Nike stock slides as Morningstar flags a prolonged turnaround, citing weak sales, Greater China challenges, and restructuring costs.
- Morningstar’s David Swartz said Nike’s turnaround remains slow, with Q1 sales down 4% and Greater China sales falling 22%.
- Nike launched its Pace plan targeting $2.5 billion in savings, while seeing high-single-digit sales decline for the year.
- Morningstar sees Nike’s recovery signs unlikely before fiscal 2027 ends.
Nike Inc. (NKE) stock is headed for a weekly loss as Morningstar warns the sportswear giant’s turnaround remains under pressure. Fresh cost-cutting plans, weaker fiscal 2027 guidance and continued challenges in China suggest investors may face a longer wait for sales and margin recovery.
Nike stock slumped over 8% in Friday’s premarket. The stock is down 1.6% so far this week.
Nike’s Turnaround Faces Fresh Setback
Morningstar analyst David Swartz said Nike’s fiscal 2027 is off to a weak start, with declining first-quarter revenue and a fresh restructuring plan highlighting the challenges facing CEO Elliott Hill’s turnaround effort. The company also expects a full-year sales decline in the high single digits, steeper than previously anticipated.
Nike reported a 4% year-on-year drop in Q1 sales. Nike’s gross margin rose 60 basis points to 42.8% as shipping and logistics costs fell. General and administrative expenses dropped 3% as the company kept spending under control despite higher sports marketing costs.
Nike’s New Cost-Cutting Push
After roughly two years under Hill, Swartz said Nike has yet to deliver the revenue and profit improvement investors had hoped for. The company has now introduced its “Pace” initiative, targeting $2.5 billion in savings while directing part of those funds toward technology and a more flexible, faster supply chain.
Hill pointed to the Jordan Brand, nonperformance clothing and footwear, and Greater China as businesses requiring greater attention. Greater China remains a particularly difficult market, with quarterly sales dropping another 22%. Swartz said the company can address these weaknesses, but expects the recovery to take several years.
Nike now expects fiscal 2027 adjusted earnings of $1.15 to $1.35 per share. That range sits well below Swartz’s previous estimate of $1.69 per share.
Nike’s Margin Concerns Grow
Swartz said weaker sportswear demand, partly linked to high gasoline costs, has hurt Nike. However, he also pointed to the company’s slower-than-expected turnaround and upcoming restructuring as reasons for reduced confidence in its ability to restore long-term margins.
Nike reaffirmed its quarterly dividend of $0.41 per share. Swartz expects the company to have enough financial capacity to continue funding the payout and considers the stock’s yield of more than 4% attractive.
Nike is scheduled to hold an investor event in November, its first such gathering since 2017. Investors are expected to receive more information about its strategy, product lineup and financial targets. Swartz does not expect clear evidence of a turnaround until after fiscal 2027.
NKE Stock: Retail Stance
However, on Stocktwits, retail sentiment around the stock remained in ‘bullish’ territory.
A user said, “The fall of Nike causes the US a loss of face and symbolizes the state America has settled into in recent years. I remain a fan of the world’s largest sports brand, but saying that something needs to happen is an understatement…”
Another user said, “How sustainable is the high payout ratio? Given the sluggish earnings outlook, a possible dividend cut might add to the selling pressure.”
NKE stock has crashed over 44% year-to-date.
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