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Nike (NKE) is set to release its fiscal second-quarter 2025 earnings after the bell today. It will be the first confessional under Elliott Hill, who took over as the CEO in mid-October. The earnings come at a time when NKE stock is set to close in the red for the third consecutive year. What’s concerning is the fact that broader markets have rallied spectacularly over the period, with the S&P 500 Index ($SPX) on track to deliver over 20% returns for two consecutive years, which is a rare occurrence in markets.
Nike hit its all-time closing high of over $173 in November 2021. The stock then closed in the red for both 2022 and 2023, and with a YTD loss of over 29% based on Dec. 18 closing prices, it is among the worst-performing S&P 500 Index constituents in 2024, also.
In this article, we’ll examine what analysts expect from Nike’s earnings, and whether the stock can rebound next year after losing over half of its market value since its peak. Let’s begin by looking at the sneaker giant’s fiscal Q2 earnings estimates.
Nike’s Fiscal Q2 Earnings Preview
Analysts expect Nike’s fiscal Q2 revenues to fall 9.5% YoY to $12.1 billion. The company’s revenues fell YoY in the previous two quarters, and brokerages don’t see the tide turning in the next two quarters either.
During the fiscal Q1 earnings call, Nike said that it expects fiscal Q2 sales to fall by between 8% and 10%, and forecast a gross margin compression of 150 basis points. Consensus estimates call for an almost 38% fall in Nike’s per-share earnings in fiscal Q2. Brokerages expect the company’s bottom line to fall by over 30% in the next two quarters, also.
Nike is facing several headwinds. The company lagged on product innovation over the last couple of years, which hurt its sales and left the door open for competition to catch up. It faces intense competition – from established brands like Adidas (ADDYY), as well as newer brands like New Balance, Hoka (DECK), and On Running (ONON).
Nike increased its focus on direct sales both through its retail outlets and e-commerce platform, and while the strategy paid off well during the initial days of the COVID-19 pandemic, it backfired later once shoppers returned to third-party stores, where the company’s products were not well stocked. While Nike has since increased its focus on wholesale, the pivot will take time to fully play out.
Trump’s Tariffs Could Be a Headwind for Nike
Meanwhile, Nike investors should watch out for Donald Trump’s trade policies – particularly towards China, which is a major market and a key sourcing destination for Nike. If the president-elect imposes tariffs on imports from China, it would negatively impact Nike, as the company might not be able to pass these along fully to consumers. Incidentally, contrary to Trump’s assertion, the tariffs are not usually paid by foreign companies, but by U.S. consumers and/or companies importing these goods.
Moreover, deteriorating U.S.-China relations are doing no good to U.S. brands like Apple (AAPL), Nike, and General Motors (GM) in China, where consumers are now increasingly pivoting to domestic brands.
Is Nike Stock a Buy for 2025?
Nike trades at 28.5x its expected earnings over the next 12 months, which is slightly lower than what the multiple has averaged over the past 10 years. The valuation multiples should, however, be seen in perspective.
To begin with, Nike should ideally trade at a lower multiple than in the past, when it was growing at a brisk pace and the brand had a much bigger appeal. Also, despite its multiple woes, Nike still trades at a premium over the average S&P 500 Index constituent.
That said, Nike is a turnaround play whose earnings are depressed in the near term. While earnings are expected to rise by 12% in the next fiscal year, the profitability is not expected to reach fiscal year 2024 levels anytime soon.
BMO Capital Markets analyst Simeon Siegel probably best summed up Nike’s investing thesis when he said that the company’s turnaround will take time. He added, "The trade here is do you want to believe in hope or are you going to get held down by numbers? And I think the reality is for a company like Nike, hope can be powerful."
I would side with Siegel and continue to believe in Nike, which remains among the most iconic brands despite having lost some of its sheen. While it might not be an overnight turnaround story, at these prices the risk-reward looks quite attractive for Nike.
