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I've been following Nike for a while, and management's entire thesis in recent times has been that they're in the middle of a deliberate, sequenced comeback. They've comitted a few strategic blunders following the Covid period (such as going all in on the direct to consumer model, flooding the market with AF1, AJ1, Dunks, which killed the heat on some of their best franchises, misreading China's channel dynamics and letting inventory pile up, and much more), but they're committing to a proper comeback.
They did mention that revenue would be down low single digits for the forward period covering Q4 FY2026 through Q2 FY2027, and that's what happened. To be fair, they did broadly deliver on the areas they said they are focused on. Revenue came in at the guided range. North America grew. The World Cup execution outperformed. Gross margin is actually inflecting one quarter earlier than promised. On the narrow question of did management do what they said they would do, the honest answer is mostly yes. I'm tracking about 25 milestones and they did deliver on about 13 of them, while the rest either remain pending or a clear misses (You can see these milestones on my Substack [here](https://earningintel.substack.com/p/nike-post-earnings-scorecard-comeback), free to read, no need to subscribe).
Performance-wise the company is doing adequately, because they set the bar low, which was smart of them. No problem with that. But there are other risk factors that became apparent. For instance, the macro environment showed up mid-quarter and really complicated the recovery narrative. After a strong March, retail sales decelerated sharply in mid-April because of higher gas prices in North America which hurt discretionary spending. Revenue guidance for the forward period was revised from down low single digits to down low to mid-single digits as a direct consequence.
Makes sense, obviously, but shows how fragile this entire recovery thesis actually is.
There are a few more risks that just got introduced as well, apart from the macro. For example the CFO (who actually devised the entire recovery roadmap) is departing from the company, and will be replaced.
These are just some of the challenges the company still faces despite setting the bar so low.
Then we get to its multiples. 27 times its earnings (both forward and trailing). To me, this is the number that makes the least sense after these earnings. For context, the median PE ratio in the consumer discretionary sector is closer to 16.
Why is this stock trading at such a premium to its peers in the sector, when it is clearly struggling to meet its recovery plans? I know the bull argument is brand equity, strong athlete relationships, global wholesale infrastructure, innovation labs, a cultural footprint, etc. Yes I understand no competitor can replicate these, but why is it assigned so much value if it cannot be leveraged to ensure financial recovery.
None of the weakness we see is consistent with a 27.5x PE ratio, and this is why I think the stock is going to continue a slow bleed as it has in the last several years.
(sorry I didn't realize this would turn out so long when I started typing it out)