Nike (NKE) stock fell more than 10% in premarket trading on Wednesday as the company's recovery efforts in China and disruptions from the war in the Middle East weighed on its outlook.

Nike expects revenue to decline by the low single digits in 2026, with gains in North America offset by declines in Greater China. Earnings are expected to be flat.

"We also recognize that the environment around us has become increasingly dynamic and could experience unplanned volatility due to the disruption in the Middle East, rising oil prices, and other factors that could impact either input costs or consumer behavior," Nike CFO Matthew Friend said.

In its fiscal third quarter, Nike showed progress in its uneven turnaround under CEO Elliott Hill and reported better-than-expected earnings

The company reported adjusted earnings per share of $0.35, beating Wall Street analyst estimates of $0.31, according to Bloomberg data. Revenue of $11.3 billion was flat year over year but higher than the $11.34 billion analysts expected. Revenue fell 3% over the previous year when adjusted for currency impacts.

"They're in the middle of a turnaround," CFRA analyst Zachary Warring said. "They're working on a lot of different things, which is why I think you've seen a muted reaction. There's just not much to get excited about."

Revenue for its direct-to-consumer business, Nike Direct, decreased 4% to $4.5 billion, in line with estimates. The company previously said it expects to see growth in the segment this fiscal year as it returns its focus to wholesale operations.

Wholesale revenue increased 5% to $6.5 billion. Wall Street analysts had forecast a drop of roughly 3% to $6.4 billion.

The namesake Nike brand grew sales by 1% to $11 billion, surpassing expectations for a 0.5% increase from a year ago. Sales at Converse, which Hill said in a previous quarter is in the "early stages of a global market reset," were far weaker than expected, dropping 35% to $264 million. The Street forecast a roughly 26% decline to $300 million.

"This quarter we took meaningful actions to improve the health and quality of our business," said Nike's Hill, who took on the CEO position in 2024. "The pace of progress is different across the portfolio and the areas we prioritized first continue to drive momentum. The work is not finished, but the direction is clear."

Revenue in Greater China declined 11% for the quarter, dragged lower by a 27% decline in equipment sales, followed by footwear and apparel.

For the current quarter, Nike expects revenue to decline between 2% and 5%. The Greater China segment is expected to see sales drop by roughly 20% next quarter, "reflecting reduced sell-in that we highlighted last quarter, as well as accelerated actions to clean up the marketplace."

Higher tariffs in North America created a 130 basis point headwind on gross margins, which came in at 40.2%, just above the 39.8% the Street was looking for.

Friend said that Nike expects the first quarter of this year to be the "final quarter where higher tariffs continue to be a material year-over-year headwind to gross margin."

Correction: A previous version of this article misspelled Zachary Warring's name. We regret the error.

Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on X at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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