Is Nike Inc a Buy After Its Latest Earnings Report?

Nike (NYSE: NKE) delivered another middling quarter on Tuesday afternoon, but investors had a surprising response.

After the stock fell as much as double digits after hours on Tuesday, Nike rallied to finish the regular session on Wednesday up 4.9%.

Is the company's long-awaited turnaround finally materializing? Let's take a closer look at the quarterly update.

Image source: The Motley Fool.

What we learned from Nike's Q4

Nike's revenue was down 1%, or 4% on a currency-neutral basis, to $11 billion, which was slightly ahead of estimates at $10.85 billion.

The company received a one-time windfall of $986 million from the reversal of some tariffs. Excluding that, gross margin was down 10 basis points to 40.2%, which shows the key metric stabilizing after several quarters of steep declines, though tariffs were the primary reason for lower gross margins. Selling, general, and administrative expenses fell 2% to $4.08 billion as it scaled back on advertising spending, and excluding the tariff-related benefit, earnings per share was $0.20, up from $0.14, marking its first quarter of EPS growth in two years.

Looking ahead, Nike once again offered cautious guidance, citing a volatile macro environment, and said it did not expect conditions to improve over the next six months. The company continues to see flat earnings over the next two quarters, though it's dialing down its revenue forecast and raising its gross margin guidance. For the first quarter, it forecast a low-to-mid-single-digit decline in revenue.

However, Nike is seeing some green shoots as it works to restore the brand to health. Comparable sales and revenue at Foot Locker, long a key partner for Nike, was positive for the first time in four years, showing that its efforts to repair relationships with its wholesale partners are paying off. Wholesale revenue was up 10% in the quarter in North America, while Nike Direct was down 6%.

It also reported its fifth consecutive quarter of double-digit growth in running, one of its biggest categories, showing it has successfully responded to competition from upstart brands like Deckers' Hoka and On Holding.

Is Nike a buy?

The stock rose in regular trading on Wednesday as investors seemed to bet the bottom was finally in on the stock. There are clearly some positive signs as gross margin is finally stabilizing and set to return to growth.

However, fiscal 2027 looks set to be another year of basically flat EPS growth, unless the macro environment dramatically changes in the second half of its fiscal year, and that seems like a missed opportunity for Nike.

With the New York Knicks winning the NBA Finals and driving the highest ratings for a Finals in a generation, and the U.S. hosting the World Cup, sports in the last month have been about as buzzworthy as they get. Against that backdrop, however, Nike's ad spend declined in the fourth quarter, which closed at the end of May. The company expects "demand creation expense" to increase in high single digits as it invests in the World Cup, but the revenue guidance shows it's not expecting any kind of boost from the event.

The bar for Nike's turnaround seems to be getting lower. This was once a company that frequently delivered double-digit revenue growth, but it hasn't done that in three years now.

After falling more than 75%, the stock seems to be near the bottom, but until the company puts up meaningful revenue growth or at least forecasts it, it's not a buy. There are better opportunities elsewhere in the market.

Jeremy Bowman has positions in Nike. The Motley Fool has positions in and recommends Deckers Outdoor, Nike, and On Holding. The Motley Fool has a disclosure policy.