Nike Has Lost Its Edge

Nike originally started as a running shoe company. 

It has dominated the space since its inception, but new players such as New Balance, Hoka, and Asics have been giving Nike a run for its money. 

Dying Monopoly

People just don’t resonate anymore with what Nike has to offer. They feel as though their product is inferior to competitors, and its once heroic image of being the hero brand for star athletes has grown stale in the eyes of the consumer. The brand has lacked the innovation and forward-thinking that it has been most known for in recent years.

Nike has long monopolized the art of grabbing attention and the wallets of avid runners; however, there has been a noticeable shift to other areas of focus for the business, including basketball shoes and the release of limited-edition sneakers. This divestment from its core offering of running shoes has really hurt the brand, especially when you look at its stock.

Nike's shares plunged nearly 20%, which was their worst day on record after the company cut guidance for the first quarter and fiscal 2025. This drop adds to an overall total return of roughly -33% over the past year. 

Comparably, the S&P 500 has delivered a total return of around 27%.

Big difference.

Recent Struggles

On top of the decline in their running category, other recent struggles have propelled the company to new lows. The cost pressures due to inflation, as well as competition from China and the United States, have intensified the pressure on Nike. Their lead in market share has dramatically shrunk, giving hungry competitors a chance to swoop in for themselves. In fact, the gains in market share from players like New Balance, Hoka, and Asics have almost exclusively happened at the expense of Nike.

However, even still, Nike still appears to be overvalued. 

The brand reported a quarterly revenue decline of around 2% on a year-over-year basis. This equates to $12.6 billion. Adjusted earnings per share also came in at around $1.01. This is slightly better than consensus estimates. 

Yay, at least some good news. 

The real issue is the cut to its guidance. Nike expects first-quarter 2025 revenue to be down approximately 10% on a year-over-year basis. This is a significant miss versus previous expectations for a drop of just 3.20%. 

In other words, Nike is in BIG trouble.