Nike: Is a Turnaround in the Stock Near?

Core Viewpoint - Nike's fiscal first-quarter results indicate some progress in its turnaround efforts, although the stock remains down slightly for the year and has decreased over 40% in the past five years [1] Group 1: Financial Performance - North America revenue rose 4% to $5 billion, with apparel sales climbing 11% while footwear revenue remained flat [3] - EMEA sales increased by 6%, with apparel sales up 11% and footwear revenue rising 4%, although constant currency growth was only 1% [3] - Overall, wholesale revenue grew 5%, with North America up 11% and EMEA up 4% [4] Group 2: Challenges and Declines - Nike Direct sales fell in both North America and EMEA, with a 3% decline in North America and a 6% decline in EMEA [5] - China revenue decreased by 9%, with Nike Direct sales dropping 12% and digital sales plunging 27% [6] - Gross margins fell by 320 basis points to 42.2%, and earnings per share (EPS) decreased by 30% to $0.49 [7] Group 3: Future Outlook - Nike expects tariffs to significantly impact costs, increasing the projected impact from $1 billion to $1.5 billion, which will hurt gross margins by 120 basis points [8] - For fiscal Q2, Nike anticipates a low single-digit revenue decline and a gross margin decline between 300 and 375 basis points [9] - The company is working to enhance its stores and digital platforms but acknowledges the need for substantial improvements [10][11] Group 4: Valuation and Investment Considerations - The stock trades at a forward price-to-earnings (P/E) ratio of approximately 44 times analysts' fiscal 2026 estimates, indicating a high valuation [12] - The company needs to increase sales of full-price merchandise to improve sales and gross margins, which will take time [12]