Nike Inc. surpassed analysts' expectations for earnings and sales in its fiscal third quarter, however, shares in the sportswear giant declined in after-hours trading as the company cautioned that ongoing restructuring efforts would weigh on revenue and profitability.
The company posted adjusted earnings of 54 cents per share, exceeding FactSet consensus estimates of 30 cents. Revenue declined 9% year over year to US$11.3 billion but remained ahead of the US$11 billion analysts had anticipated.
“While we met the expectations we set, we’re not satisfied with our overall results,” CEO Elliott Hill told investors. “We can and will be better.”
Nike had withdrawn its full-year guidance in October but reiterated its commitment to providing quarterly updates. For the fiscal fourth quarter, the company expects revenue to decline in the low to mid-teens percentage range, aligning with analysts' projections of a 12% drop. Gross margins are anticipated to contract by approximately four to five percentage points, reflecting the impact of recently imposed tariffs on Chinese imports and broader economic uncertainty, including geopolitical risks and weakening consumer confidence.
“Q4 will reflect the largest impact from our WinNow actions and that the headwinds to revenue and gross margin will begin to moderate from there,” said Chief Financial Officer Matthew Friend.
“Nike's big focus is reducing inventory. Their inventory level dropped 2%, while sales fell 9%. However, the reliance on discounting to shift inventory raises concerns about profitability in the near term. The key question for investors is whether Hill’s strategy can reignite sustainable growth without eroding margins,” eToro market analyst Josh Gilbert said.
“The bottom line is that Nike is down, but it’s certainly not out. Elliott Hill has an arduous task on his hands. He needs to return to Nike’s roots by improving wholesale partnerships after a disastrous direct-to-consumer strategy, reconnecting with younger consumers who increasingly view the swoosh as their parents' brand and navigating inventory challenges. Nike's unmatched brand equity and global footprint provide a strong foundation, but execution in the next two quarters will be critical to determining whether this iconic brand can regain its stride."
Nike's stock fell 4.8% to US$68.44 in after-hours trading, reversing gains made immediately after the earnings release. The stock has declined 5% year to date and 28% over the past 12 months.
Post pandemic challenges
The company has faced challenges in the post-pandemic market, with past strategic missteps—including severing ties with wholesale partners and prioritising existing popular styles over innovation—contributing to a loss in market share. Hill has been leading efforts to address these issues by increasing investments in marketing and product development while rebuilding wholesale relationships. Additionally, Nike is clearing outdated inventory through markdowns, a strategy that has impacted profitability and is expected to continue through fiscal 2026, according to Friend.
"It’s been a challenging few years for the world’s largest sportswear brand, and although today’s earnings showed positive signs, the company still has a lot of work to do,” eToro market analyst Josh Gilbert said.
“Sales in North America and EMEA were better than expected, but China remained a disappointment, with sales down 17% year over year. The better-than-expected sales in these key regions are a sign that CEO Elliott Hill’s efforts to turn the business around are beginning to take effect, but investors should prepare for a marathon, not a sprint.
“Hill, who emerged from retirement to take the helm in October, is executing a strategic shift, refocusing on performance athletics, rebuilding fractured wholesale partnerships, and overhauling senior leadership. This pivot comes at a critical juncture as competitors like Hoka and On Running chip away at Nike's market share, forcing increased R&D and marketing spending that's pressuring margins.”
Jefferies analyst Randal Konik viewed the quarter as a positive step. He noted that Nike’s recent product launches have been well received and that wholesale partnerships are improving.
“Nike is getting back to being Nike again,” he wrote. “We think this journey takes 2 years but our call is for a V-shaped recovery in F27. With shares at 10-year lows on [price-to-sales] valuation, we say Just Buy It!”
However, Sheraz Mian, director of research at Zacks Investment Research, offered a more cautious perspective, reflecting broader market concerns. Rather than signalling a significant rebound, the results were more of a “sigh of relief that things aren’t getting worse,” he noted.