Nike, Inc. (NKE): A Bull Case Theory Amid Strategic Rebirth

Nike’s first-quarter fiscal 2025 results painted a challenging picture: revenue fell 10%, EPS dropped 45%, and the company withdrew full-year guidance. Yet, beneath the headlines of short-term pain lies a story of deliberate transformation. For long-term investors, the chaos could mask a setup for a powerful comeback. Let’s dissect why Nike’s current struggles might be the foundation for a bull case.

The Strategic Rebalancing: Less Is More (for Now)

Nike’s decision to scale back its reliance on classic franchises—like the Air Force 1 and Dunk—has been a key driver of near-term pain. Sales of these styles dropped nearly 50% in digital channels, contributing to a mid-single-digit revenue headwind. But this is no accident. By intentionally deprioritizing overexposed classics, Nike is rebalancing its portfolio to focus on innovation-driven growth. The results are striking:

• New footwear lines grew over 30% year-over-year, with the Pegasus 41 (mid-teens growth vs. predecessor), Sabrina (+5x sales), and Kobe (+4x) leading the charge.
• Performance franchises like running and football are resurgent: Men’s/women’s running footwear grew positively for the first time in years, while Mercurial (football) and Global Football saw double-digit gains.

The shift isn’t just about product; it’s about brand health. Overexposure of iconic styles had diluted their mystique. By reducing supply and prioritizing newness, Nike aims to reignite demand cycles. This is a playbook it’s used before—think of the Air Jordan line’s periodic resets. The bull case hinges on this strategy working again.

Leadership Transition: A New Era of Execution

CEO John Donahoe’s departure and Elliott Hill’s ascension signal a pivot. Hill, a 32-year Nike veteran, is tasked with revitalizing innovation and wholesaler relationships. His focus on speed and agility—including scaling back corporate overhead and prioritizing “adversity-driven innovation”—aligns with the company’s product rebalancing.

The bull case here is simple: Hill’s operational expertise and cultural credibility (he’s known for team-building) could reverse the internal morale issues that plagued the Donahoe era. With a delayed investor day and withdrawn guidance, the company is buying time to reassess without Wall Street’s quarterly pressure.

Geographic Resilience: China and Beyond

Despite a 3% revenue decline in Greater China, Nike remains the top sportswear brand there. The drop was driven by weak digital traffic and promotional pressures, but new releases like the Pegasus 41 and Sabrina 2 resonated locally. Meanwhile, Mexico’s new NIKE/Jordan World of Flight store—a dual-brand concept—exceeded sales targets, proving demand for experiential retail.

In North America, NIKE’s Paris Olympics campaign (“Winning Isn’t for Everyone”) captured 60% share of voice during the Games, resonating with Gen Z. Jordan’s Twitch activation drew 10M+ views, suggesting the brand’s cultural relevance remains intact.

Margin Recovery and the Long Game

Nike’s gross margin expanded 120 bps in Q1 due to lower product costs and warehousing savings. While Q2 margins are expected to contract (due to promotions and supply chain costs), the structural cost discipline is a positive. Longer-term, the shift to higher-margin performance products (e.g., Peg Premium with full-length Air) should stabilize margins.

The bull case also leans on channel rebalancing: reallocating inventory to high-traffic wholesale partners (e.g., Foot Locker’s HomeCourt stores) and reducing reliance on discount-heavy digital channels. This should protect franchise pricing power over time.

The Risks, and Why They’re Manageable

• Inventory Overhang: Elevated stock levels, especially in North America and China, require promotions. But Nike’s deliberate deprioritization of classics means this is a short-term issue, not a structural one.
• Macroeconomic Softness: Discretionary spending remains sluggish, but Nike’s focus on performance and innovation (vs. fashion-driven styles) could insulate it better than peers.

Conclusion: A Setup for a Multiyear Rebound

Nike’s Q1 results are a setback, but they’re part of a calculated pivot. The bull case is built on three pillars:
1. Product Innovation: New performance-driven lines (running, football) are growing at double-digit rates, with spring ’25 order books up double-digits for running footwear.
2. Leadership Renewal: Hill’s operational focus and cultural credibility could end internal turmoil and accelerate execution.
3. Geographic Resilience: Even in China, NIKE retains dominance, and activations in EMEA and the U.S. prove its brand power.

The near-term pain—projected 8-10% revenue declines in Q2—is temporary. With a pipeline of breakthrough products (e.g., Peg Premium, budget-friendly running lines) and a leader focused on revitalization, the foundation for a comeback is in place. For patient investors, Nike’s current struggles could set the stage for a multiyear recovery.

Data supports this:
- New footwear revenue grew over 30% in Q1 despite the top-line slump.
- The Pegasus 41’s mid-teens growth over its predecessor shows demand for performance innovation.
- Hill’s ascension aligns with Nike’s historical pattern of leadership-driven turnarounds (e.g., Philip Hult’s era in the 2000s).

Investors should look past the noise. Nike’s bull case isn’t about avoiding pain—it’s about betting on a company that’s remaking itself for the next decade.