Shares of Nike (NKE, Financial) experienced a decline following the release of its fiscal 2025 third-quarter earnings report. The stock price fell, reflecting a 5.12% decrease, with the current trading price at $68.18. The disappointing results were primarily driven by a revenue drop and concerns over tariffs that may impede recovery efforts.
Nike's financial performance in the most recent quarter revealed a 9% revenue contraction to $11.3 billion, surpassing the market's expectations of $11.03 billion. However, challenges remain as Nike Direct revenue fell 12% to $4.7 billion, and wholesale revenue dipped 7% to $6.2 billion. The Converse brand struggled significantly, with sales declining by 18% to $405 million.
The company's gross margin suffered a reduction of 330 basis points, settling at 41.5%, primarily due to inventory markdowns. Although inventory levels decreased by 2% to $7.54 billion, this reduction was slower than the revenue decline, indicating a potential inventory overstock issue. Meanwhile, earnings per share dropped to $0.54, outperforming the consensus estimate of $0.28.
In terms of valuation, Nike Inc (NKE, Financial) is currently considered "Significantly Undervalued" according to the GF Value, which stands at $103.84. The company's Price-to-Earnings (P/E) ratio is currently at 22.65, with a Price-to-Book (P/B) ratio of 7.2, indicating a valuation close to a five-year low. Moreover, Nike's dividend yield is near its 10-year high, which could appeal to income-focused investors.
Despite recent setbacks, Nike retains several strengths, such as a strong Altman Z-Score of 4.9 and a high Piotroski F-Score of 7, reflecting solid financial health. Insider buying also suggests confidence in the company's future prospects, with a recent transaction totaling 2,500 shares.
Looking ahead, Nike's guidance paints a cautious picture as the company plans to scale back on classic styles and digital advertising expenditure. It anticipates a mid-single-digit revenue decline and a gross margin contraction of 400 to 500 basis points in the upcoming quarter. While these strategic moves align with its recovery plan, investors appear frustrated by the continuous business contraction.
