If you visit the Nike investor relations page, you’ll immediately be met by a proclamation that “NIKE, Inc. is a growth company”. It’s been that way for years now. Unfortunately, it’s tried to tell that same story during a time in which the share price has lost about 80% of its value since the pandemic peaks of more than $170 a share.
The journey from that level to the price now (about $39 a share) has been a generational disaster for the company. Other famous apparel brands, such as Lululemon, have also suffered, but nothing has been as remarkable as the fall from grace of the most famous name in sport.
If you followed the Nike story during the pandemic, you’ll know that the management team at the time was brimming with hubris. The CEO has departed, but the mistakes made during that period have continued to plague the group.
In short, the plan was to focus on a direct-to-consumer strategy that would maximise margins and give the company ultimate control over the customer. It sounds great in principle, but the path to that lofty vision was paved with decisions that severely affected wholesale partners that had worked with Nike for decades.
Foot Locker was one of the most obvious victims of this strategy, with the Nike relationship transformed from anchor supplier to existential crisis. Not only did Nike pull back on overall supply, but it also prevented special editions from landing on the shelves of wholesalers. The Nike management team was convinced that consumers were so in love with their products that they would be happy to access them only via digital and direct channels.
B-team business
The net result? Customers who had previously bought their shoes from large multibrand retailers were suddenly presented with a B-team offering in the Nike section. Instead of diving into the Nike app and changing the way they shopped, those consumers started looking at other brands.
Companies such as Foot Locker were effectively forced by Nike to encourage this consumer behaviour, with competitors treating it as the opportunity of a lifetime to win shelf space from the iconic swoosh. Brands such as On emerged as serious contenders in categories where Nike was historically dominant, like running.
Yes, it’s easier to apply hindsight to this strategy. But the point is that it was an unmitigated disaster that ruined wholesale relationships, upset customers and even turned the Nike app into a discount channel (to clear stock) rather than a premium direct channel. The promised margins certainly didn’t materialise.
Having realised the error of its ways, Nike ousted John Donahoe as CEO and replaced him with Elliott Hill, a Nike veteran who was brought out of retirement. Hill joined the firm in October 2024, when the share price was trading at just more than $80.
And yes, that means that the share price has more than halved since his appointment.
Consumer brand turnaround stories are extremely difficult. You have to really dig to find the silver linings at Nike at the moment, with the latest results (the first quarter of 2027) reflecting a 4% decline in reported revenue.
As a reminder of just how severely Nike lost its way, its brand digital channel suffered a 13% drop in sales. Nike-owned stores were down 5%. Even a couple of years into Hill’s turnaround strategy, Nike is still bleeding in the part of its business it put the most effort into during the pandemic.
Ironically, the wholesale business was down only 1% this quarter. Efforts to rebuild that business are starting to bear fruit, but it still feels as if it is running on a treadmill set to the highest speed.
A sea of sameness
The problem is that the Nike Sportswear business is just under half of group revenue — and dropping. This part of the business suffered a sales decline in the low double digits. The market has excess inventory once more, with Hill referring to a “sea of sameness”.
This is one of the areas Hill acknowledges was underestimated as part of the turnaround. He describes the sportswear business as having a “collection of consumers with distinct needs, tastes and motivations” — speaking directly to plans to differentiate the offering based on customer segments.
Battered investors can perhaps take some heart from this, as the approach is similar to Hill’s strategy that has been paying off in Nike Performance. It has been systematically rebuilding the business on a sport-by-sport, athlete-by-athlete basis. For example, the focus on women’s basketball has grown that part of the business by 500% from FY22 to FY26. It may be only a small component of the broader sports offering, but it shows that Nike hasn’t completely lost its DNA.
Encouragingly, double-digit growth was achieved in the latest quarter across running, global football (boosted by the Fifa World Cup), tennis and golf. This is the silver lining in a very dark cloud.
The clouds are ominous in greater China, with that region reporting a hideous revenue decline of 26%. Deep discounting of the brand is a huge issue there, with Nike promising to reduce the number of digital marketplaces stocking the product. The physical footprint in China hasn’t been refreshed in years either, and it plans to address this to attract consumers back to full-price strategies.
Despite all the pressure, gross margin actually expanded by 60 basis points to 42.8%. Cost savings in its supply chain drove this outcome. Cost discipline also came through in the selling, general & admin expenses (SG&A) line, which fell by 3% year on year.
This helped protect the income statement, with net income down only 2% year on year. But before the market could get carried away at the thought of Nike finally bottoming out, the new CFO gave investors some sobering guidance.
With a very tough Q2 ahead due to the performance in the comparable period, the guidance for FY27 is that revenue will decline by high single digits. Efforts to address the overstocked market will be relevant here, along with an expectation that the China business will get worse before it gets better.
Concerningly, ebit is expected to decline by a greater percentage than revenue. Nike expects SG&A to fall for the full year, suggesting that gross margin pressure will be evident for the rest of the year.
Playing the long game
Investors are being asked to play the long game here. Nike has promised that five-year targets will be provided in November. One of the factors in this growth algorithm will be the Pace programme, Nike’s name for its cost rationalisation strategy. It is promising $2.5bn in savings at a cost of $1bn, with the number of roles across the group expected to fall over time.
The group is still in a net cash position and even paid dividends of $610m this quarter, but it’s clear that the brand needs to be rebuilt from the ground up. With the share price back to 2013 levels, the market seems to agree with this assessment.
And what of Foot Locker, the business that was smashed from left field by Nike’s strategy change during the pandemic?
These days, you can’t invest in Foot Locker directly. The company was bought by Dick’s Sporting Goods in September 2025 at a 66% premium to the 60-day volume-weighted average price. Dick’s paid 6.1x adjusted 2024 ebitda for Foot Locker, which didn’t seem like a crazy multiple at the time — especially as Nike was trying to repair wholesale relationships by that stage.
Dick’s learnt much the same lesson as Hill: retail turnarounds are hard. Foot Locker’s comparable sales growth was negative in every quarter in 2025. There was a brief moment earlier this year when it turned positive and the market felt better about the deal, but recent results dashed those hopes with a 3.6% sales decline.
The immense frustration for Dick’s shareholders is that the rest of the business has been performing well. There was no need for them to do the Foot Locker deal to increase the size of the group’s footprint and bring international exposure into the fold. They chose to roll the dice on a risky purchase, and the reward has been a 34% slide in the share price in the past 12 months.
That’s a story that will sound familiar to South African retail investors who have watched management teams make similar mistakes.
Broken trust
Foot Locker’s loss of $31.9m in the latest quarter was small in comparison with the $485.2m profit at Dick’s. It didn’t bet the farm on this transaction, yet the market cap has dropped by billions more than the value of the Foot Locker transaction.
Some of this is because of deteriorating sentiment towards consumer stocks, but there’s likely also an element of broken trust as well. Once a management team showsit will gamble with shareholder money on risky deals, investors tend to be more cautious on what multiple they are willing to pay for the earnings.
At Nike, the management team gambled with the entire brand and route-to-market strategy. The value of decades of hard work and brand equity was deeply damaged in a short space of time. Nike’s p/e ratio has crashed to just 18.5x, not terribly far ahead of Dick’s at 15.5x. When one of the world’s most recognised brands is valued at only a modest premium to a reseller, you know that things are badly broken.
If it weren’t for that bleak FY27 guidance, both Nike and Dick’s would be interesting recovery trades. But in this environment of inflation, rising yields and ongoing weakness in apparel, there’s no guarantee that either stock has bottomed yet, even though both have seen some positive share price momentum in the past month.
The market will also be keeping an eye on whether the Dick’s management team can avoid a similar upheaval to what we’ve seen at Nike. The jury is still out on that one.
