Nike (NKE +1.11%) is like a retired professional athlete hoping to stage a comeback, but struggling to find a way to keep pace with the next generation of stars. Down roughly 80% from the all-time high it touched in late 2021, the stock is at its lowest level in more than a decade.
Some may say it's a bargain, but there's one reason I'm still avoiding the stock: China.
NYSE: NKE
Key Data Points
Nike's sales in the Greater China region fell by 26% on a constant-currency basis in the first quarter of its fiscal 2027, accelerating its decline in that region. The sneaker and athletic apparel giant doesn't seem to have a clear answer for how to win back customers in China, as consumers there have moved beyond the "Swoosh," and now tend to favor Chinese-born brands.
While Nike's sliding China sales stand out, the overall company is shrinking as well. Revenue fell 4% to just over $11.2 billion, which was more than $107 million below analysts' consensus expectations. Converse and Nike Brand Digital sales fell 28% and 13%, respectively.
Image source: The Motley Fool.
CEO Elliott Hill announced there would be layoffs in 2027 as Nike undergoes a restructuring, but the company hasn't released specifics of the plan yet.
There was some good news in the fiscal Q1 report: Gross margin expanded, sales in the North America region grew by 2% on a constant-currency basis, and earnings per share beat expectations. Those upbeat notes, unfortunately, weren't enough to overcome the slew of unpleasant metrics, nor the expectation that the company will cut its revenue guidance for the fiscal year.
I'm not convinced this global apparel brand will achieve its turnaround anytime soon. It needs to find a strategy to stabilize sales in China and begin to lure customers back, but consumers have plenty of choices and little brand loyalty. Additionally, Nike hasn't produced any newsworthy or innovative products in quite some time. What it needs is a total brand refresh, and until it gets one, Nike stock is still too expensive for investors to buy.
