Nike CEO Blows Off Steam With Staff Over Stalled Turnaround

Nike (NKE) delivered mixed results for its fiscal third quarter, as it continues to navigate a challenging turnaround. Revenue was flat year-over-year at $11.28 billion, exceeding Wall Street estimates of $11.24 billion. However, earnings per share fell 35% year-over-year to 35 cents, though still above the expected 29 cents.

The company's stock fell nearly 9% in after-hours trading, signaling investor concern over the pace of recovery. The decline follows a year in which Nike's shares have underperformed the S&P 500 by a significant margin, dropping 17% year to date.

Key markets like Greater China and EMEA continue to weigh on results. Revenue in China fell 10%, and digital sales dropped by 21%. In the EMEA region, revenue fell 7%, driven by promotional activity and macroeconomic pressures.

Why Is the Turnaround Taking Longer?

Nike is actively clearing out "unhealthy inventory" in its classic footwear franchises, which CEO Elliott Hill described as "intentional" and "necessary." This strategy has created a five-point headwind to reported results in the quarter.

The company is also shifting its focus back to performance-based footwear and apparel, which has led to a decline in its Converse brand. Converse sales fell 35% year-over-year to $264 million, far below expectations.

Despite these challenges, Hill emphasized that the company is in the "middle innings" of its turnaround. He noted that the running segment has seen strong growth, with sales up over 20% for the quarter.

How Are Markets Reacting?

Investors remain cautious as Nike continues to issue lower-than-expected guidance. The company forecast a revenue decline in the low single digits for the fourth quarter, falling short of Wall Street estimates.

The stock's sharp decline in after-hours trading reflects this uncertainty. According to CFRA analyst Zachary Warring, the company is in the middle of a complex transition that includes supply chain restructurings, inventory cleanups, and a refocusing of product lines. "There's just not much to get excited about," Warring said.

Nike's gross margin also faced pressure, declining 130 basis points to 40.2%. This was attributed to higher tariffs in North America, as well as $230 million in severance charges related to layoffs and automation initiatives.

What Are Analysts Watching Next?

Analysts are closely watching Nike's progress in reducing inventory and its ability to restore profitability in key markets. CFO Matthew Friend indicated that gross margin is expected to return to growth in the second quarter of fiscal 2027, suggesting investors should not expect significant earnings recovery for at least three more quarters.

The company also faces challenges in stabilizing its sportswear business. While North America has shown some improvements with iconic franchises like Air Force One and AJ1, the EMEA and China markets continue to struggle.

Nike is also preparing for major product launches, including its TMPO footwear for the upcoming World Cup. These innovations could be key to regaining market share and improving long-term revenue quality.

In the short term, however, investors are likely to remain skeptical until Nike can consistently deliver stronger revenue growth and margin expansion. As of now, the company's turnaround appears to be a long-term process rather than a quick rebound.