Nike unexpectedly posted an increase in revenue. Will the stock reverse after two years of decline?

Sportswear maker Nike's revenue rose 1% in the summer season, which was a surprise to Wall Street. However, the company showed a drop in net income and gross margin. Nike still has a lot of work to do to complete its strategic turnaround, CNBC writes. On the eve of the report, Jefferies analysts advised to buy shares of the sports brand. The investment bank believes that Nike securities can rise by 65% after two years of decline, and the reporting quarter should be a turning point on this path. After the publication of the report quotes Nike rose on the postmarket by 4.4%.

Nike's sales for the first quarter of fiscal year 2026, which ended Aug. 31, rose 1 percent, though the company had previously forecast a year-over-year revenue decline of several percent, CNBC reports. Revenue for the quarter was $11.7 billion versus Wall Street expectations of $11 billion, according to LSEG. Earnings per share came in at $0.49, while analysts had forecast $0.27.

Still, net income fell 31% and gross margin shrank 3.2 percentage points to 42.2%. This is a signal to investors: the process of clearing warehouses of obsolete models is far from over, CNBC notes.

"I'm encouraged by the momentum we gained this quarter, but moving forward won't be straightforward because different areas of the business recover at different times," Nike CFO Matthew Friend wrote in a press release.

The company's shares rose 4.4% to $72.8 in extended trading on Sept. 30 after the reports were released, despite a decline in stock futures due to the looming U.S. government shutdown. The sportswear maker's stock has been in a bearish trend for two years due to an outdated assortment and inventory overstocking. The stock is down 8% since the start of 2025, while the S&P 500 broad market index is up nearly 14%.

Nike CEO Elliott Hill said the company made progress in three key areas: wholesale sales, the running category and the North America region. Wholesale revenue rose 7% to $6.8 billion and North American sales climbed 4% to $5.02 billion, while analysts had forecast $4.55 billion, according to StreetAccount.

However, things aren't doing as well outside of those three areas, CNBC notes. Nike's direct sales for the quarter fell 4% to about $4.5 billion, and revenue in China - one of Nike's key markets - fell 9%.

"While we are already capturing early wins, there is still a lot of work to be done to bring all sports, geographies and sales channels on the same growth trajectory in a volatile operating environment," Hill said.

Hill's strategy: refreshing the lineup, innovating and clearing warehouses of obsolete models to promote new collections. But the strategy comes with short-term costs. To free up inventory, Nike has had to aggressively utilize discounts and less profitable sales channels, which has hurt profitability, CNBC notes. For the quarter, inventories were down 2% from a year ago. At the same time, the cost of production rose, including due to higher duties.

In late August, Nike began reshuffling its teams. As part of the restructuring, the company announced a layoff of about 1 percent of its workforce, with most employees expected to move into new positions by Sept. 21. Hill emphasizes that a return to a focus on sports will help Nike re-engage a key customer: the athlete. Though the CEO also recognizes the importance of the lifestyle division. This segment allows the company to reach a broader consumer audience, including women - and growing the female customer base has become a critical goal. The partnership with Kim Kardashian's Skims corrective underwear brand was one step in that direction. The collection was unveiled in September.

Just BUY It, Jefferies analysts wrote about Nike shares a day before the report was released. The investment bank reiterated a "buy" recommendation and a $115 target on the sportswear maker's shares. That's about 65% above the closing price on Sept. 30. Jefferies believes the report "should signal a reversal - the sleeping bear is awakening." Jefferies expects that by the second half of the year, stores will be "cleared" of outdated assortments, which means fewer sales, fresher merchandise and better price control for the holiday season. Longer term, Jefferies expects a V-shaped recovery for Nike stock in fiscal 2027.

In total, according to MarketWatch, of the 38 analysts tracking the athletic apparel and footwear maker's securities, 20 recommend buying, 16 recommend holding, and 2 recommend selling. The consensus target price is $80.6 per share, which is about 16% above their current value.

This article was AI-translated and verified by a human editor