VALUATION HIGHLIGHTS
- Nike Brand Footwear constitutes 63% of the Trefis price estimate for NIKE's stock.
- Nike Brand Apparel constitutes 26% of the Trefis price estimate for NIKE's stock.
WHAT HAS CHANGED?
Nike Q3 2025 Snapshot
Nike's third-quarter results were a mixed bag. While the company beat both top and bottom line estimates, its revenue and profit took a hit year-over-year. Sales dipped 9% to $11.3 billion, surpassing estimates of $11.01 billion. The company's sales decline was largely driven by weakness in China. Earnings per share plummeted 30% to 54 cents but still managed to exceed the consensus estimate of 29 cents.
During the quarter, sales on Nike’s direct channels dropped 12% to $4.7 billion. Wholesale revenue fell 7% to $6.2 billion. Nike saw sales decline in all four of its geographies. Its sales in North America — Nike’s largest market — fell 4% to $4.9 billion. In Europe, Middle East and Africa, sales were down 10% to $2.8 billion. In Asia Pacific and Latin America, sales fell 11% to $1.5 billion, and China saw sales decline 17% to $1.7 billion.
Note: Nike's FY'24 ended on May 31, 2024. Q3 FY'25 refers to the quarter that ended on February 28, 2025.
Impact of Tariffs
President Donald Trump has put a new 20% tariff on goods imported from China, consumer sentiment has fallen, and retail sales in both January and February were weaker than expected. Out of the hundreds of suppliers and manufacturers that Nike works with, about 24% of them are located in China. If the retailer doesn’t raise prices to offset tariffs and can’t push the cost entirely onto suppliers, Nike’s margins are expected to take a hit from the new duties. On its Q3 earnings call, Nike didn’t say whether it would raise prices or how exactly the new duties would affect margins.
Dealing With Margins
During the third quarter, Nike’s gross margin fell by 3.3 percentage points to 41.5%, lower than market expectations of 41.8%. That’s largely because of the costs associated with Nike’s efforts to clear out old inventory in favor of new, innovative styles. The company attributed its drop in gross margin to higher discounts, higher inventory obsolescence reserves, higher product costs, and changes in channel mix.
Nike's marketing spending - which the company tags as a "demand creation expense" - was up by 8% to $1.1 billion, reflecting a focus on brand marketing amid major sports events.
Looking Ahead
Nike expects its sales decline in the fiscal fourth quarter to be at the “low end” of the “mid-teens range.” It also anticipates its gross margin to fall between 4 and 5 percentage points as it ramps up efforts to liquidate excess inventory and stale styles that are no longer resonating with consumers — a process it expects to continue into fiscal 2026 as well.
Change of CEO
Nike has lost its growth momentum after an excellent couple of years following the onset of the pandemic. Consequently, the company ousted CEO John Donahoe to bring back former executive Elliott Hill to lead the company's turnaround in September 2024. In his five months of tenure, Hill has focused on winning back wholesale partners, reigniting innovation, and wooing back athletes who fled to new competitors, but the work has not yet yielded results.
Sure, there is competition, but Nike is still bigger than most of its primary competitors combined. It still has the deepest pockets, the largest advertising budget, and a list of top-tier sponsorships, including Michael Jordan, LeBron James, Caitlin Clark, and dozens more. Nike is the de facto leading Olympic apparel brand and owns licensing deals with the NFL, NBA, and MLB.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are key drivers of Nike's value that present opportunities for upside or downside to the current Trefis price estimate for Nike:
- Nike Footwear Revenues: Nike Footwear Revenues have consistently grown over the years and stood at $33.4 billion by the end of Fiscal 2024. This can be attributed to strong marketing spend and innovation to enhance the product line. Trefis expects this figure to increase to around $39 billion over the forecast period. If this metric increases to $45 billion by the end of our forecast period, there could be a 10% upside to the Trefis estimate. On the other hand, if it declines to around $36 billion, it represents a 5% downside to the Trefis estimate for Nike.
- Nike Brand Footwear Gross Profit Margin: Nike Gross Profit Margin declined from 45.9% in FY 2022 to 43.5% in FY 2023, primarily due to higher product costs, higher markdowns, and unfavorable changes in foreign currency exchange rates. In FY 2024, the figure stood at 44.5%. This 110 basis points increase was driven by strategic pricing actions and lower ocean freight rates and logistics costs. We expect the figure to decline in the near term and then increase slightly to stabilize at 43% by the end of our Trefis forecast period.
In case the gross margin increases to 46% by the end of the Trefis forecast period, there can be a 5% upside to our price estimate for Nike's stock. On the other hand, if it declines to about 39%, there could be a 5% downside to the Trefis price estimate.
For additional details, select a driver above or select a division from the interactive Trefis split for Nike at the top of the page.
BUSINESS SUMMARY
Nike specializes in designing, manufacturing, and marketing athletic footwear, apparel, and equipment. Its brands include Converse, Hurley, and Nike Golf, and its proprietary technologies include Nike Air, Zoom, and Flyknit. Nike typically outsources the manufacturing of its products to Asia and focuses on innovation and product design.
Recently, Nike has focused on product innovation and enhancing its digital engagement platforms. Its strategic emphasis has been on bolstering its brand strength and consumer connection - key competitive factors in a highly dynamic retail landscape.
SOURCES OF VALUE
The primary sources of Nike's value are footwear and apparel sold under the Nike brand, and together they contribute about 90% of Nike's value. Nike Brand Footwear is more valuable than Nike Brand Apparel and Converse Brand Footwear for the following reasons:
Nike Footwear is more valuable than Nike Apparel
Nike's footwear revenues stood at $33.4 billion in FY 2024, more than double that of its apparel revenues which were around $14 billion. As the economy improves in the U.S. and Europe, and demand increases in China and emerging markets, we expect footwear revenues to continue to rise. With aggressive marketing and innovation, Nike branded footwear has been able to capture a significant chunk of the global sports footwear market.
KEY TRENDS
Demand for low-performance athletic wear is increasing
In the last few years, demand for low-performance footwear in the U.S. and Europe has grown significantly. Low-performance footwear refers to footwear that is not intended for athletic use. In this segment, Nike faces competition from low-cost manufacturers that are trying to establish a foothold in the U.S. and other international markets. Nike has gradually increased its focus on selling low-performance footwear through its Converse and Hurley brands. However, the brand is facing stiff competition from competitors like Adidas that threaten to level the playing field.
Nike CEO's 'Win Now' Strategy Seeks to Regain Lost Ground in China
The company has highlighted the need to accelerate the pace in China, a major growth market that has weighed on sales for more than two years. China sales have seen a substantial sales decline amid weaker discretionary spending in the country. The new CEO's 'Win Now' strategy aims to recover lost market share, but results are yet to materialize, signaling a prolonged turnaround effort. The strategy includes boosting on-the-ground presence in five key cities such as Shanghai and Beijing. Of all the geographies, product innovation is the most important in China. So, the key for them to start to see stabilization is still going to be product newness. Hill has fast-tracked certain sneaker launches such as Pegasus Premium and Vomero 18 that helped the company post a smaller-than-expected drop in quarterly revenue and profit in Q3 2025.
Growth of digital platform
Both the SNKRs app - which sells limited-edition shoes using collaborations with athletes, celebrities, and universities - and the NIKE app resonate strongly with consumers. NIKE Direct drove the majority of Nike's incremental revenue growth, with Nike Direct constituting approximately 44% in FY 2024. While the company is seeking weaker digital sales in FY 2025 so far, we expect growth momentum in Nike Digital to pick up steam once the turnaround efforts are in place.
Nike is expanding its stores which provide higher margins
In the footwear business, producers and distributors jointly earn a profit per shoe of about 12%, while retailers earn a profit of 13%. By selling through its retail stores, Nike can capture both margins. The total number of Retail stores for Nike in the U.S. has increased from about 344 at the end of the fiscal year 2022 to around 377 stores at the end of FY 2024. Just by looking at the numbers, one can see how much Nike is focused on growing its DTC networks and increasing sales in the stream.
