Money in Motion (Part 2): Nike (NYSE: NKE) — The Most Debated Brand in Retail Investing

Last week we opened the Money in Motion arc with JPMorgan Chase — the bank that finances everything, the core plumbing of the US economy. This week we turn to a very different form of capital in motion: an iconic consumer brand that once dominated retail shelves and is now fighting to reclaim them.

There’s a particular kind of investing debate that only happens with iconic brands. It’s not purely analytical. It’s emotional — because the brand itself is something people have lived with for decades. Nike (NYSE: NKE) is in the middle of that debate right now, and has been for the better part of two years.

The stock has roughly halved from its recent highs and sits approximately 75% below its November 2021 peak. Revenue contracted sharply in fiscal 2025 before stabilising (flat on a reported basis in fiscal 2026). Margins remain under pressure. Competitors that barely existed five years ago are now eating into segments Nike assumed were safe. And yet NKE still trades at nearly 24 times forward earnings — the market pricing in a recovery that hasn’t fully arrived.

So which is it: turnaround in progress, or value trap in disguise?

This piece won’t give you a recommendation. What it will give you is the framework to answer that question for yourself — which is the only answer that matters for your specific portfolio.

How It Got Here: The DTC Pivot That Backfired

To understand where Nike is, you have to understand what Nike did to itself.

Starting around 2020, then-CEO John Donahoe executed an aggressive pivot toward Direct-to-Consumer (DTC) sales — Nike’s own stores, website, and app. The logic was sound in isolation: cut out the retail middleman, capture higher margins, own the customer relationship, get the data. Nike Direct became a growth priority. Wholesale partners — the Foot Lockers, the JD Sports, the department stores — were deprioritised.

The problem? Nike cleared those shelves of its own product, and competitors moved in.

On Running (ONON), Hoka (owned by Deckers), New Balance, and a resurging Adidas saw a window and took it. Performance running — a category Nike essentially invented — became contested ground. Retailers who’d spent decades building Nike-dominated floor space suddenly had alternatives to fill it with. And consumers, browsing those alternatives, discovered they liked them.

By late 2024, Nike’s board recognised the situation. Revenue was declining. The DTC premium hadn’t materialised at the scale projected. And the market share ceded in wholesale was not coming back automatically.

In October 2024, the board handed the keys to Elliott Hill — a 32-year Nike veteran who had built and led its global consumer divisions before retiring in 2020. The call was clear: stop the bleeding, restore wholesale relationships, return to Nike’s athletic performance roots.

The Turnaround Strategy: “Win Now” and Sport Offense

Hill’s approach has two layers.

The first is operational: rebuild what was broken. This means re-engaging wholesale partners with better inventory terms, better product allocation, and a commitment to premium shelf positioning. It means clearing the excess inventory that accumulated during the DTC transition — a process that suppressed margins through discounting.

The second is cultural: return to the sport. Under Donahoe, Nike was increasingly positioned as a lifestyle and fashion brand. Hill’s “Sport Offense” is an explicit reversal — put performance products at the centre, fund elite athlete partnerships, win the technical running and training categories back before going after lifestyle.

Early data points suggest the strategy is working in some areas. North America — Nike’s most important market — showed 9% revenue growth in Q2 FY2026 (the quarter ending November 2025), with wholesale in the region jumping 24%. Running as a category is growing. Some wholesale relationships are actively mending.

But “some areas working” is not the same as the turnaround being complete.

Where the Risk Still Lives

China

Greater China is the wound that won’t close. Revenue in the region has continued to contract at double-digit rates, and management has repeatedly described it as having “the longest road ahead.” The problem is structural as much as cyclical: domestic Chinese sportswear brands — Anta, Li-Ning — have aggressively captured patriotic consumer sentiment, particularly in the wake of US-China tensions. Nike’s premium positioning in China is being challenged on price from below and on brand from the side. Progress remains slow and uneven into fiscal 2027.

Margins Under Pressure

The tariff environment has materially impacted Nike’s cost structure. The company has absorbed an estimated US$1.5 billion in additional annualised costs from US tariffs on goods manufactured in Vietnam, Indonesia, and China. Gross margins contracted 300 basis points to 40.6% in Q2 FY2026 — a significant step down from the mid-40s the company historically operated at.

Margin recovery requires either relief on tariffs (largely outside Nike’s control), manufacturing diversification (a multi-year process), or pricing power (difficult when trying to re-earn consumer trust). All three levers are real; none is quick.

Shelf Space Doesn't Come Back Automatically

This is the structural risk that gets underweighted in bull cases. On Running and Hoka didn’t just take Nike’s floor space — they earned consumer loyalty. Runners who switched to On’s CloudSurfer or Hoka’s Clifton aren’t waiting to switch back. They have to be won back, product by product, over multiple years. Retailers, having learned that their floor space doesn’t need to be Nike-dominated, are not in a hurry to hand it back unconditionally.

The Bull Case, Clearly Stated

The optimists aren’t wrong that a fixable operational problem looks a lot like a structural crisis when you’re in the middle of it. Nike’s brand equity — built over 50 years of athlete partnerships, cultural moments, and product innovation — remains its strongest remaining asset, even if it has not been completely unscathed in China and lifestyle categories. The channel strategy is what was primarily broken, and channel strategies can be rebuilt.

Elliott Hill is not a turnaround consultant parachuted in from outside. He built what he’s now trying to restore. North America is already responding. The dividend yield at current prices sits near 4% — unusual for Nike, and a signal the stock has been repriced well below its historical norms.

At ~24× forward earnings, NKE isn’t cheap in absolute terms. But for a business of Nike’s global scale, brand depth, and cash generation capacity, 24× forward is meaningfully below the 35–45× multiple the stock commanded during its growth years. If the recovery lands — if China stabilises, margins recover, and wholesale re-establishes — the re-rating upside is substantial.

The Bear Case, Clearly Stated

The bears would argue that the DTC damage was self-inflicted, yes — but that the competitive response from On, Hoka, and Adidas has now created a permanent structural shift. Running consumers have diversified. The monoculture of Nike on running shelves is over. Even a successful Hill turnaround lands Nike in a more competitive market than the one it left.

China is a genuine unknown with no clear resolution timeline. Tariffs could persist or worsen. And the stock, while off its highs, still prices in significant recovery — meaning any further disappointment lands hard.

After a roughly 10% revenue decline in fiscal 2025, fiscal 2026 finished essentially flat. Guidance points to further low- to mid-single-digit pressure in the near term. The stock is already pricing in a bounce. If that bounce comes later than expected, or only partially, the current multiple isn’t justified.

The Aussie Angle

Nike is one of the most emotionally held stocks in Australian retail portfolios. It was bought on brand conviction — people wore the shoes, they understood the brand, it felt like an obvious long-term winner. For many Australian investors, that position is now sitting at a significant loss.

The job for Australian investors now is to separate the emotional attachment from the investment question. The brand you love and the investment thesis you hold are two different things. Here’s the framework:

If you believe the damage is operational (fixable): The current setup — North America recovering, wholesale numbers improving, brand equity largely intact, depressed multiple — is an asymmetric recovery play. The 12-month CGT discount also applies if you’re holding existing positions past the one-year mark, which changes the sell/hold calculus meaningfully.

If you believe the damage is structural: On and Hoka aren’t going back in the box. China isn’t recovering on any timeline that affects a 2–3 year investment horizon. The current multiple doesn’t fully reflect that risk. The rational move is cutting exposure and redeploying.

There’s no shame in either conclusion. The shame is in holding a losing position while telling yourself it will recover because you love the brand. That’s not an investment thesis. That’s loyalty. And the market doesn’t reward loyalty.

Next week…

We close the nine-part series with the retailer that decided to become a tech company, and whether that transformation changes the investment case entirely.

Data Sources:

• NIKE, Inc. Q2 FY2026 earnings release and Form 10-Q (quarter ended 30 November 2025) — North America revenue +9%, wholesale +24%, gross margin 40.6% (−300 bps), tariff cost commentary (~US$1.5 billion annualised)
• NIKE, Inc. FY2026 full-year and Q4 results (ended 31 May 2026) — reported revenue essentially flat at ~US$46.4 billion; Greater China continued double-digit declines
• NIKE, Inc. newsroom release, 19 September 2024 — Elliott Hill appointed President & CEO effective 14 October 2024
• Company earnings call transcripts and management commentary (Q2–Q4 FY2026) — “longest road” characterisation of China; “Win Now” and Sport Offense strategy language
• Market data (as of mid-August 2026) — share price ~US$40.7; forward P/E ~24×; trailing dividend yield ~3.9–4.0%

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