NIKE's China Sales Decline Reinforces Broader Struggles Amid Reset Strategy

What happened

NIKE reported a 10% revenue decline in Greater China, highlighting persistent challenges in a key market. This drop aligns with the company's overall FY25 revenue fall of 9% and EBIT margin compression to 8.2%, driven by discounting and tariff costs. Management is leaning on a global playbook, including sport-led innovations and 'Win Now' actions, to restore momentum across regions. However, execution risks remain elevated as the brand faces share losses to competitors like Adidas and New Balance in youth segments. The effectiveness of these efforts in stabilizing China and improving profitability is unproven, with ongoing promotional and tariff headwinds.

Implication

The 10% sales decline in China underscores NIKE's vulnerability in a critical growth region, compounding broader financial weaknesses. This reinforces the need for the company to demonstrate tangible progress in its 'Win Now' initiatives, such as reducing discounting and restoring full-price sales. Persistent margin compression and competitive share losses could delay any valuation re-rating, keeping the stock overvalued relative to intrinsic estimates. Investors should closely monitor upcoming quarters for evidence of revenue stabilization and gross margin improvement as key inflection points. Until then, the lack of margin of safety supports a wait-and-see approach, with the stock's premium multiple offering limited downside protection.

Thesis delta

The China sales decline confirms the ongoing regional and financial challenges outlined in the DeepValue report, reinforcing the execution risks and overvaluation concerns. It does not materially shift the 'WAIT' recommendation, as the core issues of brand heat erosion and margin pressures remain unresolved. Thus, the investment thesis remains unchanged, emphasizing the need for proof of strategic success before considering a more bullish stance.