Nike's latest earnings report is seen as signaling an uneven recovery for the sportswear giant. Wall Street analysts have expressed cautious views on the stock and subsequently lowered their price targets. In pre-market trading Wednesday, Nike shares fell more than 11%, hitting their lowest level this year.
The company reported its fiscal third-quarter 2026 results after the market closed on Tuesday. Revenue for the quarter was $11.3 billion, flat compared to the prior year but down 3% on a currency-neutral basis, which surpassed market expectations. However, net income fell 35% to $520 million. The gross margin contracted for the sixth consecutive quarter, declining by 130 basis points to 40.2%, which the company primarily attributed to higher tariffs in North America.
By region, the home market of North America was a primary growth driver, with revenue increasing 3% year-over-year. In contrast, the Greater China region continued to face downward pressure, with revenue declining 10% to $1.615 billion, although unit inventory levels fell by more than 20%.
Nike Chief Financial Officer Matthew Friend stated that the third-quarter performance was in line with the company's expectations and that the team continues to execute steadily. He noted that the 'Win Now' action plan will continue to impact results through the current calendar year and expressed confidence in the company's long-term path to profitable growth. However, he projected that despite slight growth in North America, Nike's full-year revenue is expected to decline by a low-single-digit percentage. For the fourth fiscal quarter, revenue is forecast to decrease by 2% to 4%, influenced by volatility from rising oil prices and ongoing conflict in the Middle East. Sales in China are anticipated to fall by 20% during the quarter.
RBC Capital Markets analyst Piral Dadhania indicated that the firm remains constructive on Nike's medium-term recovery potential. However, the recovery is now expected to be more prolonged than initially anticipated, primarily due to challenges in Greater China, the Converse brand, and the sportswear business. On a positive note, the analyst observed that Nike's management appears willing to make tough decisions to address issues and reshape the business through its 'Win Now' strategy for long-term sustainable growth, a direction RBC views as correct. RBC lowered its price target on Nike to $70 while maintaining an Outperform rating.
BTIG also reduced its price target on Nike to $75, citing an extended recovery timeline. Nonetheless, analyst Robert Drbul and his team maintained confidence in the long-term trajectory of the stock, which they rate a Buy. The analysts suggested that as the company works through tariff pressures, a positive inflection point for margins could emerge by the second quarter of fiscal 2027. They believe there is significant room for margin recovery in fiscal 2027 and 2028, with the achievement of a double-digit operating margin target potentially driving earnings per share above $3.
Needham adopted a more cautious stance on Nike's current situation. Analyst Tom Nikic warned that while some key elements of the 'Win Now' strategy—such as refocusing on sport, wholesale channels, and marketing—are sound, the external environment is highly challenging. He also suggested that the issues inherited from the previous CEO might be deeper than they first appeared. Needham maintained a Hold rating on the stock.
Bank of America downgraded Nike from Buy to Neutral. Analyst Lorraine Hutchinson explained that strength in the running business and the North American market had previously justified patience, but with a sales inflection point not expected for another nine months, the potential for valuation multiple expansion now appears limited.
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