Nike faces the test of Wall Street following a cautious outlook; its turnaround remains under scrutiny

“In the previous quarter, Nike had provided cumulative guidance covering the fourth quarter of the 2026 financial year and the first two quarters of the 2027 financial year, indicating a decline in revenue in the low single-digit percentage range, a positive turnaround in gross margin in the second quarter, and earnings that were essentially flat over the period. The company confirms its expectation of stable earnings for the period, excluding the benefit from the recovery of tariffs, whilst highlighting a change in the composition of the underlying trends. In light of the macroeconomic environment and recent sell-through trends, the group is taking measures to scale back orders, reduce future sell-in and manage stock levels more rigorously. ‘These actions will lead to a moderation in revenue, but also an improvement in gross margins,’ the CEO stated during the call with analysts, adding: “Nike now expects revenue to decline by a low to mid single-digit percentage, with a slowdown in the second quarter compared to the first, due to specific factors representing a negative impact of several percentage points. These include increased digital promotional activity in EMEA compared with the same period last year and the timing of wholesale shipments in North America. The group also expects a positive turnaround in gross margin as early as the first quarter.”

Chief Executive Elliott Hill, who took the helm of the company in 2024, has based his turnaround plan on a return to core sports, such as football and running, and on rebuilding relationships with wholesale retailers, which had been scaled back under his predecessor John Donahoe, who had prioritised the direct-to-consumer sales model.

Almost two years after the launch of the new strategy, however, investors are calling for more tangible results, as demonstrated by the share price’s performance on the stock market, which has fallen by 35 per cent since the start of the year. The group continues to grapple with the task of clearing excess stock, which is still squeezing margins, whilst at the same time needing to accelerate product innovation in an environment made more challenging by trade tariffs and geopolitical tensions linked to the conflict in Iran.

Geographically, the focus is on developments in the Greater China market, where revenue fell by 12% compared with a year ago, although this was in line with analysts’ expectations. Hill explained that the group is implementing a ‘complete reset’ of its strategy in the country, focusing on product development that is more tailored to local tastes and on closer collaboration with commercial partners to strengthen the brand’s premium positioning and respond more quickly to the preferences of Chinese consumers. Competition with local brands, fuelled in part by consumers’ increased price sensitivity, remains intense, however.

Looking at the group’s brand portfolio, Converse continues to be a weak spot. In the fourth quarter, the brand’s turnover plummeted by 32 per cent, bringing full-year sales to their lowest levels since 2011. Just a few days ago, a news story emerged that pits the group’s two brands against each other: the biggest Converse basketball star is switching teams and moving to Nike. Shai Gilgeous-Alexander, point guard for the OKC Thunder and this year’s league MVP for the second consecutive season, is set to join the roster of Nike’s flagship brand, in a move that further strengthens the group’s leadership in the world of basketball. Many analysts have interpreted the move as a prelude to the sale of Converse in the near future.

“The persistent weakness reinforces the perception that Nike’s problems are more structural than initially recognised and that the turnaround will take longer than expected,” commented Neil Saunders, managing director of GlobalData. According to the analyst, the continued deterioration in Converse’s performance also raises questions about the group’s willingness to continue investing in the brand, to the extent that a potential sale is being considered.

In an attempt to boost growth, Nike has increased its marketing investment ahead of the World Cup, with the aim of strengthening the brand’s visibility and countering growing competition from Adidas, particularly now during the World Cup, and from other players in the sector. On the management front, the group has also announced that, from August, David Denton, currently Pfizer’s finance director, will take up the post of chief financial officer, taking over from Matt Friend, who will leave the company permanently on 4 September.