NIKE Inc. NKE continues to face challenges related to its operations, highlighted by sluggish lifestyle segment sales, issues in Greater China and reduced digital sales. These factors are affecting the company’s share price performance, which has slumped 29.6% in the past year.
Shares of the Beaverton, OR-based company underperformed its industry peers, which collectively declined 24% in the past year. The NKE stock compared unfavorably with the broader Consumer Discretionary sector and the S&P 500 Index’s growth of 12.8% and 26.3%, respectively, in the same period.
NIKE's performance is notably weaker than its close competitor lululemon athletica inc. LULU, which has declined 24.4% in a year. NKE has lagged other industry peers, including Adidas ADDYY and Skechers’ SKX 20.7% and 8.4% growth, respectively.
NKE’s One-Year Stock Performance
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At the current share price of $76.42, NIKE trades close to its 52-week low mark of $70.75. The stock price reflects an 8% premium to the company’s recent 52-week low. Meanwhile, the NKE stock’s price reflects a 29.1% discount from its 52-week high of $107.85. NIKE trades below its 50 and 200-day moving averages, indicating a bearish sentiment.
NIKE Stock Trades Below 50-Day & 200-Day Moving Averages
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Reasons Why NKE Stock Seems in Deep Trouble
The troubles for NIKE are far from over, as highlighted by its second-quarter fiscal 2025 results. In the quarter, the company continued to be impacted by sustained weak sales in its lifestyle segment, a decline in digital revenues and difficulties in the Greater China market. These issues have led to a slowdown in revenue growth and compressed profit margins.
Second-quarter fiscal 2025 sales were impacted by ongoing headwinds from its franchise management actions, which led to year-over-year revenue declines of 8% on a reported basis and 9% on a currency-neutral basis. The company continues to see significant reductions in its classic footwear franchises through NIKE Direct, which declined 14%, including a 21% drop in NIKE Digital and a 2% decrease in NIKE Stores. Wholesale also experienced a 4% slip.
From an investor's perspective, marketplace trends in the fiscal second quarter mirrored the challenges previously highlighted, as traffic and retail sales fell short of expectations, particularly in September and October. However, November brought a positive shift, with digital and in-store traffic gaining momentum, especially during key consumer events such as Black Friday week, signaling improved performance in critical periods.
Nike CEO Elliott Hill has laid out a series of actions to reposition the business and revitalize the momentum of the NIKE brand through sport. Some of these initiatives are in progress, and the company is accelerating implementation, while others are newly introduced. Notably, NIKE is transitioning its digital platform to a full-price model and reducing the reliance on promotional activity. Concurrently, the company is scaling back its investment in performance marketing, which will reduce paid traffic.
NIKE upheld its commitment to providing quarterly guidance during the transition period by sharing its outlook for the third quarter of fiscal 2025. The company projects a revenue decline in the low-double digits, reflecting the initial impacts of actions outlined by Elliott and increased foreign exchange headwinds, partially offset by the timing benefit of Cyber Week shifting into the fiscal third quarter.
NKE expects the fiscal third-quarter gross margin to decrease 300-350 basis points year over year. SG&A expenses are anticipated to decline slightly, factoring in restructuring charges from the prior year. Additionally, the company estimates other income and expenses, including net interest income, between $30 million and $40 million.
NIKE’s Earnings Estimates Trend Down
The Zacks Consensus Estimate for NKE’s fiscal 2025 and 2026 EPS has declined 21.5% and 22.1%, respectively, in the past 30 days. The downward revisions in earnings estimates indicate analysts’ reduced confidence in the stock.
For fiscal 2024, the Zacks Consensus Estimate for NKE’s sales and EPS implies 9.6% and 45.3% year-over-year declines, respectively. For third-quarter fiscal 2025, the consensus mark for sales and EPS indicates a 9.9% and 66.3% year-over-year decline, respectively.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
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Premium Valuation for NKE Stock
Despite the stock’s lackluster performance, NIKE is currently trading at a forward 12-month P/E multiple of 32.94X, exceeding the industry average of 57.52X and the S&P 500’s average of 22.22X.
Though trading much below its five-year high of 48.27X, the current valuation may be considered expensive, given the significant downside risks if the company's ongoing perils are not resolved for a prolonged period.
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Is NIKE Stock Still a Strong Investment Opportunity?
NIKE’s premium valuation, coupled with slowing growth rates, presents valid concerns for investors. The weaker guidance for the third quarter of fiscal 2025 dampens near-term growth prospects. Uncertainties around the recovery timeline for the lifestyle products segment and challenges in Greater China add to the risks. Given these factors, a cautious stance is advisable for existing investors as the company navigates these headwinds.
Potential investors should consider waiting for clearer signs of recovery before investing in this Zacks Rank #5 (Strong Sell) stock.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
