Athletic apparel giant Nike battles inventory challenges and tariff pressures while implementing aggressive turnaround strategy under new CEO
Key Takeaways
- Nike revenue expected to plummet 15% to $10.7 billion in fiscal Q4, with earnings per share dropping from $0.99 to just $0.13 year-over-year
- CEO Elliott Hill implements turnaround strategy focusing on inventory cleanup and wholesale partnerships, though analysts warn recovery could take longer than expected
- Tariff pressures intensify challenges as duties on Chinese goods rise to 30%, while Nike plans price increases up to $10 on premium footwear
Introduction
Nike faces what analysts describe as a potential “kitchen sink” quarter as the athletic apparel giant prepares to report fiscal fourth-quarter earnings after market close Thursday. The company confronts its most challenging financial period in recent memory, with Wall Street expecting a 15% revenue decline to $10.7 billion and earnings per share collapsing from $0.99 to just $0.13 year-over-year.
The sneaker giant previously warned that this quarter could represent the low point of its financial struggles. Since that March guidance, conditions have deteriorated further with rising tariff pressures and persistent inventory challenges weighing on performance.
Key Developments
CEO Elliott Hill, who took the helm in October, has accelerated Nike’s turnaround efforts by prioritizing inventory management and wholesale partnerships. The company has implemented significant price reductions across core product lines to clear backlogged inventory, with some Nike Dunks discounted to $69.20 from their original $115 retail price.
Nike faces mounting pressure from increased tariffs on Chinese goods, which rose from 20% to 30% following recent trade policy changes. The company has responded by announcing price increases of up to $10 on premium footwear and equipment while reducing its technology workforce to cut costs.
Strategic partnerships signal Nike’s evolving distribution approach. Amazon will resume selling Nike products directly for the first time since 2019, potentially boosting brand visibility. However, the anticipated Skims collaboration has been delayed from spring launch due to production issues.
Market Impact
Nike shares have declined approximately 20% year-to-date and 35% from the prior year, reflecting investor concerns about the company’s trajectory. The stock trades near analyst price targets averaging $72, suggesting potential for recovery if turnaround efforts succeed.
Segment forecasts indicate broad-based weakness, with Nike’s Equipment division expected to generate $550.19 million in revenue, representing a 4.8% year-over-year decline. The Converse brand faces steeper challenges with projected revenue falling 10.8%.
Foot traffic data shows some improvement, with store visits declining just 3.2% in May compared to a 10.2% drop in April, according to CNBC. This modest recovery provides early evidence that Nike’s retail strategy adjustments may be gaining traction.
Strategic Insights
Nike’s turnaround strategy centers on rebalancing relationships with wholesale partners while clearing inventory from core franchises including Air Force One, Jordan 1, and Dunk lines. The company aims to recapture shelf space lost during its previous direct-to-consumer focus.
The apparel segment presents significant growth opportunities, accounting for 28% of fiscal 2024 revenue as Nike competes with brands like Lululemon and Alo Yoga. Initiatives targeting female consumers, who represent 40% of Nike’s business, remain central to long-term strategy.
Innovation remains a critical challenge as the company balances clearing existing inventory with developing new products. Hill has emphasized the need for fresh innovation while managing the complexities of inventory turnover across multiple product categories.
Expert Opinions and Data
Veteran footwear analyst Matt Powell acknowledges Nike’s strategic direction, stating “I think Nike is doing all the right things to turn the business, but all the initiatives will take time.” His assessment reflects broader industry sentiment about Nike’s recovery timeline.
Barclays analyst Adrienne Yih focuses on execution metrics, noting “we look for evidence that reset actions have begun to materialize in results, what CEO Elliott Hill plans to execute in FY26, and the timing for when further actions should provide upside to estimates.”
Morgan Stanley analysts recently reduced their price target to $61 from $70, cautioning that Nike’s turnaround could take longer than expected amid macroeconomic pressures and tariff uncertainty. The firm maintains an Equal-weight rating while acknowledging potential for positive surprises.
Sam Poser at William’s Trading offers a more optimistic timeline, believing Nike’s marketplace cleanup will be complete by September except in China, with revenue inflection expected during the fiscal second quarter.
Conclusion
Nike’s fiscal fourth-quarter results will serve as a critical benchmark for the company’s turnaround progress under Elliott Hill’s leadership. With eight of 17 analysts maintaining buy ratings despite current challenges, Wall Street awaits evidence that inventory rebalancing and wholesale partnerships are generating sustainable momentum.
The earnings call represents a pivotal moment for Nike to demonstrate that its strategic adjustments can overcome tariff pressures, competitive challenges, and inventory management complexities that have defined this difficult period.
