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?
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Image source: The Motley Fool.
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.
While the retailer may lack in sales growth, it’s still a dividend payer, with a dividend yield of 4.3%. Granted, there’s always a worry about the stability of dividend payouts when a company’s sales and revenue are declining, but Nike remains profitable, with total cash of $8.3 billion against a manageable $11.1 billion in debt. Nike is also committed to its dividend payout, with CFO David Denton saying in the Q1 2027 earnings call that “under all scenarios, we have support for maintaining and ultimately growing the dividend over time.”
This means that anyone who invests in Nike, hoping it will return to the years when it was posting massive sales growth, will likely be disappointed. But what it also means is that those who understand its evolution into an income stock could be rewarded.
Before investing, however, I would want to see Nike reverse its sales decline and reach a point where it is, even if only modestly, in a position to update its revenue forecast because it’s making more money than expected. Again, we shouldn’t expect massive sales growth, but Nike needs to find its footing and spark consumer enthusiasm again. If it doesn’t, the stock price may keep declining, cutting into the income generated by those dividend payouts.
If it can get back on track, the stock price can stabilize, and long-term investors can be rewarded with solid income for years.
Should you buy stock in Nike right now?
Before you buy stock in Nike, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nike wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $355,124!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,296,254!*
Now, it’s worth noting Stock Advisor’s total average return is 901% — a market-crushing outperformance compared to 210% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
Jack Delaney has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike and On Holding. The Motley Fool has a disclosure policy.
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