Nike Earnings: Results and Weak Guidance Suggest Turnaround Not Imminent

Key Morningstar Metrics for Nike

• Fair Value Estimate: $117.00
• Morningstar Rating: 5 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Nike’s Earnings

Although Nike NKE reported fiscal second-quarter sales and earnings above expectations, it was a generally poor result by the firm’s usual standards. Moreover, the outlook for the rest of fiscal 2025 is dismal, as CEO Elliott Hill (on the job since October) intends to increase discounting to clear inventory ahead of new product releases in fiscal 2026. We expect to cut our fair value estimate of $117 per share by a mid-single-digit percentage on the results and guidance, but regard Nike’s shares as very undervalued.

Our wide moat rating for the company is based on its brand intangible asset, and we believe Hill is making the right moves to bolster its brand value. His general plan is to invest in Nike’s connections to global sports, which we consider the firm’s greatest advantage.

Nike’s sales fell 8% in the quarter, but this was slightly better than our estimate for a 9% drop. All its segments posted sales declines, including high-single-digit drops in North America (42% of the total), Europe, the Middle East, and Africa (27%), and Greater China (14%). Footwear was especially weak (sales down 11%), as the company is pulling back on overexposed shoe lines to make room for more innovative products to be more competitive against upstart brands like On and Deckers’ DECK Hoka. We think Nike will be successful in this effort. Still, the firm has a lot of work to do to improve relationships with wholesale partners and increase full-price selling in its company-owned digital channels, which have too often been used for clearance.

As sales were soft, Nike’s second-quarter EBIT margin fell nearly 3 percentage points to 11.3%, but this was better than our 9.6% forecast, as cost-control efforts had some positive effect. Nike is investing in marketing while cutting expenses elsewhere, which we regard as prudent for its brand health. In the long run, we think Nike can return to mid-teens EBIT margins as it increases full-price sales, releases new merchandise, and increases sales in high-margin markets.