To The Moon

Following its latest earnings report last Friday, Nike’s stock $Nike(NKE)$ surged by 15%, marking a long-awaited rebound after more than a year of downward pressure. As the global leader in athletic apparel, Nike has recently endured one of the most challenging periods in its history — from declining financials and a complete leadership overhaul to sweeping strategic shifts and rising tariff risks, each factor has tested the foundations of this "sports empire." But what exactly pushed Nike into this downturn, and why did the latest earnings — despite showing declining revenue — manage to reignite investor confidence?

Source: Gurufocus

Nike’s Latest Quarter: Weak on Paper, Strong on Signals

In the fiscal fourth quarter ending May 2025, Nike reported:

• Revenue declined 12% year-over-year, which was better than the ~15% drop previously guided. Core Nike brand revenue fell 11%, and Converse was down 26%, as ongoing inventory cleanup continued to weigh on results.

• By channel: DTC revenue fell 14%, with digital sales plunging 26%, while physical retail sales rose 2%. Wholesale revenue (e.g., via Foot Locker and other retailers) fell 9%.

• By region: North America was down 11%, EMEA down 9%, APLA down 8%, and Greater China performed worst, plunging 21%.

• Gross margin contracted 440 basis points to 40.3%, in line with expectations; net profit fell 86%, with EPS of $0.14 — still above consensus of $0.13.

Source: Nike Q4 Result

Despite weak top-line and bottom-line numbers, the stock jumped as investors were encouraged by management’s message: Q4 marked the “peak pain” of its restructuring, and performance should gradually improve. While Nike expects an additional $1 billion in tariff-related costs in fiscal 2026, it has outlined mitigation plans. The outlook, while cautious, signals stabilization — and the market responded positively.

What Went Wrong: The Fallout of an Overcorrected Strategy

To understand Nike’s current situation, one must look back at former CEO John Donahoe’s strategy.

Appointed during the early months of the COVID-19 pandemic in 2020, Donahoe — former CEO of eBay and ServiceNow — brought a platform- and tech-driven mindset to Nike. His vision was to transform Nike from a premium sportswear brand into a digitally powered consumer platform.

John Donahoe

His strategy centered on:

• A full pivot to Direct-to-Consumer (DTC), prioritizing Nike.com, Nike App, and SNKRS while pulling back from wholesale partners like Foot Locker $Foot Locker(FL)$ ;

Source: Statista

• Building out Nike Membership to capture user data and drive personalization;

• Narrowing product lines using data analytics to focus resources on high-margin, high-demand products, particularly limited-edition and celebrity-collab sneakers.

Initially, the approach worked well: Nike weathered the pandemic better than many peers and posted double-digit annualized revenue growth from 2020 to 2023. By late 2021, its market capitalization had nearly doubled versus pre-COVID levels.

However, the cracks began to show in fiscal 2024:

• As in-store retail rebounded, Nike's absence in key retail spaces created a distribution vacuum — quickly filled by rising brands like Hoka and On;

• Overinvestment in digital and trend-driven products diluted innovation in core performance categories;

• Overproduction of collab and limited-edition sneakers eroded scarcity value, weakening Nike’s pricing power and brand prestige.

The result was a decline in both sales and brand perception — the company began losing market share, and its premium positioning started to blur.

To be fair, Donahoe’s tenure was not an outright failure. His digital overhaul provided a critical foundation for Nike’s long-term competitiveness, and his leadership helped the company thrive in the pandemic’s most uncertain days. But the execution lacked balance. The strategy was too aggressive, too fast — and the market backlash was swift.

Enter “Win Now”: A Shift Back to Fundamentals

In October 2024, Nike announced a leadership shake-up: Donahoe stepped down, and longtime insider Elliott Hill — with over 30 years at Nike, including as Head of Consumer & Marketplace — took over as CEO.

Elliott Hill

Hill’s first major initiative was the “Win Now” transformation strategy, focused on:

• Repairing wholesale relationships by re-engaging key partners like Foot Locker and ending Nike’s DTC isolation;

• Returning to performance roots through renewed investment in high-performance products and deepened collaboration with athletes and sports teams;

• Rebuilding emotional brand equity, especially through campaigns centered on winning, competition, and empowerment. One highlight: Nike’s first Super Bowl ad in 27 years featuring the slogan “YOU CAN’T WIN, SO WIN,” championing female athletes who defy expectations.

At the same time, Hill’s team must clean up the mess left by the previous strategy — primarily excess inventory. Nike is still working through overproduced and lower-performing products, and that burden continues to weigh on earnings.

Yet the direction is clear: Hill aims to reinvigorate the classic Nike success formula — product innovation, star athlete partnerships, and emotionally charged storytelling. From the Air cushioning breakthrough to the iconic Jordan Brand to “Just Do It,” Nike’s past greatness has always come from those pillars. Hill’s approach is to bring that back.

Invesight Viewpoint

Nike’s pivot back to traditional marketing and performance authenticity has earned cautious approval from investors. The brand, though facing perception challenges, remains the most recognized and respected in the global athletic space. Its athlete network and grassroots talent system are still unparalleled, and its core strengths remain intact.

But the mid- to long-term road will be steep. The competitive landscape has fundamentally changed — Nike is no longer just competing with Adidas $adidas AG(ADDDF)$ , but also with agile, high-growth brands like Lululemon $Lululemon Athletica(LULU)$ , Hoka, and On $On Holding AG(ONON)$ . In addition, macroeconomic headwinds in the U.S. (sluggish consumption, rising tariffs) and a declining foothold in China — possibly irreversible — will continue to pressure growth.

Historically, Nike has always found a way to bounce back stronger in times of crisis. This time, the brand once again embarks on a journey to rebuild its value and relevance. But whether it wins this round will depend less on past formulas — and more on how well it adapts to a fundamentally new game.

Nike is still Nike — but whether it remains the undisputed champion will depend on how it plays its next move.