Key Points
Nike will post its third-quarter earnings report at the end of March.
Its stock won’t recover unless it simultaneously grows its sales and gross margins.
Nike(NYSE: NKE), the world's largest athletic footwear and apparel maker, was once a stable blue chip stock. But over the past three years, its stock has declined nearly 60% as it disappointed investors with slowing sales and declining margins. Should you buy Nike's stock as a contrarian play ahead of its next earnings report on March 31?
Why did Nike's stock crash?
Nike, like many of its industry peers, struggled with slowing sales during the pandemic. But after the pandemic passed, its revenue grew at a steady 11% CAGR from fiscal 2020 to fiscal 2023 (which ended in May 2023) as it expanded Nike Direct (its e-commerce marketplace and first-party stores) to reduce its dependence on wholesale retailers.
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But in fiscal 2024, its revenue growth flatlined as declining sales in North America and a strong dollar offset gains in China and other overseas markets. Its commitment to Nike Direct also backfired as more shoppers pivoted back toward wholesale retailers, its Converse brand withered, and it faced intense competition from resilient competitors like Adidas, On Holding, and Lululemon -- which started selling its own shoes in 2022. In fiscal 2025, its revenue declined 10% as those headwinds intensified.
From fiscal 2023 to fiscal 2025, Nike's gross margin dropped from 43.5% to 42.7% as it relied more heavily on markdowns to boost sales and reduce inventory. That pressure reduced its EPS from $3.23 in fiscal 2023 to just $2.16 in fiscal 2025.
Is Nike's stock a contrarian investment?
In the first half of fiscal 2026, Nike's revenue rose 1% year over year -- but its gross margin declined 310 basis points to 41.4% as its EPS plummeted 30%. For the full year, analysts expect its revenue and EPS to decline 1% and 27%, respectively.
Nike is trying to stabilize its business by selling a higher mix of full-price and premium products, launching fresh marketing campaigns (especially for the upcoming World Cup), rebuilding its relationships with wholesale retailers, and using AI tools to accelerate its development of new products. It's even thinking of spinning off or selling Converse.
Unfortunately, Nike could remain in the penalty box for the rest of the year as those long-term plans fail to bear fruit and it continues to drive near-term sales through markdowns. At $51, Nike's stock still trades at 33 times this year's earnings -- so it isn't cheap enough to be considered a value play yet. Therefore, I'd wait to see what Nike says during its next earnings report before buying its stock as a turnaround play.
Should you buy stock in Nike right now?
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica Inc., Nike, and On Holding. The Motley Fool has a disclosure policy.
