Rethinking Nike: Is the Iconic Brand Still a Buy Based on its Turnaround Story?
Key Points
Nike faces sluggish sales in China.
Revenue is expected to drop for its fiscal Q4 2026.
North America could be key in the company's turnaround efforts.
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Investing in a turnaround company is exciting because if you're right that the management team can right the ship, you're rewarded with a rising stock price.
That's what may have largely attracted some newer shareholders to Nike (NYSE: NKE), as Elliott Hill took the helm as CEO in late 2024 to get the iconic sneaker seller back on track.
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But the company's latest earnings report also highlighted one risk of investing in a turnaround story.
Image source: Getty Images.
Challenges and missteps
Nike faced several challenges over the last few years, but broadly, the narrative has been about the retailer trying to regain relevance.
Relying more on its iconic status than on innovation, Nike has been left with aging inventory that requires heavy discounts to sell.
The company is slowly regaining momentum, with its fiscal 2026 third quarter highlighting progress in its running and global football divisions, as well as improving wholesale revenue in North America. It's also seeing strong demand for its Nike Mind platform, which attracted more than 2 million signups for its innovative footwear.
Still, it wasn't enough to offset a disappointing outlook for the future. For Q4 2026, Nike expects total revenue to fall as much as 4% year over year, while revenue from China is expected to decline by around 20%.
Patience is key
The risks of investing in a turnaround are that it may take longer than expected or never happen at all. For Nike shareholders, the good news is that this appears to be a case of taking longer.
Wall Street is currently fixated on Nike's China revenue, as that 20% drop is an eye-catching figure. But as management has shared, that is part of a plan to reduce sales and prevent inventory from piling up. I would watch for updates on how that's going, but I wouldn't forget to pay attention to North America as part of the turnaround, as it was the company's largest revenue source in 2025.
Management said the region is "leading our comeback," and if Nike can keep innovating and driving new sales, it can eventually be a successful turnaround story. It will just require management to execute and patience from investors to reap the potential rewards.
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Jack Delaney has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool has a disclosure policy.
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