What started as a promising turnaround story for iconic apparel and footwear brand Nike (NKE +1.74%) in late 2024 has somewhat stalled, and investors believe it could take the company several years to show signs of improvement.
In October 2024, Nike pulled longtime veteran Elliott Hill out of retirement to run the company and lead a badly needed turnaround by a brand that has struggled. Roughly 1.5 years later, Nike's stock is down about 60% over the past five years, as investors are already showing signs of frustration.
If you're looking for a catalyst, March 31 is the next potential one, when the company reports results. Does it make sense to buy the stock before then?
Image source: Getty Images.
Why Nike has struggled
Prior to Hill's rehiring, Nike struggled as competition in the luxury footwear and apparel space heated up, with large brands like Lululemon and more personalized brands built by famous athletes, such as Roger Federer's On.
Nike also focused too much on online promotions, straying from its previously popular wholesale strategy. Many consumers and investors also felt like the company had not paid enough attention to the brand or product innovation.
While Hill sought to restore this confidence, the company also faced issues beyond its control. For instance, President Donald Trump's tariffs have affected Nike, which makes most of its products in non-U.S. countries, including Indonesia, Vietnam, and China. In the company's most recent earnings report last year, management said it expects tariffs to result in $1.5 billion in additional costs and to lower the company's gross margin by 1.2% in the current fiscal year.
Should you buy Nike prior to March 31?
March 31 is a big day because Nike will report its 2026 fiscal third-quarter earnings results after the close of trading. Shortly after this, management will host an earnings call with Wall Street analysts to review the quarter's results and answer questions.
Analysts' consensus estimates suggest Nike will report earnings per share (EPS) of $0.29 on revenue of $11.22 billion. This suggests a significant year-over-year decline in EPS, with revenue roughly flat, so not exactly the kind of results one would hope to see in a turnaround story.
Any guidance provided by management will also be important. Analysts currently expect Nike to post $2.37 EPS in its fiscal year 2027 on revenue of about $48.6 billion, which would represent a significant EPS improvement and some revenue growth as well.
In the upcoming earnings report, investors will be focused on how the turnaround plan is progressing, how consumers are responding to Nike's new products, the current conditions in China, a key market for Nike, and what to expect on tariffs and gross margins moving forward. Investing is never about just one day, but investors will be watching.
NYSE: NKE
Key Data Points
Recently, BTIG analyst Robert Drbul issued a research report on Nike, maintaining a buy rating but lowering his price target from $100 per share to $90. This still implies significant upside for the stock, which traded around $53 per share as of this writing. While Drbul acknowledged the challenging environment for Nike, he also said he sees evidence that Hill and management are acting quickly to help stabilize margins and improve performance.
According to Drbul, Nike has taken actions such as shrinking the corporate structure at subsidiary Converse, implementing automation into its distribution facilities in Memphis, and naming new leaders in China, all of which should help reset the business.
Trading at about 34 times forward earnings, Nike stock trades right around its five-year average, although that's seemingly due to a drop in its earnings power over the years.
Ultimately, I wouldn't try to trade around Nike's upcoming earnings report on a short-term basis because it's difficult to predict what the company will report and how investors will react. However, there is a strong case for patient investors who think long-term. Hill has had to deal with difficulties, including tariffs and the recent conflict in Iran.
The stock now carries a 3% dividend yield, and earnings could be reaching an inflection point. However, I'll stress that this is likely still a multiyear effort to make real progress.
