By Sabrina Escobar

Nike's so-called WinNow strategy to turn business around might need a name change. The initiative may well set the sportswear giant up for success in the future, but earnings suggest "now" is still up for debate.

While Nike's fiscal third-quarter earnings topped analysts' estimates, sales declined by 9% year over year and the company said the drop would continue in the fourth quarter. Profitability will also be under pressure, with gross margins projected to be lower by about four to five percentage points.

"Q4 will reflect the largest impact from our WinNow actions and that the headwinds to revenue and gross margin will begin to moderate from there, " said Matthew Friend, Nike's chief financial officer, on an earnings call Thursday.

The muted guidance dragged shares of Nike down by 5.9% to $67.61 in Friday trading, on track for its lowest close since March 2020, according to Dow Jones Market Data. The S&P 500, for comparison, was down 0.3%.

"'Win Now?'...well maybe not now, and when remains a question," wrote Citi analyst Paul Lejuez, who reiterated a Neutral rating on the stock and a $72 price target Friday.

Other analysts brought down their stock price forecasts to reflect a longer recovery timeline. The mean price target for Nike shares was $82.25 Friday morning, down from $85.01 in late February, according to FactSet. Earnings estimates were also lower. Within the past week, earnings per share estimates for the quarter ending May fell by 54%.

Tom Nikic, an analyst at Needham, trimmed his target to $75 from $80 on Friday and maintained a Buy rating.

"While the 'Win Now' plan to turn around NKE's flagging business appears sound, the deep-seated issues mean it will take longer to recover than expected," he wrote.

The problem spooking the market isn't just that the turnaround will take longer than expected -- it's that it will also be painful. CEO Elliott Hill isn't afraid to inflict temporary harm for long-term gain in his attempt to make Nike a winner again. A key component of Hill's plan is to reduce the company's reliance on classic styles like the Air Jordans, Air Force One, or Dunks. Instead, the company will invest in increasing the variety of its sport-centric products. Nike expects that by the fourth quarter, the percentage of sales coming from classic franchises will be down by more than 10 percentage points.

That may be the right move in the long term. By reducing the amount of classic styles available, they will become more exclusive, allowing Nike to sell them at more premium prices. A broader product assortment focused on sports will also bring back consumers who may have gravitated to other brands in search of innovation.

In the short term, Nike's top and bottom lines will take a big hit. The company is heavily discounting some of its old inventory to clear the path for new models. Until the new products gain broader traction among consumers, they won't make up the sales lost from curbing the classic assortment.

"It will take time to reach the volume to replace the handful of classic franchises we over-indexed on, but our approach is simple, help consumers fall in love with something new from NIKE," Hill said on the call Thursday.

"Despite a turnaround that is executing to management's internal plan, we see more pressure in the near term and demand uncertainty on the 1-year horizon given the still unproven customer response to new product debuting in fall/holiday 2025," wrote Adrienne Yih, an analyst at Barclays who rates the stock Equal Weight.

There are, however, a few silver linings. Consumers have responded well to Nike's recent product launches, including the Pegasus Premium and Vomero 18 sneakers. Wholesale orders for new performance shoes also grew in the quarter as the company looks to reforge partnerships severed under former CEO John Donahoe. (Total wholesale orders remain weak as the company pulls back its classic styles.) Nike's turnaround is underway and analysts are broadly optimistic that Hill's vision will help the company get back to its glory days.

Whether to buy into the stock now depends on an investor's time horizon. Those with a longer view may be tempted to buy shares now with the knowledge that the next year or so will be volatile.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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March 21, 2025 14:18 ET (18:18 GMT)

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