Nike: A Spot of Bother for the Optimist

by

Now, Nike, that athletic footwear emporium, finds itself in a bit of a pickle, doesn’t it? A dashedly unpromising start to 2026, trailing the market like a reluctant bridesmaid. The S&P 500, that sprightly fellow, has been bounding ahead, while Nike, alas, has been experiencing a slump of approximately one percent. A rather substantial decline over three years – more than fifty percent, if you please – which, one might say, is enough to give even the most bullish investor a touch of the vapors.

The question, naturally, is whether this presents a buying opportunity. A chance to swoop in and acquire shares at a rather reduced rate? One approaches such matters with a certain degree of caution, you understand. A healthy skepticism is a most valuable asset in the financial jungle.

On the surface, things appear to be improving. The company assures us its turnaround efforts are bearing fruit. Revenue is up, year on year, and quarterly figures show a slight uptick. But beneath this veneer of optimism, a rather unsettling picture emerges. A spot of bother in China, you see, and a distinctly worrying decline in direct-to-consumer sales. A most peculiar state of affairs.

Discouraging Results, What!

After a year of revenue decline in 2025—a most unappetizing figure of ten percent—Nike has started 2026 with a glimmer of hope, posting a one percent increase in the first two quarters. However, two rather troublesome clouds loom on the horizon. Direct-to-consumer sales, that once-reliable engine of growth, have taken a tumble, falling eight percent in the most recent quarter—a steeper decline than the four percent registered previously. And the news from Greater China is even less encouraging, with a seventeen percent drop in revenue. A most alarming development, wouldn’t you agree?

What’s propping up the figures, you ask? Wholesale revenue, bless its heart, has risen eight percent. But this improvement is merely a palliative, a temporary respite from the underlying woes. Both direct-to-consumer and the Chinese market are, you see, rather crucial to the long-term investment thesis.

Direct-to-consumer sales, while charmingly profitable, are now faltering. The company’s net income has dipped a worrying thirty-two percent, and while other factors are at play, the decline in direct sales is undoubtedly contributing. A shift away from higher-margin channels, you see, is proving rather costly. Added to this, increased discounts and tariffs in North America are further eroding profitability.

And China, naturally, is a market of immense importance. Nike’s struggles there are particularly disheartening, especially when one observes the rather splendid success of Lululemon. It appears Nike is losing ground, losing market share, and, dare one say, losing relevance in this vital territory. A most unfortunate state of affairs, what?

Looking Ahead, With a Touch of Caution

Investors shouldn’t be expecting a miraculous recovery in 2026. Nike’s CFO, Mr. Friend, has rather candidly admitted that the company is navigating a sea of “transitory and structural headwinds.” A rather gloomy assessment, wouldn’t you say? Even the CEO, Mr. Hill, suggests they’re only “in the middle innings of our comeback.” A rather lengthy game, it seems.

Consequently, guidance for the third quarter is, shall we say, underwhelming. Revenue is expected to fall by a low single-digit percentage, and gross margins are projected to contract by a rather alarming 175 to 225 basis points.

Loading widget...

There is, however, a sliver of hope. Excluding the negative impact of tariffs—a rather substantial 315 basis points—gross margins are expected to expand. A small consolation, perhaps, but a consolation nonetheless.

Given Nike’s current price-to-earnings ratio of 38, a successful turnaround appears to be largely priced in. While the stock has fallen more than 50 percent over the past three years, I remain unconvinced that it’s a compelling buy at present. However, should the price fall another ten percent, I might be inclined to reconsider. A dash of prudence, you see, is always advisable in these matters. One must, after all, protect one’s capital with the utmost care.

Read More

2026-01-28 03:22