Nike's Turnaround Gains Traction: Is the Stock Finally Out of the Woods?

Nike's Q4 fiscal 2025 earnings report painted a mixed but hopeful picture for the iconic sportswear giant. While revenue declined 12% to $11.1 billion, the results beat Wall Street's lowered expectations, sparking a 17% stock surge. This rebound, coupled with management's roadmap for recovery, raises the question: has Nike finally turned the corner? Let's dissect the financials, strategic shifts, and risks to determine if this is a buy opportunity.

Q4 Earnings: A "Win Now" Reality Check

Nike's "Win Now" turnaround plan—aimed at clearing excess inventory, re-engaging wholesale partners, and refocusing on sport-centric products—hit its peak financial impact in Q4. Net income plummeted 86% to $211 million, but the 14-cent EPS beat estimates by a penny, signaling progress. The strategy's costs were stark: gross margins collapsed 4.4 percentage points to 40.3%, driven by discounts to offload classics like the Air Force 1 and Dunk, which lost nearly $1 billion in sales.

The silver lining? Management sees Q4 as the trough. CEO Elliott Hill emphasized that the "sport offense" reorganization—aligning teams around categories like running and basketball—is now in motion. New product launches, such as the sold-out A'ja Wilson basketball collection, demonstrate renewed innovation muscle.

Tariff Challenges: A $1 Billion Hurdle, But Manageable

Nike faces a $1 billion tariff-related cost headwind in fiscal 2026, primarily from Chinese imports. While this will further squeeze margins—expected to drop another 3.5–4.25 percentage points in the current quarter—the company is fighting back. Plans include diversifying supply chains (reducing China's manufacturing share from 16% to "high single digits"), raising prices, and forging partnerships like its Amazon return.

The key question: Can Nike offset these costs without alienating price-sensitive consumers? Management's confidence in a mid-2026 recovery hinges on executing these moves while maintaining product quality.

Turnaround Strategy: Progress vs. Persistent Risks

1. Market Cleanup and Channel Shifts
Nike's NIKE Direct (stores + digital) sales fell 14%, but owned stores rose 2%, suggesting a shift toward higher-margin brick-and-mortar. The digital channel's 26% drop reflects a strategic pivot to full-price sales, a necessary step to rebuild brand value. Meanwhile, wholesale partnerships with Aritzia and Urban Outfitters signal a broader distribution strategy to drive sell-through.

2. Geographic Performance
- North America: Sales dipped 11%, but outperformed expectations. The Jordan Brand's 16% decline highlights the need to revive legacy franchises.
- China: Revenue fell 20%, with management acknowledging "slower-than-hoped" recovery. Plans to test localized retail concepts aim to regain consumer trust in this critical market.

3. Product Pipeline Momentum
While classic styles struggled, sport-focused launches like the Vomero 18 running shoe (a $100 million hit) and the A'ja Wilson line show promise. Nike's focus on niche categories—e.g., women's basketball—could carve out premium pricing power.

Investment Considerations: Buy the Dip or Wait for Proof?

Bull Case:
- Analysts like HSBC (upgraded to "buy" with a $80 price target) see a path to revenue recovery as inventory clears and sport-centric products gain traction.
- The stock's 17% post-earnings rally suggests investor optimism about management's execution.

Bear Case:
- Tariffs and China's sluggish recovery remain near-term drags.
- Nike risks overreliance on one-off collaborations (e.g., the delayed Skims partnership) to drive apparel sales.

Final Analysis: A Buy With Caveats

Nike's stock is undeniably cheaper now—trading at 19x forward earnings versus its 5-year average of 24x—but value alone isn't enough. The "Win Now" plan requires flawless execution on inventory, tariffs, and product innovation.

Recommendation:
- Buy: For long-term investors willing to bet on Nike's turnaround. The stock's 10-year average revenue growth of 7% suggests a rebound is possible once margins stabilize.
- Hold: For risk-averse investors. Wait until Q1 FY2026 results confirm margin stabilization and China recovery.

Nike isn't out of the woods yet, but the path forward is clearer. The question now is whether management can execute its strategy without further missteps—or if Wall Street's optimism proves premature. For now, the stock offers a compelling risk-reward trade for those willing to look past the near-term pain.

Investment thesis: Buy on dips below $70, with a 12–18-month horizon.