Nike Company Overview

Incorporated in 1967 and known for its clever marketing, Zacks Rank #5 (Strong Sell) stock Nike (NKE) is the leader in athletic footwear, apparel, equipment, and accessories for men, women, and children worldwide. Underneath the Nike umbrella, there are several iconic brands, such as Air Jordan, Nike Pro, and Nike Golf. Though the company is US-based it has operations in over 160 countries, and its Nike “swoosh” logo and “just do it” tagline are widely recognized everywhere.

NKE EPS Growth is Plummeting

Though Nike is the behemoth in the athletic apparel industry, savvy investors understand that the stock market is a forward-looking instrument. In other words, Wall Street doesn’t care that a company owns a large portion of a market but instead focuses on whether it will own a larger slice of the pie moving forward. This universal truth is negative news for Nike as Zacks Consensus Estimates suggest that NKE EPS growth will slide nearly 50% in 2025 (after an already weak 2024).

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Though earnings have been weak, and its valuation is “cheap,” three critical risks still loom ahead for the stock, including:

1.       China: A Major Uncertainty for Nike

While Nike is a diverse, international brand, China plays a significant role in the company’s future for two reasons: manufacturing and sales.

·       Manufacturing: Nike conducts most of its manufacturing operations in Asian nations like Vietnam, Indonesia, and China to take advantage of lower wages. Roughly 36% of Nike shoes are manufactured in China. Tensions between the US and China could throw a wrench in Nike’s business. With US President-Elect Donald Trump vowing to levy tariffs on China and take back essential trade routes like the Panama Canal from Chinese hands, Nike’s heavy dependence on Chinese manufacturing poses a significant geopolitical risk. Should tensions escalate further, Nike could face higher costs and potential manufacturing disruptions.

·       Weak Economy: Roughly 15% of Nike’s sales come from China and the Asia Pacific. The Chinese economy has been floundering for years with no signs of turning any time soon. In fact, the Chinese stock market has been unable to trend higher despite sweeping economic stimulus. A weak Chinese economy will translate into a weak consumer.

2.       Nike’s Direct-to-Consumer Focus: Competition Fills the Void

During the pandemic, Nike shifted its game plan to reduce its retail presence in exchange for a DTC approach. While the strategy worked well during the unique time to slash costs and improve margins, it has backfired. Though the Nike retail business has a lower margin than its DTC business, Nike gave up a vast amount of visibility and free marketing by making the switch. Worse off, On Holding’s (ONON) “On Cloud” shoes and Deckers Outdoor (DECK) “Hoka” shoes have become wildly popular with active consumers and are taking up more shelf space in popular athletic retail stores like Dick’s Sporting Goods (DKS) and Foot Locker (FL). A comparison chart between NKE and its competitors tells the story:

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3.       New Management Team

In October, Nike announced that longtime employee Elliott Hill would replace outgoing CEO John Donahoe. Typically, new management teams take time to implement new strategies, and Hill will face an uphill battle reversing the failed DTC focus that the competition has taken advantage of.

Bottom Line

Though Nike’s global brand recognition and market dominance remain strong, the company faces significant headwinds that could impact its future growth. From geopolitical risks to its direct-to-consumer strategy, Nike’s path forward is uncertain.

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NIKE, Inc. (NKE) : Free Stock Analysis Report

Deckers Outdoor Corporation (DECK) : Free Stock Analysis Report

Foot Locker, Inc. (FL) : Free Stock Analysis Report

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On Holding AG (ONON) : Free Stock Analysis Report

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