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Nike (NKE) has just reported its fiscal fourth-quarter results for 2025, and as anticipated, both its revenue and earnings declined. Despite the weak performance, the market responded with surprising optimism, sending the stock up over 16% in morning trading on June 27.
The market’s enthusiasm reflects a mix of cautious optimism from management and a shift in strategy that investors found encouraging. Nike is taking steps to reposition its business, moving away from the heavy discounting that has weighed on margins and focusing on full-price selling. The company is also aggressively cleaning up excess inventory, which should help refresh its product lineup and make the brand feel more current and desirable to consumers.
Another key move that the market welcomed is Nike’s initiative to diversify its manufacturing footprint. By reducing its reliance on China, the company aims to shield itself from ongoing tariff uncertainties and potential geopolitical risks. Notably, these risks have heavily weighed on Nike stock in the recent past.
While Nike’s strategic shifts are being received positively, and management sees the business improving from here, it’s important to note that the company’s path to a full recovery will not be immediate. The underlying financial pressures haven’t disappeared, and the next few quarters could still be bumpy.
Nike’s Path Forward: Rebuilding for a Stronger Tomorrow
Nike is amid a significant business reset, with recent results reflecting both the challenges and the early signs of recovery. In its latest fiscal quarter, Nike reported a 12% drop in revenue. Direct-to-consumer sales, a once-significant growth engine, fell by 14%, with digital sales plunging 26%. While Nike Stores saw a slight 2% uptick, wholesale revenues dipped 9%.
Profitability took a hit as gross margins declined due to heavy discounting, supply chain cost pressures, and an unfavorable channel mix. For the full year, Nike’s revenue fell 10%, though leadership remains confident in achieving a healthier business structure by the end of the first half of fiscal 2026.
In North America, Nike’s biggest market, revenue fell by 11% in the fourth quarter. Sales through Nike Direct and online channels dropped by 14% and 25%, respectively, while physical store sales increased by 3%. The company is reducing its discounts, particularly online, and is aiming to elevate its digital channel to a premium level, focusing on full-price sales. Although it is still working to reduce excess inventory by offering more returns and bigger discounts on older products, the good news is that full-price sales are starting to pick up. Additionally, the wholesale business is gaining momentum, thanks to new products.
In the EMEA region, revenues also fell 10%, with digital down 36%, offset slightly by a 5% gain in physical stores. Nonetheless, the region is resetting its digital strategy and has shown progress in areas such as running and training. Women’s sportswear footwear returned to growth, a positive indicator for the broader product refresh strategy. Furthermore, inventories were better managed here, ending the quarter flat in value and down mid-single digits in units compared to the previous year.
Greater China faced the steepest decline, with revenues down 20%. Weak foot traffic remains a challenge, prompting a focus on elevating local store concepts. Looking ahead, Nike is managing new U.S. import tariffs that could add roughly $1 billion in annual costs. The company plans to mitigate this impact through adjusted sourcing, strategic price increases, and tighter cost controls. Moreover, the proportion of footwear imports from China is expected to drop from 16% to single digits by Fiscal 2026.
Overall, Nike’s product transition is gaining momentum. With a stronger holiday order book and improvement in Wholesale, Nike’s business is showing signs of a turnaround. The company is focusing on launching new products, managing inventory more effectively, selling at full price again, and addressing tariffs. These efforts may start to ease pressure on sales and profit margins. However, in the short term, both revenue and profit margins are still expected to drop, which could slow down any recovery in Nike’s stock price.
Conclusion
Nike’s efforts to reduce discounting, streamline inventory, and diversify its supply chain are early but promising signs of a turnaround. The company’s initiatives to rebuild a leaner, more resilient, and growing business could lead to recovery in Nike stock.
However, the road to recovery remains uneven. Thus, Wall Street analysts have a “Moderate Buy” consensus rating on NKE stock.
