Why Nike Stock Just Crashed
Key Points
Nike beat on earnings but missed on sales last night.
Even worse, Nike cut guidance and predicts earnings this year could be cut in half.
At 30x earnings, Nike stock still costs much too much.
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Nike (NYSE:NKE) stock tumbled 5.4% through 10:25 a.m. ET Friday after reporting only mixed earnings in its fiscal Q1 2027 report last night.
Heading into earnings, analysts expected Nike to earn $0.44 per share on sales of $11.35 billion. The good news is that Nike beat on earnings, reporting a per-share profit of $0.48. The bad news is that Nike nonetheless missed on earnings, reporting only $11.21 billion.
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And the worst news is that Nike also cut guidance.
Image source: Getty Images.
Nike Q1 earnings
Nike's sales slumped 4% year over year in Q1, "consistent with our expectations," according to CFO Dave Denton. On the plus side -- and probably why the company's earnings exceeded expectations -- Nike enjoyed a 60-basis point improvement in its gross profit margin, which reached 42.8%. This was despite Nike's selling, general, and administrative expenses declining only 3% -- less than the sales slowdown. Nevertheless, earnings declined 2% year over year.
Nike blamed falling sales in China and Europe for the declines, noting that growth in North America "partially offset" these declines.
Wholesale sales through stores declined only 1%. More concerning was the slippage in higher margin direct sales to consumers through Nike's website. "Nike Direct" sales declined 8% year over year, with NIKE Brand Digital sales in particular down 13%.
What's next for Nike
And Nike investors can expect things to get worse before they get better. Turning to guidance, Nike warned that revenues will fall in the "high-single digits" over the course of fiscal 2027. Earnings per share could be as little as $1 to $1.20. Taken at the midpoint, this implies a nearly 50% decline from the $2.10 per share Nike earned in fiscal 2026.
On a $33 stock that works out to a P/E ratio of 30 -- too much to pay in my book, for a fading star with shrinking profits.
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Rich Smith 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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