When Nike (NKE +0.05%) CEO Elliott Hill stood in the Camp Nou stadium earlier this year, staring at scaffolding and cranes during Barcelona's renovation, he said something worth sitting with: "This is Nike right now," according to the Observer. That's an unusually honest thing for a CEO to say about a company he runs, and after watching recent third-quarter results, the metaphor still fits.
Q3 revenues came in flat at $11.3 billion, down 3% on a currency-neutral basis. Net income fell 35% year over year to $520 million, with gross margin declining 130 basis points to 40.2%, weighed down by tariff-related product costs. The stock dropped more than 8% after the report despite beating EPS estimates. This means that Wall Street wanted more, and the patience for "the work takes time" narratives is wearing thin.
But buried inside the flat headline of Nike is a real signal worth paying attention to. Running -- the category Nike arguably built its legacy on -- grew 20% in the quarter. In North America, the wholesale channel, which Nike essentially abandoned in favor of its own stores and website, grew 11%.
Image source: Getty Images.
The direct-to-consumer unwind is the core of the turnaround
What got Nike here is worth understanding, because the recovery depends on undoing it. From roughly 2020 to 2023, former CEO John Donahoe pursued an aggressive direct-to-consumer strategy -- pulling Nike off Amazon, reducing shelf space at retailers, and funneling customers toward Nike.com and owned stores.
The logic was sound: cut out the middleman, capture more margin, and own the customer relationship. The execution left Nike overexposed in digital channels as post-pandemic consumer behavior normalized, and ceded physical retail shelf space to newer, more agile competitors like On Running and Hoka (owned by Deckers Brands).
NYSE: NKE
Key Data Points
Hill's "Win Now" strategy reverses almost all of it. Nike is back at retailers. It returned to Amazon. Wholesale, which makes up roughly 60% of revenue now, is the growth engine again. up 5% overall in Q3 and up 8% in Q2. Nike Direct, by contrast, fell 4% last quarter, with digital down 9%.
The World Cup window is absolutely crucial for Nike
There is one undeniable catalyst on the horizon: the 2026 FIFA World Cup, taking place in North America this summer. For a company rebuilding its cultural relevance in soccer, this is as large a marketing moment as Nike gets.
The risks, however, are real and not minor. Greater China revenue declined 10% on a currency-neutral basis in Q3, and management guided for a 20% decline in Q4 -- a significant drag from what is supposed to be a growth market. Converse fell 35% across all territories. Management guided for continued gross margin pressure of 25 to 75 basis points in Q4, and Hill himself acknowledged the work is "taking longer than I'd like."
I think the turnaround is real. But Nike is a 2027 story, not a 2026 one. The scaffolding Hill described is genuine structural work, not cosmetic fixes. The question investors have to answer is whether they're willing to sit inside a renovation while the rest of the market moves.
For patient investors who believe in the brand and can withstand near-term earnings pressure, the current valuation may offer a reasonable entry point for dollar-cost averaging.
