The U.S. stock market has certainly been a wild ride over the last year. The volatility has been caused by factors including tariffs and the recent oil price shock that began at the onset of the Iran war.
These economic policies and geopolitical events have consequences on people's lives, including their spending, and have weighed on consumer sector stocks, including Nike (NYSE: NKE).
Should you purchase Nike with an eye on the long term, or do investors need to be wary?
Image source: Getty Images.
Short-term effects
Tariffs certainly hurt Nike's results this fiscal year. Nike's gross margin contracted 2.5 percentage points for the first nine months of the year that ended on Feb. 28. Management attributed the bulk of the lower margin to higher product costs caused by higher tariffs in North America.
Its third quarter ended on the day the Iran war started. Hence the spike in oil prices, and, in turn, gas prices, isn't reflected in Nike's results. But consumers will certainly feel squeezed, particularly given stubbornly high inflation.
The company's total revenue, adjusted to remove foreign-currency exchange translation effects, dropped 1% in the first three quarters of the year.
Longer-standing problems
If the revenue drop had come about merely due to short-term economic factors, that would entice investors. However, company-specific factors have contributed.
Positively, the company's leadership has focused on rebuilding relationships with wholesalers neglected by the company's ill-fated direct-to-consumer push. This year's adjusted wholesale revenue gained 5%, while its direct revenue dropped 7%.
But that's overshadowed by other factors. Nike-branded footwear, which accounted for 63% of the company's revenue, fell 1% after stripping out foreign-currency translations. Lower selling prices hurt the top line.
Management also attributed some of the revenue drop to weakness in the Greater China region. Undoubtedly, intensifying competition played a role.
Certainly, management has been trying to address its revenue decline. It launched its "Win Now" strategy at the end of 2024, with a focus on launching new and innovative products.
Nike once had a reputation among consumers as a maker of must-have footwear and apparel. But it's not easy to win back customers once they leave. And that remains the key to driving revenue growth.
In 2026, through April 16, Nike's share price has returned -27.8% compared to 4% for the S&P 500 index. But I'd pause before aggressively buying the stock.
NYSE: NKE
Key Data Points
It's not merely economic factors that have hurt the company's results. A major part of the revenue decline has to do with the company getting away from its roots as an innovative company that offers cool products. With the challenges Nike faces, bargain-hunting investors should look elsewhere.
