Nike: the reset is nearly done and the shelf space is coming back
Nike spent several years shifting sales to its own stores and website at the expense of retail partners, and found that the strategy left it short of product freshness and shelf presence. A new management team is reversing it.
We rate the stock a Buy with a $94 target. If gross margin returns toward 45%, the earnings power of the business is well above what the shares price today.
Company overview
Nike designs and sells athletic footwear, apparel and equipment under the Nike, Jordan and Converse brands. About two thirds of sales are footwear, and roughly 40% of revenue comes from its own direct channel.
Products are made by contract manufacturers, mainly in Vietnam, Indonesia and China.
- Headquarters
- Beaverton, OR
- Founded
- 1964
- Employees
- ~77,000
- Market cap
- ~$117B
- Exchange
- NYSE: NKE
Management overview
A returning insider leads the turnaround, supported by a finance chief who has held the role through the downturn. Product creativity and wholesale relationships are the two skills we watch.
Returned from retirement in 2024 after three decades at the company; rebuilding relationships with retail partners.
Finance chief since 2020; leads cost savings and tariff mitigation.
Runs the supply chain and the effort to cut lead times for new product.
Former CEO who guides design and brand strategy at board level.
Other considerations
Investment thesis and considerations
The thesis is cyclical recovery with a structural fix: more partners, fresher product and a cleaner margin structure.
1. Wholesale rebuilds the funnel
Returning to retail partners puts product in front of more customers and reduces the need for discounting.
Our retailer checks show open-to-buy budgets for Nike product rising after two years of cuts. Wholesale revenue is lower margin than direct sales, but it carries less marketing cost and reaches shoppers who do not visit a Nike store. We model wholesale growth of mid-single digits and direct growth near flat, which lifts the total without increasing promotions.
2. Margin recovery is the earnings lever
Fewer discounts and a cleaner mix move gross margin back toward 45%.
Gross margin fell from about 46% to the low 40s on discounting, higher shipping costs and mix. Our bridge adds back about 150 basis points from lower markdowns, 100 from product mix and takes away about 100 for tariffs. The net gain is about 250 basis points over two years, which on current revenue adds more than a dollar of earnings per share.
3. Valuation already assumes little
The shares trade below their ten-year average multiple on depressed earnings.
At about 30 times this year's depressed earnings, the stock looks expensive, but on our FY28 earnings it trades near 19 times, below the long-term average for a global brand. We do not need a return to peak margins for the target; we need the middle of our range. We would exit if the next two quarters show wholesale orders without a margin lift.
Bull case
Bear case
Financial profile
USD billions except per-share data; fiscal years end in May.
| Metric | FY22 | FY23 | FY24 | FY25 | FY26 |
|---|---|---|---|---|---|
| Revenue | 46.7 | 51.2 | 51.4 | 46.3 | 45.1 |
| Gross margin | 46.0% | 43.5% | 44.6% | 42.7% | 41.9% |
| Operating income | 6.7 | 6.7 | 6.3 | 3.7 | 2.9 |
| Net income | 6.0 | 5.1 | 5.7 | 3.2 | 2.5 |
| Diluted EPS | $3.75 | $3.23 | $3.73 | $2.16 | $1.72 |
Financial projections
| Metric | FY27E | FY28E | FY29E | FY30E | FY31E |
|---|---|---|---|---|---|
| Revenue | 47.0 | 49.7 | 52.4 | 55.0 | 57.5 |
| Wholesale growth | 6% | 6% | 5% | 5% | 4% |
| Gross margin | 42.8% | 43.6% | 44.3% | 44.6% | 44.8% |
| Diluted EPS | $2.15 | $2.95 | $3.60 | $4.10 | $4.50 |
Key assumptions
- Wholesale revenue grows 6% a year; direct revenue is flat in FY27 and grows 3% after.
- Gross margin rises about 100 basis points a year to 44.5% in FY30.
- Selling costs fall as a share of revenue as promotional spending eases.
Valuation profile
| Method | Weight | Value / share |
|---|---|---|
| Discounted cash flow | 50% | $98 |
| Trading comps | 30% | $92 |
| Margin bridge | 20% | $88 |
| Blended target | 100% | $94 |
The DCF reaches a mid-cycle margin by the fifth year and not the peak. Our margin bridge method applies the earnings multiple to normalized profit and is therefore the most sensitive to the 45% gross margin assumption.
File repository
SEC filings
7 filesModels
5 filesResearch reports
6 filesEducational research produced by graduate students. Not investment advice. Figures are illustrative samples.