MW Nike gets another downgrade as Citi points to turnaround challenges

By James Rogers

'Topline pressures seem likely to continue' at Nike, according to Citi analyst Paul Lejuez

Citi has downgraded Nike Inc.'s stock to neutral from buy, citing the challenges facing the sneaker maker as it attempts to get back on track.

"We attended a sell-side event to meet with new CEO Elliott Hill," analyst Paul Lejuez wrote in a note released Friday. "After discussing the key building blocks and challenges to achieve a turnaround, we no longer believe [fiscal 2026] will inflect the way we hoped, either on the sales or [earnings before interest and taxes] margin line."

Nike $(NKE)$ was hit with multiple downgrades last year after the company delivered a pessimistic outlook that resulted in the stock's biggest-ever drop.

Related: Nike's stock sees biggest drop ever as some analysts question company's leadership after downbeat forecast

Since then, Nike has undergone a leadership change and announced a bold plan to revitalize its business. John Donahoe, who had served as Nike's chief executive since January 2020, retired from the company in October and was replaced by Hill, a company veteran. In December, Hill unveiled Nike's ambitious turnaround plan, which shifts the company's focus squarely to sports and to selling premium full-priced products. "We lost our obsession with sport," Hill said during the conference call to discuss Nike's fiscal 2025 second-quarter results in December, according to a CallStreet transcript.

The CEO said that the level of markdowns offered by Nike had affected the company's brand and vowed to return Nike Direct, the company's direct-to-consumer brand, both digitally and physically "to premium destinations that lead the sports industry."

But Nike has a big job on its hands clearing out older sneakers in order to bring in newer, premium-priced products. Set against this backdrop, Nike faces ongoing pressures, according to Citi. "Topline pressures seem likely to continue as they manage down key franchises further in [fiscal 2026], without enough new product at scale to fill the void," Lejuez wrote. "[Nike] will continue to manage down the same 3 key franchises that have been weighing on topline in [fiscal 2025]," he added, highlighting Nike's Air Jordan 1, Air Force 1 and Dunk shoes.

Related: Nike just laid out an ambitious turnaround plan. But it will come at a cost.

The analyst said that Nike's management spoke of ongoing gross margin headwinds "tied to continued efforts to clean up the marketplace" and the need for investment in demand creation.

Citi believes that fiscal 2026 consensus estimates are too high. This, Lejeuz said, is "making the turnaround timing much less visible, and we no longer have the patience or conviction to wait another year."

Analysts surveyed by FactSet are looking for fiscal 2026 revenue of $46.774 billion and adjusted earnings of $2.45 a share. The FactSet consensus estimates for Nike's fiscal 2025 are for revenue of $46.073 billion and earnings of $2.07 a share.

Related: Can Nike become cool again under its new CEO? Analysts have these near-term doubts ahead of earnings.

Lejuez said that Nike's management acknowledged the competitive threat they face, especially in running gear, and said the company has to earn back shelf space at its partners. This, he added, "made it sound like it wasn't coming easy."

Of 41 analysts surveyed by FactSet, 21 have an overweight or buy rating, 18 have a hold rating and two have a sell rating for Nike.

Rival Adidas (XE:ADS) recently said that its fourth-quarter results would top estimates.

Related: Adidas has 'brand heat,' analysts say. It's a hot stock, too.

In a note released Thursday, Jefferies analyst Randal Konik said that Nike needs a "Cadillac-type change" and highlighted the challenges facing the company. Elliott, he said, took over a company that was "in a bad spot," with the wrong distribution and the wrong product. "We believe challenges will last at least a few years, margins will be tough to improve upon, and valuation is just not compelling," Konik added. Jefferies reiterated its hold rating for Nike.

Nike shares have fallen 31.4% in the last 12 months, compared with the S&P 500 index's SPX gain of 21.7%.

Bill Peters and Steve Goldstein contributed.

-James Rogers

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February 07, 2025 09:44 ET (14:44 GMT)

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