The turnaround plan is making solid progress, despite headwinds.
The turnaround at Nike (NYSE:NKE) will take some time, but investors were pleased with its progress in its fiscal fourth quarter as the stock price skyrocketed 15% on Friday.
The leading athletic shoe and apparel brand did not have a great quarter, but it was better than analysts expected. Nike generated $11.1 billion in revenue, which was down 12% from the same quarter a year ago. However, it did exceed estimates of $10.7 billion in revenue.
Net income was just $211 million, or 14 cents per share, down 86% from the same period a year ago. But that was better than the 13 cents per share that was anticipated.
Nike brand revenue was $10.8 billion, down 11% year-over-year. Footwear sales accounted for most of that, $7.2 billion, but that was down 12%. Apparel sales dropped 9% to $3 billion.
North American sales were down 11% to $4.7 billion, while European sales fell 9% to $3 billion and China sales dropped 20% to $1.5 billion. Sales in Asia-Pacific and Latin America were also $1.5 billion, down 8%.
For the full fiscal year, revenue fell 10% to $46.3 billion, while net income was off 44% to $3.2 billion, or $2.16 per share.
“The results we’re reporting today in Q4 and in FY25 are not up to the Nike standard. But as we said 90 days ago, the work we’re doing to reposition the business through our Win Now actions is having an impact. From here, we expect our business results to improve. It’s time to turn the page,” Nike CEO Elliot Hill, who took over last October, said on the earnings call.
Nike looks to Win Now
The company’s Win Now strategy was rolled out late last year by Hill to turn around the struggling sneaker company. Nike stock has plummeted for four straight years, and it has been due to a variety of reasons, both macroeconomic and internal.
Hill vowed to refocus the company on its core identity of sports, as opposed to fashion and other peripherals, and rebuild its relationships with wholesalers, whom they had pulled away from.
The Win Now strategy is focused, as Hill explained, on five actions — culture, product, marketing, marketplace, and its “ground game.” Further, it will focus on five key sports — basketball, soccer, running, training and sportswear. In addition, the actions will key on three countries, the US, UK, and China, and, more specifically, five cities — New York, Los Angeles, Beijing, London, and Shanghai.
“Overall, we are pleased with the progress our teams are making against our Win Now actions. As I said last quarter, these are the building blocks for Nike to return to sustainable, profitable growth,” CFO Matt Friend said on the call.
Friend added that the largest financial impact from its Win Now actions came in the fourth quarter, so the cost headwinds from implementing it should moderate going forward.
$1 billion tariff headwind
A challenge in executing on this plan is tariffs. They are expected to impose a $1 billion cost increase on the company. For fiscal 2026, tariffs are anticipated to have a 75-basis-point impact on the gross margin, with the brunt of it coming in the first half of the year.
“These tariffs represent a new and meaningful cost headwind, and we are taking actions that balance the consumer, our partners, our Win Now actions, as well as the long-term positioning of our brands in the marketplace,” Hill said.
Nike is taking steps to fully mitigate the hit from tariffs over time through several actions – including reallocating its sourcing mix. China makes about 16% of its shoes and that will be reduced to the high-single-digit range. The company has also instituted a “surgical price increase” in the U.S., starting in the fall.
Why Nike stock is rising
For how badly the stock has performed, Nike stock is still not cheap, with a P/E ratio of about 29. But that aside, investors seem pleased with where the company is headed.
For the fiscal first quarter, Nike anticipates revenue to be down in the mid-single-digit percentage range, which is on par with estimates. Further, it anticipates gross margins to be down 350 to 425 basis points, including a 100-basis point negative impact from tariffs. Also, SG&A spending is projected to rise in the low single-digits.
Nike stock also got several price target upgrades for its efforts in navigating the turnaround, including a $12 bump from Truist to $85 per share.
Again, Nike stock is still expensive, and the company is facing tariff headwinds, at least through the first half of the fiscal year. Today’s big jump reflects the turnaround efforts and decent outlook, but this might not present the best opportunity to buy, particularly after Friday’s big surge.
