Nike's Current Struggles Aren't Insurmountable... Or Anything New
Stagnating sales, increased competition, and tariffs... Are these challenges really that catastrophic for the company?
“Abandon all hope ye who enter a position!” exclaim doomsayers. “Nike is finished! A value trap!"
Some believe that Nike (NKE 0.00%↑) is a relic of the past—that their shoes and clothing are uninspiring, unfashionable, and undesirable. Detractors point to dwindling sales and shrinking profits as definitive proof that NKE has lost its cultural relevance and competitive advantage to more hip brands like On (ONON 0.00%↑), Hoka (DECK 0.00%↑), and even Lululemon (LULU 0.00%↑).
And by stirring tariffs into the pot, some say it’s a recipe for disaster and a point of no return for Nike’s falling share price.
However, Nike’s current challenges aren’t anything new. In fact, the company has overcome these obstacles before. Here are some past examples.
Increased Competition
Nike’s direct-to-consumer (DTC) strategy under former CEO John Donahoe (Jan ‘20 to Oct ‘24) backfired as it removed the company’s products from store shelves at places like Footlocker and DSW. The strategy also removed NKE merchandise from online retailer Amazon. As a result, up-and-coming brands like On and Hoka gained more visibility and traction and subsequently captured more market share.
But it’s important to remember that Nike is primarily a shoe company. Shoes have been commoditized and competition has existed ever since Paleolithic humans strapped animal hides to their feet. So, it shouldn’t be an earth-shattering surprise that competitors exist in this space.
Nevertheless, Nike has been successful in fending off the competition ever since it came into existence in 1971.
Nike’s main competitors in the ‘90s were Reebok and Adidas. At the time, people were clamoring for Reebok’s Pump technology and Adidas’ trendy retro styling. NKE shares consequently plummeted ~50% from ‘97 to ‘99 as consumers lost interest in their products.
Then in the ‘00s, upstart company Under Armor (UA 0.00%↑) generated a lot of buzz through their marketing blitz, novel moisture-wicking fabrics, and their partnership with NBA superstar Steph Curry. Subsequently, Nike gave up market share in the performance apparel segment and UA was perceived as a very real threat at the time. Fast forward to today, UA is no longer as trendy as it was back then, and both the company and the stock are faltering.
And in ‘15, Nike felt the pressure again from Adidas. The German brand had just launched Yeezy footwear in collaboration with Kanye West. Adidas was in, Nike was out in terms of coolness. As such, NKE stock remained flat for the next couple of years.
Despite all the competition, Nike has held the #1 spot for athletic footwear and apparel market share since the 1980s. Despite multiple decades of competition, Nike shares continued to move higher and reached an all-time high in ‘21.
But is this time truly different?
Do you really believe brands like Hoka and On have what it takes to dethrone iconic brands like Jordan and Nike?
Or will their consumer appeal and trendiness eventually fade in the same way it did with Under Armor?
Eroding Sales
Yes, it’s true. NKE sales have been trending lower over the last few quarters. It’ll likely take some time, but I believe management will eventually right the ship.
It’s important to zoom out a little and see the bigger picture. If you do, you might see that things aren’t so bad.
If you focus on just the last two years, of course you’ll see revenue and gross margin declining. However, Q4’25 sales of $11.1B is still greater than any other quarter pre-pandemic. And for gross margin, it was 40.3% in Q4 vs. the 5-yr average of 44.2%.
Guess what? Nike operates in the consumer discretionary sector. Their business is cyclical. There have been numerous times in the company’s history in which they had periods of weak sales.
Progress is not a straight line—for any company or any sector.
If you believe Nike can return to mid-cycle earnings—which I do—then there may be meaningful upside to the stock.
Yes, the company is experiencing some headwinds in terms of sales and gross margin. However, these numbers aren’t signs of a company on the verge of collapse. NKE still generated $3.5B in FCF in FY’25.
And I believe NKE is on the precipice of turning things around after CEO Elliot Hill took the reins in Oct ‘24. Wholesale partnerships are being revitalized, Nike products will soon be available again on Amazon, and Hill is refocusing the company on innovation.
Let’s not forget that Nike has exclusive partnerships with some of the world’s most elite and recognizable athletes including Michael Jordan, Rafael Nadal, Cristiano Ronaldo, LeBron James, Tiger Woods, Naomi Osaka, and Caitlin Clark (Read: a moat). They even have a partnership with Kim Kardashian’s Skims.
Critics like to claim that declining revenues are a sign that Nike doesn’t have a competitive advantage. They say that if Nike had a moat, the company wouldn’t be in their current situation.
I disagree.
Nike’s brand is precisely the reason why they’ve been able to weather numerous storms over the last 40+ years and have grown into a $100+ billion market cap company. The “Swoosh” and “Jumpman” logos are globally recognized and so is their company slogan “Just Do It”.
Nike’s is on par with iconic brands like Coca-Cola, McDonald’s, and Apple. And just like these companies, it can be argued Nike’s products are just as commoditized. The competition for sneakers is just as intense as it is for soda, hamburgers, and smart phones.
Yet, all these companies—including Nike— are still standing and have grown into some of the largest corporations in the world. A large part of their success is driven by their brand.
Naysayers will also attribute NKE’s declining revenue in China to rising competitors like Anta and Li-Ning. But that’s only partially true.
Disposable income growth in China has slowed significantly since ‘20. When consumer sentiment inevitably picks up again, it may help boost Nike sales in the region.
Improving sales in China won’t be a walk in the park, but it’s not an impossible task, either. Management has acknowledged past missteps and is already working on resolving those issues.
CEO Elliot Hill stated: “China specifically is where we're being the most proactive and cleaning up the marketplace and we'll get back to inspiring the Chinese consumer in a more meaningful way.”
I believe him—and that he will turn things around. Hill has 32 years of experience at Nike. Prior to becoming CEO, he was President of Consumer & Marketplace in which he led global marketing and operations before retiring in ‘20. Shortly after, Nike stock reached an all-time high.
Even if you believe Nike never recovers in China (which seems improbable), there are other parts of the world in which the company could potentially grow its business to offset the loss.
China represented just 15% of companywide revenue in ‘25. Meanwhile, sales in North America (+17% 5-Yr CAGR), Europe/Middle East/Africa (+9%), and Asia Pacific/Latin America (+20%) have continued to grow.
Trump’s Tariffs
He’s at it again. Trump is threatening the world with tariffs and some believe it will have a detrimental impact on companies like Nike who have their manufacturing operations located outside the U.S.
But will the impact truly be adverse and lasting?
We saw a similar scenario play out during Trump 1.0 in which the U.S. implemented a 25% tariff on China that was also retained by the Biden administration.
It may be surprising to some, but during Trump’s first term, NKE’s total return was +181% vs. +83% for the S&P 500.
And from Trump 1.0 to present day, NKE’s total return is still positive at +55%.
It doesn’t matter whether you think Trump’s tariffs are right, wrong, insane, or a negotiating tactic—the fact is that NKE shares have still gone higher.
Although Trump is proposing even more substantial tariffs in ‘25, it remains to be seen whether he will in fact go through with any of it.
Trump has shown some restraint thus far by allowing a 90-day pause and then extending it again through August 1st.
Perhaps it really is a negotiating tactic? Maybe the tariffs won’t be as extreme as initially proposed? Or maybe he will blink first and chicken out?
Even if Trump does go through with 100% (or higher) tariffs, there’s a good chance it won’t be long-lived due to the (likely) widespread backlash and adverse economic impact. There’s also no guarantee that the reciprocal tariffs will become permanent after Trump’s second term ends.
Besides, Nike has $9B in liquidity. Worst case scenario, the company has enough in the tank to stay in a holding pattern until a new administration comes to the White House.
Final Thoughts
While I think it’s prudent to be concerned about NKE’s declining sales and recent stock performance, I also think that the doomsayer claims of the company’s impending demise to be greatly exaggerated, especially over the longer-term.
The challenges facing Nike today aren’t anything new. The company has run into similar issues before… and has successfully navigated through them each time.
With CEO Elliot Hill at the helm, I believe this iconic company will once again live up to its name and declare “victory” in the not-too-distant future.
Disclosure: I have a position in NKE at the time of this publication.
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