Can Nike (NKE) achieve sustainable growth under new leadership?

Nike, Inc. (NYSE: NKE) is banking on innovations in its product portfolio and improvements in the operating environment to regain strength, while it continues to grapple with multiple headwinds affecting sales. The Win Now strategy introduced by new CEO Elliott Hill focuses on strengthening wholesale partnerships and optimizing inventory management to position the company for sustainable growth.

In the current quarter, the sneaker giant’s performance could be impacted by the inflation-induced strain on family budgets and new import tariffs imposed by the government. The stock has been in a downward spiral for quite some time. Suggesting a further dip in investor confidence, the shares lost about 10% after the company released Q3 results last week reporting disappointing sales and earnings numbers. It also issued weak fourth-quarter sales guidance that is below estimates.

Q3 Results Beat

In the third quarter, Nike’s net income declined to $794 million or $0.54 per share from $1.17 billion or $0.77 per share in the year-ago quarter, hurt by a slowdown in sales across markets and key operating segments. There was a 9% year-over-year decrease in Q3 sales to $11.3 billion, with wholesale revenues falling 7% to $6.2 billion. At $4.68 billion, Q3 gross profit was down 16% year-over-year. The results topped expectations, with earnings beating for the 7th consecutive quarter.

The 12% fall in footwear sales in the key holiday quarter reflects continued softness in demand, including in China where economic slowdown and increasing competition continue to affect sales. However, innovations in sneaker designs introduced under the new leadership were well-received by customers, easing the impact of the dismal top-line performance to some extent. Nike’s revenue is expected to benefit from the promotional pricing strategy aimed at clearing excess inventory, as it seeks to expand the market for its products.

Cautious Guidance

However, the company needs to strike the right balance between cost reduction and investments in Win Now priorities. The new tariffs can pose a big challenge since several of Nike’s products are manufactured in China, which is also a major market for the company. The management expects fourth-quarter sales to be down in the mid-teens range, reflecting unfavorable shipment timing in North America and foreign exchange headwinds. As a result, gross margins are expected to be down 400-500 basis points, which includes the estimated impact of new import tariffs on China and Mexico. In addition, geopolitical tensions and tax regulations could impact the company’s overall performance.

“This quarter, we brought fresh energy with a new DNA, which is resonating well with consumers in Japan and Korea, and women’s silhouette and the Air Max Muse look for another new innovation platform with Air Max and FY26. Diversifying our sportswear apparel offense is equally important. We want to minimize our reliance on fleece and push the edges to build new businesses. And that doesn’t have to fit neatly into the sportswear category either,” said CEO Elliott Hill, a long-time Nike veteran who returned to the company after retiring a few years ago.

On Monday, NKE opened slightly below $68, and it was trading down 1.5% in the afternoon. That is far below the 52-week average value.