Avoid NKE; it faces fierce competition and execution risk in its turnaround, while trading at 24x trailing earnings makes it less attractive than perceived.

Nike is one of the strongest brands in the world and historically it has been one of the best performing stocks on the market. It produced over 100,000% returns from its IPO to its peak in 2021.

However, it's now down almost 80% from its all-time highs and the stock is continuing to drop. This has led to many investors wondering if the stock is looking cheap or if there is something truly wrong with the business.

So, I have spent the past couple of days looking through Nike's earning supports, looking into its competitors, and trying to answer the question if Nike is looking interesting here or if the business has structurally failed.

Let's get started by taking a look at Nike's most recent earnings report. Starting from the top, we can see that Nike's full year revenues for its fiscal year 2026 were down 2% on a constant currency basis.

In the fourth quarter specifically, revenue was down 4% year-over-year. Nike's gross margin was up by 8.9% year-over-year, but 9% of that came from recovery of tariffs, which is a one-time benefit and thing for the business.

And without this, Nike's gross margin would have actually been down 0.1%.

Earnings per share for the fourth quarter was 20 cents without the tariff reimbursement as well. So, to put it simply, Nike's revenues, earnings, and margins are all continuing to decline.

This next screenshot talks more about Nike's specific brands and segments. And here we can see that the Nike brand revenues were down 1%, wholesale revenues were up 4% though, Nike direct revenues were down 8% and Converse revenue was down a whopping 32%.

Earnings per share for the full year came in at $2.10, down 3% year-over-year, and this does include the 50% gain from tariffs that we talked about earlier.

So on a true earnings per share basis, Nike produced about $1.60 for the year, which is down roughly 25% and is a massive decline on a year-over-year basis.

This next screenshot is a table of all of the damage to Nike's business. North American sales were up 5% year over year. EU sales were down at 3% on a constant currency basis. China was down at 13% for the year and 17% on the quarter.

Asia Pacific and Latin America were down 1% for the year. And for the total business, revenues were down 2% for the year and 4% for the quarter. So from my perspective, Nike's business is really struggling and it looks like it has been for a while.

It also seems like it's getting worse with revenue declines accelerating and margins continuing to fall. I also went through Nike's conference call transcript and there's some highlights that I want to share with you because it's not all bad.

So in this slide from my Daniel Pronk slideshow, I want to show you what's actually working over at Nike. And again, all of the points in the slide come from what management said in the transcript.

So starting from the top, the running segment is the proof of concept for the business's turnaround and it is showing good initial signals. The running segment has had five straight quarters of double-digit growth.

It has added $1 billion in revenue for the full business and it has gained 5% market share growth in Western Europe and North America.

Margins are also stabilizing and we're only down at 0.1% against similar comparables without the tariff noise and the ad backs that we talked about earlier. So the margin collapse for Nike seems like it is slowing down and nearing a bottom, which is actually good to see.

Wholesale revenue also grew by 4% with a double-digit growth in North America. So not the entire business is declining and it does have some segments that are actually still growing.

Now what's also important to note about this is some of the revenue decline is self-inflicted.

And this is actually planned revenue decline. And there are three main drivers for Nike's weakness in its revenue. Number one, they are self-inflicting some revenue declines in some of their products, as we just discussed.

For example, they pulled $2 billion worth of classic footwear merchandise out of the market, like the Air Force Ones. Nike also gutted digital promotions, which caused Nike direct sales to be down 9% and digital sales to be down 12%.

Nike is doing this to expand its margins and to improve the quality of the remaining revenue, but it is causing the overall top line to decline in the short term. Moving on to the next slide, though, Nike is experiencing some demand struggles.

For example, sportswear and Jordan streetwear is roughly half of revenue, and both of these segments are seeing double-digit declines on a year-over-year basis. Management also said that selling these lines is becoming challenging, and they are guiding for negative growth through the first half of 2027.

These brands and lines are what carried the lifestyle business historically, and the replacements are coming in spring of 2027.

However, these replacements have no guarantee of working or making up for the lost revenue in the legacy lifestyle brands. And then the last thing that is impacting Nike's revenue is China and the overall macro environment.

China sales are down 17% in the most recent quarter, and the China business has really been struggling. Consumer traffic is also declining in Nike stores, and Nike is blaming this on higher gas prices and ultimately higher inflation.

Nike's management also said that it does not believe the macro conditions will improve for at least the next 6 months.

So, basically, consumers are tightening up how they spend their money due to higher gas prices and inflation, and overall economic uncertainty. And this is one of the reasons why Nike's revenue, at least in management's words, are starting to decline.

So, then my next question was, is Nike being disrupted by its competitors? And in my opinion, the answer is yes. And this is because the sales of Nike versus its competitors are clearly showing that Nike is losing market share.

This means that Nike's competitors are still growing while Nike is struggling too, which does suggest that it is losing market share to its competitors. The fact that other consumer fashion and sporting companies are growing also suggests that it's not entirely a macro issue.

Instead, it is a Nike-specific issue. If it were truly a macro issue, then no consumer fashion brand would be seeing growth right now. But many actually are.

On Stock Unlock, I also made a chart of all of these different consumer fashion brands total revenue growth since the fourth quarter of 2021.

And in this chart, we can see that Nike comes in dead last with only 0.2% total revenue growth over the past about 5 years now. So again, you can clearly see that Nike is coming in last here with the lowest amount of revenue growth and basically no revenue growth over the past about 5 years now.

Nike is probably one of the most iconic brands globally, and even it has now hit a wall and is struggling to continue growing.

So, here are my final thoughts on Nike and really the entire fashion industry. Nike is now a turnaround story, which does feel kind of weird to say, but is also seeing fierce competition that it seems to be losing.

Competitors are taking market share and growing much faster than Nike. Nike has actually seen the weakest growth out of its peers since 2021 with flat sales growth over the past 5 years now.

Its main lifestyle brands, which make up roughly half of the company's revenues, are also struggling and the revenue is consistently declining by double-digit growth rates.

This is causing Nike to have to pivot to focusing on its sports brands again and it is trying to make the best sportswear possible and become the premium sportswear brand again.

This means that investing in Nike is betting on a successful turnaround of the business, which isn't guaranteed to happen. Now, in addition to this, Nike is still trading for about 24 times trailing 12-month earnings when you factor out the one-time tariff benefits.

If Nike does execute a successful turnaround and its earnings per share gets back to an all-time high of $3.80, then it's still trading for about 10 times earnings today.

But, the business has a lot of work to do before its earnings per share get back to all-time highs.

It could very well work out, but I don't think the stock is as cheap as it looks and it does carry a lot of execution risk. And at the end of the day, fashion does remain uninvestable for me.

So, those are my thoughts on Nike, and really the entire fashion industry.

So, to put it simply, I'm not going to be buying Nike, I'm not going to be buying Lululemon. I do understand that their stocks could look cheap right now, but they've turned into turnaround businesses, and I don't know if the turnaround is going to be executed well.

Especially when it seems like the competition in this industry is so fierce, and the competitors, again, are actually winning. And with all that being said, that is going to wrap up today's video, and that's just a quick overview of my research on Nike and this industry.

Do you guys think that Nike is worth the bet right now?