Nike (NKE): The Plan is Set, Now Wait for the Execution

TradingKey - Nike will report first-quarter earnings on the 30^th of September after the market closes.  The sportswear giant has been experiencing one of the most challenging times of its existence due to a number of strategic missteps in recent years. The stock price is 60% down from its peak in 2021, and year-to-date, -6%, underperforming the broad market. 

From a financial perspective, the expectations for Nike are not high. Analysts expect to see drops in almost every important financial metric, such as revenue, EPS, gross margins and operating income, but this has already been priced in.  

As the stock is now a recovery play, the market focus would be on any signs of positive revenue growth and margin expansion in the coming year. Currently, the management has provided rough guidance for the full 2026 financial year of a mid-single-digit decline in revenue and EPS of $1.68 – whether the management decides to revise these numbers, it will certainly make a difference for the stock price.

Other Aspects to Follow

Brand development

The current “Win Now” strategy emphasizes product innovation heavily. With this strategy, Nike wants to return to its sports roots by creating products that can enhance sports performance, whether it is running, basketball or fitness. Nike also wants to re-engage athletes with more brand partnerships, the exact same strategy that makes it a dominant power in the industry. This is the response to the recent intense competition from growing players such as Hoka and On. In the coming earnings, the management may share more on how the recently launched lines, such as Nike Pegasus Premium, Nike Air Max Dn8, and NikeSKIMS are performing. Any other product launches will also be scrutinized. 

Return to Wholesale

One of the main reasons for the current Nike troubles was the severed relationship with the wholesalers like Footlocker at the expense of the direct-to-consumer strategy. Now, the new CEO, Elliot Hill, is trying to fix this by re-establishing the connection with the distributing partners. A field study has been done by JP Morgan, indicating that Nike’s product presence at Footlocker has been improving. The same quarter last year, wholesale represented nearly 58% of the total revenue; thus, we expect this number to continue increasing.

Inventory

The most recent financial data shows inventory standing at $7.5 billion, which is a slight step down from the peak in 2023 at $8.5 billion. Investors will observe the inventory direction; if the inventory doesn’t clean up fast enough, it will mean Nike has to implement more aggressive discounts, which will immediately hinder the margin recovery.

China

China has been another challenge for Nike recently. The sports giant faces intense competition from the local players like Anta and Li-Ning. China represents roughly 15% of the total revenue of the company, but the decline in revenue is quite sharp, 9% in the full FY2025. Part of the new "Win Now" strategy is to prioritize localized innovation, just as we saw with the launch of the Nike S.T. Flare basketball shoe, specifically designed for that market.

Conclusion and Risks

On the positive side, we can see a clear action plan for Nike to get back on its feet again with more brand innovation and returning to wholesale, thus many feel hopeful. However, the recovery will probably not come overnight, as we can see from the low forecasts of the analysts. Not only is the recovery path full of uncertainties, but the mixed macro environment and the tariff woes will surely prolong it.

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