Nike Earnings: Positive Signs Amid a Frustratingly Slow Turnaround; Shares Attractive

Key Morningstar Metrics for Nike

• Fair Value Estimate
  : $102.00
• Morningstar Rating
  : ★★★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : High

What We Thought of Nike’s Earnings

Nike NKE had flat sales in fiscal 2026’s third quarter, as 3% growth in North America (45% of sales) was offset by challenges elsewhere. Its gross margin fell 130 basis points to 40.2% on higher tariffs, and its operating margin dropped to 4.9% from 7.0%, primarily due to layoff-related severance costs.

Why it matters: CEO Elliott Hill continues to implement the “Win Now” plan to operate more efficiently, clean up older inventory, introduce innovative products, and strengthen Nike’s roots in sports. The process has been slow, but improvement in its home regions provides confidence.

• Nike’s sales and operating margin were marginally above our forecast despite 10% constant-currency sales declines in Greater China and 7% in Europe, the Middle East, and Africa. Nike has structural problems in these regions, but we project a return to growth by calendar 2027.
• Indeed, despite external challenges like tariffs and higher oil prices, Nike expects to complete its Win Now actions by the end of this calendar year 2026. We believe this is realistic, based on ongoing aggressive channel clean-up and product release plans.

The bottom line: We expect to reduce our $102 fair value estimate on wide-moat Nike’s shares by a mid-single-digit rate due to the dim near-term outlook. However, mid-single-digit sales growth and double-digit operating margins still appear to be achievable in fiscal 2028.

• With Greater China sales expected to be down 20% due to limited sell-in, Nike’s fourth-quarter guidance for a 2%-4% sales decline is shy of our 2% growth estimate. Even so, we think Nike will regain its pricing power in China with clearance of old inventory and local product development.

Between the lines: There has been media speculation that Nike will sell struggling Converse, but management has repeatedly suggested otherwise. Whether sold or not, Converse has no material impact on our valuation and does not affect our moat rating, which is based on Nike’s brand.