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For long-term investors, the primary goal of investing is to generate solid returns that outpace the broader market. However, those who invested in Nike (NKE) over the past five years have experienced the opposite, as the company’s stock has significantly underperformed.
Over this period, Nike shares have dropped by roughly 13.7%. To put it in perspective, a $1,000 investment in Nike stock five years ago would be worth approximately $863 today. Even more striking, a $1,000 investment made just two years ago would have shrunk by 40.7%, leaving an investor with only $593. Over the past year alone, Nike stock has declined by 28.3%, significantly underperforming the S&P 500 Index’s ($SPX) 7% gain.
Clearly, investors who bet on Nike for the long haul have not reaped the expected benefits. As the global sportswear giant attempts to regain its competitive edge and market share, the key question remains whether it is worth holding onto Nike stock in hopes of a turnaround.
Challenges Facing Nike
Recent years have been challenging for Nike due to various factors. Intense competition from new brands like Hoka and On Holdings (ONON) has eaten into Nike's market share. Additionally, sluggish sales in key markets such as China have further strained its growth prospects. The company’s reliance on discounts and promotions has dented its premium brand image and strained relationships with wholesalers.
Nike’s Step Toward a Turnaround
In response to these challenges, Nike’s restructuring efforts are already underway. In the fourth quarter of this fiscal year, the company expects its classic footwear franchises to make up a significantly smaller portion of its total footwear mix. This shift will continue into FY26, mainly targeting legacy models like the Dunk, which will see a substantial reduction in production.
Additionally, Nike is repositioning its digital business. It is reducing promotional days and markdown rates while shifting excess inventory to Nike Factory Stores. These moves are expected to result in lower digital traffic in FY26. However, the move will gradually lead to a rebound in growth as new product launches and brand marketing investments gain traction.
Cleaning up the marketplace is another major focus. Nike Digital is transitioning toward a full-price business model. Nike Factory Stores are ramping up markdowns to clear excess inventory, and wholesale partners are receiving increased discounts to help liquidate older stock. These efforts are expected to extend into the first half of FY26, signaling a long-term commitment to restoring Nike’s financial health.
Nike’s focus on bringing new products to market, strengthening brand engagement, and aligning its digital and wholesale businesses will accelerate its growth. However, the overall turnaround remains a work in progress.
Nike’s Recent Financial Performance and Outlook Disappoints
Nike’s recent financial results paint a challenging picture. In the third quarter of FY25, Nike’s revenue fell 9.3% on a reported basis and 7% on a currency-neutral basis. The company saw strong holiday sales in December, followed by double-digit declines in January and February.
Nike Direct, the company’s direct-to-consumer segment, experienced a 10% drop, with Nike Digital plummeting by 15% and Nike store revenue dipping by 2%. Wholesale revenue also declined by 4%, primarily due to weakness in China. Meanwhile, gross margins shrank by 330 basis points to 41.5%, impacted by higher markdowns, increased wholesale discounts, and inventory-related costs.
Looking ahead, Nike’s fourth-quarter revenue is expected to decline in the “mid-teens range,” reflecting a steep decline. This drop includes a negative impact from currency headwinds and unfavorable shipment timing in North America. Additionally, gross margins are projected to fall by 400 to 500 basis points, with restructuring costs factored into the outlook.
Is Nike Stock Worth Holding?
While management’s turnaround plan is in motion, there are still no clear signs of a resurgence in brand momentum. At its current valuation, Nike remains an expensive stock. NKE trades at a forward price-earnings (P/E) multiple of 35.5x. Given the ongoing struggles and competitive pressures, Nike’s investment appeal is questionable.
However, Wall Street analysts remain cautiously optimistic. NKE stock holds a "Moderate Buy" consensus rating.
