Shares of Nike have recovered since bottoming out in October, but management still expects sales to decline this year. Gross margin is improving, and CEO Elliott Hill has outlined three avenues for growth.
Rising 13% since their October low, Nike shares still sit 79% off their all-time high from 2021, according to The Motley Fool. The company is working to regain ground it lost to newer rivals in athletic wear.
Why Nike's sales slid
Nike made strategic decisions a few years ago that changed its model. It cut wholesale relationships to focus on its direct-to-consumer business and leaned on what it considered proven franchises. As a result, sales are roughly where they were five years ago, because customers found other brands with products they liked.
Hill's three-part recovery plan
New CEO Elliott Hill is working on a turnaround. Management still expects sales to decline this year, but gross margin improved 0.60 percentage points to 42.8% after being hampered by last year's tariffs. Nike's women's basketball business grew 500% from fiscal 2022 through 2026.
Hill identified three avenues for growth. The first is creating scarcity around franchises such as Jordan to restore a premium feel and generate more full-price sales. The second is China, where sales fell 26% from a year earlier in the fiscal 2027 first quarter, which ended Aug. 31. There, Nike plans to be more deliberate about wholesale partners and focus on premium branding.
The third avenue is winning back sports consumers with products built for their specific needs. Nike is accelerating innovation, bringing out more products faster and releasing clothing and footwear for smaller niches in sports and lifestyle.
Valuation and dividend
The market seems to believe Nike stock looked priced to buy when it hit its October low, the author writes. At the current price, the stock trades at 24 times trailing-12-month earnings, which the author says is not cheap enough to call a bargain. The dividend yield stands at 4.3% at the current price.
Source: The Motley Fool
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