Is It Time to Buy Nike Stock as a Turnaround Takes Hold?

Nike (NYSE: NKE) has long been a symbol of athletic innovation and global dominance. But after years of slowing growth and a costly inventory overhang, the company is now in the throes of a high-stakes turnaround. Investors are left to wonder: Is this a fleeting recovery or a sustainable rebirth?

The financials tell a story of decline. In fiscal 2025 (ended May 31, 2025), Nike's revenue fell 10% to $46.3 billion, with net income plummeting 44% to $3.2 billion. Gross margins contracted 190 basis points to 42.7%, pressured by discounts, tariffs, and a shift to less profitable wholesale sales. Yet beneath the numbers lies a strategy designed to reposition Nike for long-term growth.

The Turnaround Playbook: Strategic Shifts and Margin Recovery

Nike's “Win Now” initiative, launched in late 2024, aims to address immediate challenges while laying the groundwork for future gains. Key moves include:

1. Marketplace Cleanup: In Greater China, where revenue dropped 21% in Q4, Nike is aggressively reducing excess inventory and rebalancing its product mix. CEO Elliott Hill, who took the helm in October 2024, emphasized that this cleanup is nearing completion.
2. Focus on Core Sports: The “sport offense” strategy reorganizes teams around categories like running, basketball, and training. This has already borne fruit: the Vomero 18 running shoe became a $100 million hit, while women's basketball footwear saw strong sell-through.
3. Channel Rebalancing: Nike Direct (company-owned stores and digital) declined 14% in Q4, but physical stores grew 2%. The company is shifting its digital strategy away from discount-driven sales to full-price models, though NIKE Brand Digital revenue fell 26% year-on-year.
4. Supply Chain and Tariff Mitigation: Nike plans to slash Chinese manufacturing to “high single digits” from 16%, while partnering with Amazon to relaunch its e-commerce presence in late 2025. Tariffs are projected to cost $1 billion in fiscal 2026, but price hikes and supply chain shifts aim to offset this over time.

Margin Recovery Potential: A Long Road Back

Nike's margins are a critical barometer. Gross margin fell to 40.3% in Q4 due to discounts and tariffs, but CFO Matthew Friend argues this was the “peak” of the turnaround's financial impact. By fiscal 2026, gross margins are expected to stabilize as discounts ease and the supply chain reconfigures.

The company also aims to regain operating leverage. Selling and administrative expenses rose only 1% in fiscal 2025, while demand creation (marketing) jumped 15%, reflecting investments in brand storytelling. If sales rebound, fixed costs should compress, boosting margins.

Valuation: A Discounted Stock, But Risks Remain

Nike's stock price has been volatile, falling 18% in the past year as earnings disappointed. At a recent $103, the stock trades at a P/E of ~47 based on fiscal 2025 EPS of $2.16—a steep multiple but lower than its 5-year average of 55.

The valuation hinges on whether Nike can stabilize revenue and margins. Analysts estimate low-to-mid-single-digit revenue growth by fiscal 2027, but this depends on executing the “sport offense” and regaining momentum in China.

Risks to the Turnaround

• China Recovery: Nike's Greater China revenue fell 20% in fiscal 2025. Competitors like Adidas and Under Armour have gained share there, and local preferences for affordability could challenge premium pricing.
• Digital Sales Decline: NIKE Brand Digital revenue dropped 26% in Q4, signaling a need to rebuild its e-commerce strategy.
• Tariff Costs: The $1 billion tariff hit looms large, requiring disciplined cost controls to avoid margin erosion.

Investment Thesis: Buy the Dip, But Wait for Proof

Nike's stock offers a compelling entry point if the turnaround succeeds. Key catalysts include:
- Holiday Season Performance: A strong Q1 2026 order book could signal demand recovery.
- Margin Improvement: Gross margin contraction is expected to narrow to 3.5-4.25% in Q1 2026, with operating leverage emerging later in the year.
- Share Buybacks: Nike has $12 billion remaining under its $18 billion repurchase program, which could support the stock if earnings rebound.

Historically, when Nike delivered positive earnings surprises, a strategy of buying and holding for 90 days generated an average return of 2.5%, but with notable volatility—28.47% annualized—and a maximum drawdown of -53.71% between 2020 and 2025. This underscores the potential upside of such catalysts, though it requires tolerance for significant risk.

Backtest the performance of Nike (NKE) when 'buy condition' is triggered by positive earnings surprises in quarterly earnings releases, and hold for 90 days, from 2020 to 2025.

However, investors must remain cautious. The company's fiscal 2025 was a “write-down year,” and risks in China and digital channels remain unresolved.

Recommendation: Nike stock is a “hold” with a cautious “buy” rating for investors willing to take a multi-year view. Wait for signs of stabilization in China and a rebound in NIKE Direct sales before committing. If margins recover to 45%+ and revenue growth turns positive by 2027, the stock could outperform. For now, patience—and a stop-loss—remain prudent.

In the end, Nike's turnaround is a marathon, not a sprint. The brand's legacy and innovation pipeline give it staying power, but execution in the next 12-18 months will determine whether this is a turning point—or a fleeting hope.