Did Nike's Turnaround Just Hit a Wall? Here's What Investors Need To Know

By Jeremy Bowman – Mar 31, 2026 at 11:30PM ESTKey PointsNike reported flat revenue and another decline in profits.The company said it would return to gross margin growth in three quarters.Tariffs are weighing on profits and it's still cutting inventory. Three months ago, Nike (NKE +3.08%) CEO Elliott Hill told investors that the company was in the "middle innings of our comeback." The implication was that investors would see further progress in the fiscal third quarter, which the company reported Tuesday after hours. However, the market was underwhelmed with the results and its forecast, and the stock tumbled 9% after hours on the news, hovering around an eight-year low. Revenue was flat at $11.28 billion, or down 3% in constant currency, which was just ahead of the average estimate at $11.23 billion. Gross margin fell 130 basis points to 40.2%, primarily due to tariffs in North America, and selling, general, and administrative expense rose 2% to $3.98 billion. That was enough to lead to a 23% decline in operating income to $635 million. Due in part to a higher tax rate, earnings per share fell 35% to $0.35, which beat the consensus at $0.28. While the results did top muted expectations, the sell-off was understandable as Nike's results worsened from the second to third quarters in most key categories, including revenue growth, gross margin, and earnings per share, as well as growth in key categories like wholesale revenue, which has been one of the company's sources of growth recently. Image source: Nike. What's happening with the turnaround As the trends above suggest, Nike's turnaround is moving more slowly than investors had hoped. Management said it is still working to clear excess inventory in classic styles so it can return the company's focus to innovation and performance gear. Hill said that strategy led to a five-point headwind on revenue in the quarter, and the company will have reduced more than $4 billion in revenue from classic footwear franchises from their peak. Management's guidance indicated that it expected the sequential trend in the third quarter to continue into the fourth quarter, forecasting a revenue decline of 2%-4% with growth in North America and continued declines in China and Converse. It didn't give bottom-line guidance, but the metrics it provided implied that margins would be down again. It also said it expected gross margin to return to growth in the second quarter of fiscal 2027, meaning investors shouldn't expect bottom-line growth for three more quarters, which was a disappointment. However, there were some promising signs in the quarter. Running continues to be a bright spot for the company with revenue from the category up more than 20% in the quarter, and North American footwear, the focus of most of its turnaround efforts, is delivering solid revenue growth, up 6% in the quarter, though profits are falling in that key market due to tariffs and the company's markdown to cut back on classic styles. Though it continues to struggle in China with a 7% revenue decline, it did drive operating profit up 11% due to reduced promotions, inventory controls, and an improved sales mix. ExpandNYSE: NKENikeToday's Change(3.08%) $1.58Current Price$52.82Key Data PointsMarket Cap$78BDay's Range$51.69 - $53.1152wk Range$50.95 - $80.17Volume36MAvg Vol16MGross Margin40.72%Dividend Yield3.07% What it means for investors Nike stock is now down roughly 75% from its peak during the pandemic-era boom, and the stock has steadily declined since then. Management is optimistic that the success it's had in running will translate into other sports, including soccer next, helped by the World Cup this summer, but it's understandable that the stock continues to fall. Investors only have so much patience for declining revenue and profits, and at a certain point, start questioning whether Nike is in permanent decline, losing market share to upstart brands like On Holdings and Deckers' Hoka. Still, Hill has been at the helm for only a year-and-a-half, and his turnaround deserves a few more quarters to succeed. Additionally, Nike's results have been impacted by one-time headwinds like tariffs. Keep an eye on the Q2 2027 target for a return to gross margin growth. If Nike misses that, it may be time to give up on the turnaround. Read NextMar 31, 2026 •By The Motley Fool TeamStock Market Today (LIVE): What $70 Billion in Deals Signals Now; Wegovy Gets Subscription PricingMar 30, 2026 •By David Jagielski, CPANike Stock Hasn't Been This Cheap Since 2017. Is It a No-Brainer Buy?Mar 27, 2026 •By Jeremy BowmanOne Magnificent Dividend Stock Down 71%: Too Cheap Not to Buy and Hold ForeverMar 27, 2026 •By Leo SunShould You Buy Nike (NKE) Stock Before March 31?Mar 27, 2026 •By Micah ZimmermanShould You Buy Nike Stock Before March 31?Mar 25, 2026 •By Bram BerkowitzWith the Stock Down Roughly 60% Over the Past 5 Years, Should Investors Buy Nike Before March 31?About the AuthorJeremy Bowman has been a contributing Motley Fool stock market analyst, covering technology, consumer goods, and macroeconomic trends since 2011.

Before The Motley Fool, Jeremy was a newspaper reporter, restaurant manager, and English teacher abroad. He holds a bachelor’s degree in English from Colorado College and a master’s degree in business administration from American University. One of his Motley Fool headlines was briefly featured on Late Night with Stephen Colbert.TMFHoboX@TMFBowmanStocks MentionedNikeNYSE: NKE$52.83(+3.10%)+$1.59Deckers OutdoorNYSE: DECK$100.03(+5.33%)+$5.06On HoldingNYSE: ONON$34.04(+6.76%)+$2.16*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.