Nike Earnings: Hurdles Remain but Efforts Should Bring Back Winning Ways

Key Morningstar Metrics for Nike

• Fair Value Estimate: $112.00
• Morningstar Rating: ★★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Nike’s Earnings

Nike’s NKE sales plummeted 12% in its May-ended fiscal 2025 fourth quarter, as it continues to work through excess inventory. Its EBIT margin of 2.7% was down from 12.3% in the prior year, and its earnings per share fell to $0.14 from $0.99.

Why it matters: CEO Elliott Hill’s Win Now turnaround plan includes discounting and less distribution of overexposed footwear. Hill is responding to competitive threats through a focus on sports, stronger wholesale partnerships (including a return to wide-moat Amazon), and product innovation.

• Although a weak period, Nike’s sales decline was less than our 15% forecast, and its EBIT margin was above our 1.4% estimate. Greater China (13% of sales) remains very challenged (sales down 21%), but we think Nike is in position to benefit from the market’s eventual recovery.
• We believe Nike’s advantages in products, marketing, and connections to athletics will allow it to win back share and reduce discounting in fiscal 2026. Although unlikely until at least fiscal 2027, we think it will return to mid-single-digit yearly sales growth and double-digit EBIT margins.

The bottom line: We think wide-moat Nike is very undervalued, but expect to reduce our $112 per share fair value estimate by a mid-single-digit percentage.

• Sales declines are likely to continue in fiscal 2026 (especially in the first half), and Nike disclosed that higher tariffs on US imports are expected to bring $1 billion in new expense and reduce its gross margin by about 75 basis points (includes mitigation actions).
• We are adjusting our Morningstar Uncertainty Rating on Nike to High from Medium based on our quantitative model and challenges like intensifying competition and tariffs.

Between the lines: Nike imports about 16% of its US footwear from China, which has been subjected to sky-high tariffs. The company intends to reduce this percentage to below 10% by the end of fiscal 2026.