Nike vs. Starbucks: Which Turnaround Effort Is More Likely to Succeed?

Nike (NYSE: NKE) and Starbucks (NASDAQ: SBUX) are two stocks with a lot in common. They have iconic brands that are known all over the world, and for years, they have been growth machines.

They have, however, also struggled more recently amid rising inflation. And they have changed their CEOs recently, who both are in the midst of deploying strategies in an effort to turn their respective businesses around.

Last year, both stocks finished the year in the red, with Nike falling by 16% and Starbucks declining by a more modest rate of 8%. Which company is more likely to successfully turn things around and be the better investment going forward?

Image source: Getty Images.

Which business has been doing better of late?

Brian Niccol took over as Starbucks CEO in September 2024, as the company lured him away from popular restaurant chain Chipotle. It was seen as a huge win for Starbucks, and the coffee stock jumped on the news, as investors grew confident in the new leadership. Niccol's focus has been on simplifying the menu, reducing wait times, and enhancing the overall customer experience.

A month later, Nike also changed its CEO, with Elliott Hill taking over at the apparel company in October 2024. Rather than going with an outsider, Nike opted to hire someone who has been part of the company for decades and knows the business inside out. Hill's focus has been on improving relationships with its wholesale partners and investing more in the brand.

It's been more than a year for both executives, and both have been starting to show some initial signs of progress, as their companies' respective growth rates have been trending upward in recent quarters.

NKE Revenue (Quarterly YoY Growth) data by YCharts

Which company is feeling more pressure on price?

An important metric for investors to monitor is gross profit margin. This is where you can see the effects of rising costs and declining prices. If margins are deteriorating, that can be a concerning sign that competition may be weighing on its operations, either by the company slashing prices aggressively in an effort to win market share, or an unwillingness to raise prices even as costs rise (for fear of losing market share).

While Nike has been experiencing a negative impact from tariffs, its margin has taken far less of a hit than Starbucks. Nike has lost about four percentage points from its recent high, while the coffee chain has lost close to twice that amount.

NKE Gross Profit Margin (Quarterly) data by YCharts

Starbucks also recently announced it was selling 60% of its stake in its China business, where it is facing intense competition. One of its largest competitors there, Luckin Coffee, recently expanded into the U.S., which could lead to more challenges in Starbucks' home market.

Nike may not necessarily be in a much better position, however, as its lack of revenue growth despite efforts at improving relationships with its key partners is concerning.

Which company is more likely to succeed?

Both companies face challenges that aren't easily fixable. Both offer premium-priced products, which may be difficult for consumers to justify buying at a time when economic conditions are far from ideal.

However, I'd give the edge to Nike, as it's still a top name that resonates with consumers. In Piper Sandler's most recent teen survey, Nike continued to rank as the top clothing and footwear brand among young people, with second place far behind in both apparel categories.

Meanwhile, Starbucks selling the majority stake of its China business suggests that its brand may indeed be more vulnerable to pricing pressures, and its turnaround could prove to be much more challenging than Nike's.

While both stocks are risky right now, Nike is the one I'd go with today.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Luckin Coffee, Nike, and Starbucks. The Motley Fool recommends the following options: short March 2026 $42.50 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.