By now, Nike (NYSE: NKE) shareholders are well aware that the company’s fiscal 2027 could be a tough stretch. In the company’s 2027 first-quarter earnings report, revenue fell 4% year over year to $11.2 billion, and net income slid 2% to $712 million. The athletic wear giant has been in the midst of a turnaround plan for several years now, and its first-quarter results show it’s still a work in progress.
That said, aside from slumping sales and regaining relevance, Nike is also dealing with an expectation problem from the market. That’s because instead of returning to growth-stock status, the iconic shoemaker may start to look more like an income stock. So, what’s an investor to do?
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The struggles of an iconic brand
Over the years, Nike has made a series of missteps that have contributed to the stock’s woes. Instead of making its products more widely available, it decided to focus more on selling directly to customers, shunning wholesalers. The brand also stagnated and felt less innovative amid a new wave of competition from brands like On Holding.
In addition, its Converse brand is struggling, with first-quarter sales of $263 million, down 28%. Even more worrisome were sales in Greater China, down 22% to $1.1 billion. On the earnings call for the quarter, CEO Elliott Hill acknowledged the company’s struggles and the need to innovate, saying, “Yes, the consumer is cautious. But as the leader in the industry, it’s on us to bring more creativity to sportswear.”
That innovation will be important in bringing back former customers and attracting new ones, and Nike is making progress in rebuilding its wholesale pipeline. In the first quarter, sales to wholesale customers in North America totaled $2.9 billion, up 9%. For investors, however, there’s an even more important element to consider before investing in Nike.
No longer a growth stock
In the fourth quarter of 2021, Nike reported revenue of $12.3 billion, a 96% increase from the prior-year period. That type of performance sets high expectations, and, looking ahead, that level of sales growth doesn’t seem repeatable in the near future, nor may it ever return to that level. That said, it doesn’t mean Nike can’t still reward long-term investors as a more mature company.
