To The Moon

$Nike(NKE)$

Nike’s most recent earnings release was the kind of report that would normally send investors running for the exits. Fiscal year 2025 saw double-digit declines in revenue, a staggering 44% drop in net income, and clear signals that the iconic sportswear giant had lost its strategic footing in the post-pandemic retail environment.

Yet in a surprising twist, Nike stock surged more than 15% in the immediate aftermath of the earnings call, confounding bearish forecasts and drawing fresh attention from institutional investors, hedge funds, and retail traders alike.

So what’s driving the sudden optimism?

The short answer is: a CEO shake-up, a strategic reset, and a return to fundamentals. The long answer? It’s about a brand at a crossroads—deciding whether to double down on a vision that failed, or return to the playbook that built it into one of the most dominant retail franchises in history.

Let’s break it all down, from the results and strategy shift to the risks and what it means for long-term shareholders.

🚨 The Numbers: One of Nike’s Worst Years in Over a Decade

Nike’s fourth quarter and full-year 2025 results were nothing short of brutal:

• Revenue fell over 10% year-over-year.

• Net income declined by 44%, with margins compressing sharply.

• Operating costs rose, gross margins shrank, and inventory remained bloated across several key product lines.

• Footwear sales in particular saw notable declines in key geographies, including North America and China.

On the earnings call, new CEO Elliot Hill didn’t sugarcoat it:

“The results we’re reporting today are not up to the Nike standard.”

That kind of blunt acknowledgment is rare for a company as media-polished as Nike—and it underscores just how serious the situation had become. Wall Street, however, was already looking ahead.

⚠️ The Backstory: How Nike’s DTC Strategy Backfired

To understand why the stock soared despite bad results, you need to rewind the clock a few years.

Post-pandemic, Nike—like many consumer brands—leaned hard into a direct-to-consumer (DTC) model. The logic seemed sound: Why sell through Macy’s or Dick’s Sporting Goods when you can build deeper consumer relationships, gather data, and earn higher margins through your own website, app, and flagship stores?

At first, the pivot looked brilliant. Nike’s DTC revenue soared in 2021 and 2022. Gross margins expanded. The stock hit all-time highs.

But the cracks began to show in 2023 and widened by 2024:

• Wholesale partners were alienated as Nike pulled inventory and limited restocks.

• Nike began heavily discounting products on its own platforms to move excess stock, undercutting its retail partners.

• Brand visibility in physical stores declined, giving competitors a golden opportunity to gain share.

• As inflation weakened consumer spending, Nike’s premium pricing and DTC-first focus turned from asset to liability.

The fallout? Declining orders from wholesalers, lost shelf space, and ballooning inventory. Retailers were left frustrated, and competitors like Adidas, Puma, and On Running seized the moment.

🔄 The CEO Shift: Enter Elliot Hill

In October 2024, Nike’s board made a high-profile move: they replaced then-CEO John Donahoe with longtime Nike executive Elliot Hill, whose deep roots in Nike’s traditional operations made him a symbol of return-to-core.

Hill wasted no time signaling a reset.

In his first earnings call as CEO, he acknowledged the missteps of the DTC-heavy strategy and outlined a clear plan to restore Nike’s historic wholesale partnerships—not abandon them.

“We’re rebuilding trust with our wholesale partners, scaling back promotions, and realigning inventory to support a stronger, more consistent retail experience,” Hill told analysts.

It wasn’t just lip service. Nike began cutting back on digital promotions, reestablishing physical retail support, and increasing distribution to brick-and-mortar partners like Foot Locker and JD Sports.

🧠 Why Investors Bought the Turnaround

So why did the stock rip higher?

The answer lies in perception and positioning. The market is a forward-looking machine. And what it saw in Hill’s commentary was not a company stuck in decline—but one finally acknowledging its strategic mistakes and taking steps to correct them.

In short:

• Investors liked that Hill reversed course on a failed DTC strategy.

• Wall Street applauded Nike’s decision to rebuild lost relationships with wholesale partners, which are more critical than ever in a post-pandemic world where foot traffic is returning to retail.

• The plan to stabilize pricing by reducing online discounting was seen as key to protecting margins and strengthening brand equity.

• Nike’s global distribution footprint and iconic brand status give it an advantage that can be re-leveraged quickly, if execution follows through.

There’s also a deeper psychology at play. After multiple quarters of disappointment, Nike had become under-owned among institutional investors. This earnings call gave them an entry point and a plausible turnaround narrative.

🏬 Wholesale vs DTC: Why It Matters So Much

The central conflict here is between Nike’s two distribution models:

Direct-to-Consumer:

• Higher margins per item.

• More customer data.

• Complete control over customer experience.

• BUT: Requires heavy investment in logistics, fulfillment, and marketing. Vulnerable to inventory mismanagement and discount addiction.

Wholesale:

• Lower margins per item.

• Less control over branding.

• Less consumer data.

• BUT: Much wider reach, dependable volume, lower operating costs, better inventory turnover, and faster growth in physical retail environments.

For decades, Nike dominated through wholesale—and only in recent years did it abandon that channel aggressively. Reversing that decision is, in many ways, a return to the roots.

And that’s precisely why the market is optimistic. The failed DTC pivot has finally been replaced with a more balanced, pragmatic approach.

📊 Valuation: Is Nike Stock Still Expensive?

Even after the post-earnings rally, Nike stock remains down significantly from its 2021 highs. At current levels, it's trading at around 28–30x forward earnings—not cheap by traditional metrics, but not unreasonable for a global brand attempting a turnaround.

Nike’s forward price-to-sales ratio sits near historical averages, and the company still has:

• One of the most valuable brands in the world.

• A fortress balance sheet with over $10B in liquidity.

• Global supply chains and marketing power few can match.

If Hill can stabilize margins, reduce SG&A bloat, and reignite top-line growth, Nike could once again command a premium multiple.

But execution is everything.

🏁 Final Take: A Brand at a Crossroads

Nike’s latest earnings report was ugly—on the surface. But beneath the numbers was something arguably more important: a course correction, a leadership shift, and a return to strategic clarity.

The company now faces a crucial stretch over the next 12–18 months. If Elliot Hill’s turnaround plan proves successful, today’s stock surge may look like the beginning of a much longer recovery. If not, the optimism could quickly fade into another leg down.

For Long-Term Investors:

• Bull case: Nike reclaims shelf space, repairs key partnerships, restores growth in China, and rebuilds margins through better inventory control and pricing discipline.

• Bear case: Competitors entrench their gains, brand loyalty weakens, and structural costs tied to the DTC pivot weigh down operating leverage.

For now, the market is leaning toward the bull case.

But make no mistake—this is still a show-me story.

Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours. This article is not financial advice. Do your own due diligence or consult a certified financial advisor.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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