Nike vs. Adidas: A Value Investor's Look at Intrinsic Value and Business Quality

Nike's moat is built on unparalleled brand power and a global distribution network. This foundation has long allowed it to command premium pricing and consumer loyalty. However, the company's recent strategic pivot toward Direct-to-Consumer (DTC) has introduced friction. Evidence shows this shift is straining wholesale relationships and diluting margins, as seen in the second-quarter gross margin decrease of 300 basis points to 40.6 percent. While the brand's resilience is evident in its ability to deliver modest top-line growth even during a challenging period, the internal realignment required to rebalance its portfolio suggests the moat is under active pressure from within. The company's own leadership acknowledges this is a period of taking action to drive long-term health, indicating the current model is not self-sustaining.

Adidas, by contrast, is demonstrating a more nimble approach to expanding its moat. The company is gaining market share through the popularity of its Originals lines and performance footwear, particularly in the value-conscious, style-driven segment. According to industry forecasts, Adidas's market share is estimated to rise by 0.1 percentage points to 1.9% in 2025, driven by this success. This growth is not just a function of product; it's a strategic bet on being "more American" by empowering local teams and investing in American athletes and college athletics. The goal is clear: to double its business in the North American market, where it currently makes three times less than Nike. This represents a significant growth runway, but it also underscores the vast gap in brand penetration and scale that Nike's moat currently commands.

The most telling contrast is in their core markets. Nike's North American market is its largest and most profitable engine, a region where Adidas's presence is a fraction of its rival's. This isn't just a difference in revenue; it's a difference in moat depth. Nike's brand is deeply entrenched in the American psyche, while Adidas is actively working to build that same level of trust and recognition. For the value investor, the question is one of sustainability. Nike's moat is wide but currently under strain from its own strategic choices. Adidas's moat is narrower but appears to be widening through focused execution and a local strategy aimed at capturing a significant portion of the largest single market. The durability of each will be proven not by today's headlines, but by their ability to compound value through the next business cycle.

The sustainability of a business is ultimately judged by the quality of its earnings. For Nike and Adidas, the recent financials tell a story of two different cycles-one navigating a challenging reset, the other capitalizing on a growth surge.

Nike's most recent quarter reveals a company under pressure. For the second quarter of fiscal 2026, the company reported flat revenue of $12.4 billion on a currency-neutral basis, a sign of a market where growth is elusive. More telling is the 300 basis point compression in gross margin to 40.6 percent. This dual squeeze on top and bottom lines signals significant pricing pressure and operational friction, likely stemming from its aggressive Direct-to-Consumer pivot. While the company's leadership frames this as a necessary "year of taking action," the financial results confirm a period of strain that is diluting the quality of its earnings.