Nike's Turnaround Strategy Faces Persistent Challenges
Nike has continued to face significant hurdles in its efforts to revive growth, despite some positive signs in certain markets. The company's latest quarterly results revealed a 1% decline in revenue and a double-digit sales drop in China, which have not reassured investors looking for clear indicators of progress under CEO Elliott Hill's turnaround strategy.
The sportswear giant also projected a further revenue decline through the first half of fiscal 2027, as it continues to deal with stiff competition and high inventory levels that have slowed its recovery. "Overall, the results aren't there yet," Hill said on a post-earnings call, expressing disappointment at the slow pace of the turnaround for the second consecutive quarter. "We know we're not living up to our full potential."
Nike's shares have fallen 35% this year, and they dropped about 4% in extended trading on Tuesday before recovering some losses. While Hill, who took over in 2024, mentioned that efforts to reset the company's strategy by focusing on sports, rebuilding wholesale relationships, and introducing more products are still inconsistent, he acknowledged that progress has been uneven.
Nike plans to launch more than a dozen footwear styles, but it will take time for these products to deliver consistent results. "Our consumer is under pressure around the world, and we can particularly see it having a larger impact on sportswear," said outgoing finance chief Matthew Friend.
The operating environment became more challenging during the fourth quarter, and it is not expected to improve over the next six months, Friend added, noting that tariffs remain a continuing cost headwind. Nike's turnaround has been complicated by tariffs, geopolitical uncertainty, and consumer caution, along with internal efforts to clear older lifestyle-focused inventory that have weighed on margins.
"Expectations were low and Nike had a sales decline, so these are still not good results," said Morningstar analyst David Swartz.
Challenges in China
China remains a major concern for Nike. Sales in Greater China fell 17% on a constant-currency basis in the fourth quarter, worsening from a 10% decline in the previous quarter. While the drop was slightly less severe than the 20% decline the company had projected three months earlier, the region continues to struggle with weak product assortments and market-share losses to domestic rivals like Anta and Li Ning.
China revenue trends are expected to remain broadly in line with recent steep declines as Nike works with retail partners to clean up excess inventory in the market, according to Friend. Greater China accounts for about 15% of Nike's annual revenue and is its third-largest market after North America and Europe, the Middle East, and Africa.
Despite the challenges, Nike pointed to early signs of progress. As part of efforts to reignite growth, the company has increased marketing around this year's World Cup and accelerated product launches to counter competitors such as Adidas. The company reported that demand is improving for its football products after a temporary slowdown in April and forecast the first-quarter gross margin to be slightly positive.
Positive Developments in Key Markets
Revenue in North America, Nike's largest market, rose 3% in the fourth quarter, helping boost wholesale sales as Nike benefits from renewed efforts to rebuild relationships with retailers that had been sidelined under former CEO John Donahoe's direct-to-consumer strategy.
Nike reported earnings per share of 72 cents for the quarter, aided by a 52-cent boost tied to the anticipated recovery of import tariffs. The company reported a $986 million benefit from tariff refunds for the three-month period ended May 31. Nike had previously projected last October that tariffs would cost it around $1.5 billion overall.
On an adjusted basis, the company reported quarterly earnings per share of 20 cents, beating estimates of 13 cents, according to data compiled by LSEG.
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