Nike (NKE +4.03%) shareholders have been suffering over the past few years as the company has dealt with problem after problem.
There were some glimmers of hope in the fiscal 2026 fourth-quarter (ended May 31) report released this past week, but management cut near-term guidance and doesn't expect meaningful progress over the next six months. So why is Nike stock rising?
Image source: Nike.
Getting its game on
Nike is still picking up the pieces from some major missteps, compounded over the past few years by high inflation and strong tariff exposure. The company was poorly positioned to handle the challenges when it cut out wholesale partnerships and let its innovation engine slip.
In its favor, it got a new CEO and mapped out a turnaround plan, and while external factors are still weighing on its progress, appears to have stemmed the rapid declines.
Here are some of the fourth-quarter highlights, which beat the top and bottom lines:
- Revenue decreased 1% year over year, with wholesale up 4% and direct-to-consumer down 7%.
- Gross margin expanded 8.9 percentage points to 49.2%.
- Earnings per share (EPS) increased from $0.14 last year to $0.72 this year.
While momentum had been building into the quarter, it stalled when the Iran war began and oil prices spiked, putting pressure on global consumers. Although that's been easing, management had to reshuffle orders and block too much inventory that could eventually pile up and have to be marked down for sale. Over the next six months, sluggish sales are expected.
Going on the offense
One particular area where Nike is truly struggling is China, where sales dropped 17% for the full year. CEO Elliott Hill said Nike is doing a "comprehensive reset" in the region, going on the offense and working with local partners to see how it can win.
NYSE: NKE
Key Data Points
But there were many positive updates. Performance sales were up mid-single digits for the full year, which marked the fifth consecutive quarter of double-digit growth in Nike Running.
Although China is struggling, North America is showing signs of recovery, and the wholesale business grew by double digits for the full year. So while the near term looks bleak, the recovery is possible.
In the meantime, Nike stock has fallen low enough to look like a strong value. It tanked after earnings, and its P/E ratio dipped below 20. At the current price, its dividend yields 3.8%. Value investors may have seen the opportunity, and long-term investors might be counting on a big recovery later this year.
