestic competition.

Friend stated on the analyst call that a 20% sales decline is anticipated for the fourth quarter, citing market volatility driven by rising oil prices and the ongoing conflict in the Middle East. The company is struggling in its second-largest market, China, which accounts for 15% of annual sales, due to an insufficient product variety. Additionally, a slowdown in innovation has led to market share erosion by local competitors such as Anta and Li Ning.

The Sportswear segment was another area of concern last quarter, experiencing a double-digit decline with persistently high discount rates. Hill emphasized, "Restoring a healthy Sportswear business is critical to our comeback, as it will remain a significant part of the overall marketplace and a key part of our growth."

Nike is expected to provide long-term performance guidance at an investor event in the fall. Friend indicated that despite modest growth in North America, full-year revenue is projected to see a low single-digit percentage decline. The recent earnings, which cover much of the critical holiday shopping period, showed ongoing recovery in wholesale revenue and the North American market.

Friend told analysts that order volumes from Nike's wholesale partners are increasing, and North American summer orders are robust as the retailer regains shelf space from competitors. He added that consumer behavior in North America has not yet been affected by the war in Iran.