Nike (NKE)

Athletic apparel brand Nike (NYSE:NKE) announced better-than-expected revenue in Q3 CY2025, with sales up 1.1% year on year to $11.72 billion. Its GAAP profit of $0.49 per share was 84.5% above analysts’ consensus estimates.

Company Overview

Originally selling Japanese Onitsuka Tiger sneakers as Blue Ribbon Sports, Nike (NYSE:NKE) is a global titan in athletic footwear, apparel, equipment, and accessories.

Before the advent of the internet, styles changed, but consumers mainly bought shoes by visiting local brick-and-mortar shoe, department, and specialty stores. Today, not only do styles change more frequently as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some footwear companies have made concerted efforts to adapt while those who are slower to move may fall behind.

Nike's primary competitors include Adidas (ETR:ADS), Under Armour (NYSE:UAA), Puma (ETR:PUM), ASICS (TYO:7936), Columbia Sportswear (NASDAQ:COLM), and Reebok (owned by private company Authentic Brands Group).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Nike’s 4.5% annualized revenue growth over the last five years was sluggish. This was below our standard for the consumer discretionary sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Nike’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 5% annually.

We can dig further into the company’s sales dynamics by analyzing its constant currency revenue, which excludes currency movements that are outside their control and not indicative of demand. Over the last two years, its constant currency sales averaged 4.8% year-on-year declines. Because this number aligns with its normal revenue growth, we can see that Nike has properly hedged its foreign currency exposure.

This quarter, Nike reported modest year-on-year revenue growth of 1.1% but beat Wall Street’s estimates by 6.5%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Nike’s operating margin has been trending down over the last 12 months and averaged 9.7% over the last two years. The company’s profitability was mediocre for a consumer discretionary business and shows it couldn’t pass its higher operating expenses onto its customers.

In Q3, Nike generated an operating margin profit margin of 7.7%, down 2.7 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Nike’s unimpressive 3.1% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

In Q3, Nike reported EPS of $0.49, down from $0.70 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Nike’s full-year EPS of $1.95 to shrink by 4.5%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Nike has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 12% over the last two years, slightly better than the broader consumer discretionary sector.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Nike hasn’t been the highest-quality company lately because of its poor revenue and EPS performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 40.1%, splendid for a consumer discretionary business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Nike’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Nike reported $8.58 billion of cash and $11.06 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $4.19 billion of EBITDA over the last 12 months, we view Nike’s 0.6× net-debt-to-EBITDA ratio as safe. We also see its $82 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Nike blew past analysts’ constant currency revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives with regards to the turnaround story under relatively new CEO Elliott Hill. The stock remained flat at $70.18 immediately after reporting.

Updated: December 3, 2025 at 10:11 PM EST

Before deciding whether to buy Nike or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Nike falls short of our quality standards. For starters, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. On top of that, Nike’s Forecasted free cash flow margin suggests the company will ramp up its investments next year, and its constant currency sales performance has disappointed.

Nike’s P/E ratio based on the next 12 months is 34.4x. This valuation tells us a lot of optimism is priced in - you can find more timely opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $83.30 on the company (compared to the current share price of $65.84).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.