Nike’s turnaround is delayed but not derailed. We think it’s worth the wait
Nike stock sank Thursday evening, even after the sportswear maker delivered better-than-expected quarterly results. While management said it is in the middle innings of its turnaround, severe issues in China and a weak outlook discouraged investors. Total revenue in the company’s fiscal 2026 second quarter increased 1% year over year to $12.4 billion, topping Wall Street expectations of about $12.2 billion, according to analyst estimates compiled by LSEG. Earnings per share fell 33% from the year-ago period to 53 cents, beating the consensus of 38 cents, LSEG data showed. NKE YTD mountain Nike YTD Shares of Nike dropped nearly 11% in after-hours trading to below $60 each, marking their lowest level since June. We, however, are keeping faith. Bottom line Turnarounds are challenging, and Nike’s numbers Thursday evening showed how uneven progress can be when juggling multiple brands across different geographies. When Elliott Hill came out of retirement and took over as CEO 14 months ago, he made fixing the company’s largest business, North America, his top priority. The headway here has been encouraging, and all signs suggest his pivot back to embracing the wholesale channel and focusing on innovation instead of relying too heavily on classics is working. Sales in North America were much better than expected, and profitability is recovering, even as tariff pressure weighed on margins. If you only looked at North America, it would be clear that the company’s “Win Now” initiative and “Sport Offense” plan have been a home run. The “Win Now” initiative prioritizes Nike’s best-performing categories across its main geographies, New York, Los Angeles, London, Beijing, and Shanghai. The “Sport Offense” brings the company’s organization closer to the athletes it serves. China was a major issue. Hill and his team have been upfront about the challenges there and have repeatedly said the turn in China would take time. However, we had expected to see some progress, and instead we got a significant setback. Nike went from sales down 9% year over year in its fiscal first quarter to down about 17% in the second quarter. Nike is stuck in a negative cycle of promotional activity and markdowns, and management is calling for a full reset in how they approach China to fix the business. The company can use its learnings from North America and apply that playbook to other geographies as the company slowly works its way back to its goal of double-digit EBIT margins, but it’s going to take time. EBIT, also known as operating profit, stands for earnings before interest and taxes. Turnarounds never happen in a straight line and can test our patience. We like where Nike’s underlying trends are headed, with North America on a path to sustainable profitable growth and inventories in a much better spot than a year ago. We’re maintaining our buy-equivalent 1 rating but lowering our price target to $75 from $80 to account for the weakness in China. Quarterly commentary By…
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