Nike (NKE)

Athletic apparel brand Nike (NYSE:NKE) reported Q1 CY2025 results exceeding the market’s revenue expectations, but sales fell by 9.3% year on year to $11.27 billion. Its GAAP profit of $0.54 per share was 94.9% 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 can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Nike grew its sales at a weak 3% compounded annual growth rate. This was below our standards and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Nike’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.8% annually.

Nike also reports sales performance excluding currency movements, which are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 2% 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’s revenue fell by 9.3% year on year to $11.27 billion but beat Wall Street’s estimates by 2.3%.

Looking ahead, sell-side analysts expect revenue to decline by 4.3% over the next 12 months, similar to its two-year rate. This projection is underwhelming and indicates its products and services will see some demand headwinds.

Nike’s operating margin has been trending down over the last 12 months, but it still averaged 11% over the last two years, decent for a consumer discretionary business. This shows it generally does a decent job managing its expenses.

In Q1, Nike generated an operating profit margin of 7.3%, down 3.4 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Nike’s weak 2.1% 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 Q1, Nike reported EPS at $0.54, down from $0.77 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 $3.01 to shrink by 32.8%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because 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 11.1% 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 40.2%, 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 $10.39 billion of cash and $11.91 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 $5.73 billion of EBITDA over the last 12 months, we view Nike’s 0.3× net-debt-to-EBITDA ratio as safe. We also see its $138 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’ EPS expectations this quarter. We were also glad its constant currency revenue outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock traded up 4.1% to $74.80 immediately following the results.

Updated: May 16, 2025 at 10:47 PM EDT

Before investing in or passing on Nike, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Nike doesn’t pass our quality test. To begin with, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its stellar ROIC suggests it has been a well-run company historically, the downside is its constant currency sales performance has disappointed. On top of that, its projected EPS for the next year is lacking.

Nike’s P/E ratio based on the next 12 months is 31.2x. This multiple tells us a lot of good news is priced in - you can find better investment opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $73.72 on the company (compared to the current share price of $62.30).

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.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.