Nike's Q4 Results: Turning the Tide or Still Struggling?

Nike's fiscal fourth-quarter results, released earlier this month, painted a stark picture of a brand facing headwinds across its global operations. While the company narrowly beat earnings estimates, the 12% revenue decline to $11.1 billion and an 86% drop in EPS to $0.14 underscore the depth of its challenges. For investors, the question is whether this marks the bottom of Nike's turnaround—or if the struggles in key markets like China and margin pressures will linger. Let's dissect the data to find answers.

The Numbers: A Global Sales Slump

Nike's revenue decline was universal, with every major region and product category underperforming. The Greater China market, once a growth engine, saw NIKE Brand revenue plummet 21% in Q4, driven by weak consumer sentiment and rising competition from brands like Hoka and On. Even North America, Nike's largest market, posted a 13% revenue drop, with footwear sales leading the decline.

The most concerning trend? Digital sales. NIKE Brand Digital revenue fell 26% in Q4, a critical blow to the high-margin DTC (direct-to-consumer) model the company has long prioritized. Meanwhile, wholesale sales dropped 9%, reflecting retailers' caution in a slowing economy.

Margin Pressures: A Temporary Pain or Structural Issue?

Gross margins contracted 440 basis points to 40.3% in Q4, the steepest drop in years. This was due to a mix of factors: aggressive discounts to clear inventory, a shift toward lower-margin wholesale sales, and higher costs tied to tariffs and product obsolescence. CFO Matthew Friend emphasized that the “peak impact” of cost-cutting measures (dubbed “Win Now”) hit hardest in Q4, with hopes of a 200–300 basis point margin recovery by fiscal 2026.

The path to recovery hinges on three factors:
1. Tariff Relief: Expiring U.S. tariffs on Mexican imports could reduce costs.
2. Inventory Control: Stabilized inventories at $7.5 billion suggest progress, but clearance sales remain a drag.
3. DTC Rebound: Reversing the digital sales slump will be critical to restoring high-margin growth.

China's Crucial Role—and Risks

China's 21% Q4 revenue decline is a red flag. The market now accounts for roughly 14% of Nike's global sales, down from previous highs. Management cited “macroeconomic challenges” and competitive pressures, particularly in the running category, where Hoka and On have surged.

The question is whether Nike can reclaim its leadership. Its “Sport Offense” strategy—focusing on product innovation (e.g., the Vomero 18) and brand storytelling—aims to reignite demand. Yet, with Chinese consumers still cautious and competitors nipping at its heels, success is far from certain.

Valuation: A Bargain or a Trap?

Nike's stock currently trades at 1.9x forward sales, a 10-year low. Bulls argue this discount reflects near-term pain but ignores long-term potential: a stabilized China market, margin recovery, and a rebound in digital sales could justify a 30% upside. Bears counter that execution risks—particularly in turning around China and the DTC channel—are too great to bet on a recovery.

The Bottom Line: Proceed with Caution

Nike's Q4 results highlight both vulnerabilities and strategic resolve. The company's focus on premium products and margin-driven initiatives offers hope, but investors must weigh these against persistent headwinds. For now, the stock's valuation creates a compelling entry point for long-term holders, but near-term risks—including a fragile China rebound and DTC channel struggles—demand patience.

Investment Takeaway:
- Hold or Buy: For investors with a 3–5 year horizon, Nike's undervalued stock and strategic roadmap justify a cautious long position.
- Avoid: If you prioritize short-term stability, wait until China sales stabilize and margin trends improve.

Historically, a tactical approach could have amplified returns. Backtest data reveals that buying Nike shares five days before quarterly earnings and holding for 30 trading days yielded an average gain of 11.72% from 2020 to 2025. While this strategy carried a maximum drawdown of -25.22%, its Sharpe ratio of 0.17 suggests moderate risk-adjusted returns. This underscores the potential benefits of timing entries around earnings events but also highlights the need for patience amid volatility.

The verdict? Nike's turnaround is far from guaranteed, but its brand power and disciplined cost cuts suggest it's worth watching closely—and holding onto, but not rushing into.