For long-term investors, the goal of investing is to achieve strong returns that outperform the broader market. However, those who invested in Nike stock (NYSE:NKE) five years ago have experienced the opposite. Despite Nike’s dominance in the global sportswear market, the company’s stock performance has significantly underperformed.
Over this period, Nike shares have declined by approximately 13.7%. To put this into perspective, a $1,000 investment in Nike stock five years ago would now be worth around $863. The situation looks even worse for investors who entered the market just two years ago, as a similar $1,000 investment would have dropped by 40.7%, leaving only $593.
In the past year alone, Nike stock has declined by 28.3%, compared to a 7% gain by the S&P 500 Index (SPX). With such dismal returns, many investors are questioning whether it’s worth holding onto Nike stock in hopes of a turnaround.
Challenges Impacting Nike Stock Performance
Nike’s struggles stem from several factors. Increased competition from emerging brands like Hoka and On Holdings (NYSE:ONON) has eroded Nike’s market share. Additionally, sluggish sales in key markets, particularly in China, have weakened Nike’s growth prospects.
The company’s frequent reliance on promotions and discounts to drive sales has also damaged its premium brand image. These strategies have strained relationships with wholesale partners and contributed to declining gross margins.
Nike’s Strategic Turnaround Efforts
To address these challenges, Nike is implementing a comprehensive restructuring plan aimed at revitalizing growth and improving profitability.
- Focus on High-Value Footwear Models
Nike is reducing its reliance on classic footwear franchises like the Dunk, shifting its focus to innovative and high-margin product lines. This strategy aims to restore Nike’s reputation as a trendsetter and boost consumer interest.
- Digital Business Overhaul
Nike is transitioning its digital operations to a full-price business model by reducing promotional days and markdown rates. While this shift is expected to decrease digital traffic temporarily, it should result in stronger margins and a healthier inventory position in the long run.
- Clearing Excess Inventory
Nike is also addressing its inventory challenges by ramping up markdowns in Nike Factory Stores and offering increased discounts to wholesale partners. These efforts aim to clear older stock and pave the way for new product launches.
Nike’s Recent Financial Performance
Nike’s recent financial results highlight the uphill battle it faces. In the third quarter of FY25, Nike’s revenue fell 9.3% on a reported basis and 7% on a currency-neutral basis. While holiday sales in December showed some strength, the company experienced double-digit revenue declines in January and February.
Nike Direct, the company’s direct-to-consumer segment, reported a 10% revenue decline, with Nike Digital plummeting by 15% and store revenue falling by 2%. Wholesale revenue also declined by 4%, primarily due to continued weakness in China. Additionally, Nike’s gross margins shrank by 330 basis points to 41.5%, reflecting higher markdowns and inventory-related costs.
Outlook: Can Nike Stock Rebound?
Looking ahead, Nike’s fourth-quarter revenue is expected to decline in the “mid-teens range,” reflecting a steep drop. This decline is driven by currency headwinds and unfavorable shipment timing in North America. Gross margins are also projected to fall by 400 to 500 basis points due to ongoing restructuring costs.
Is Nike Stock Worth Holding?
Nike’s turnaround plan is in progress, but signs of a resurgence in brand momentum remain elusive. At its current valuation, NKE stock trades at a forward price-to-earnings (P/E) multiple of 35.5x, making it an expensive investment considering the ongoing challenges.
However, Wall Street analysts remain cautiously optimistic. NKE stock currently holds a “Moderate Buy” consensus rating, with some analysts believing that Nike’s brand strength and restructuring efforts could lead to a gradual recovery over time.
Bottom Line: Weighing the Risks and Rewards
Nike’s stock performance has disappointed long-term investors, but the company’s turnaround efforts provide a glimmer of hope. While challenges remain, including increased competition and slowing growth in key markets, Nike’s focus on enhancing its product offerings, cleaning up its marketplace, and strengthening its digital operations could pave the way for future growth.
Investors considering holding or buying Nike stock should remain patient and monitor the company’s progress closely. If Nike can successfully execute its turnaround plan, it may eventually reward investors with improved financial performance and long-term value growth.
Featured Image: Unsplash
