The Hard Part of Nike's Turnaround Is Just Beginning

By Lawrence Nga – Feb 28, 2026 at 8:05PM ESTKey PointsNike has stabilized, but stabilization isn’t a turnaround.Margin recovery will determine the next few years.The easy phase is over -- execution now matters.After several difficult years, Nike (NKE 2.77%) has finally stabilized. Revenue declines have moderated. Inventory levels look healthier than they did a year ago. Management has stepped back from its aggressive direct-to-consumer push and rebuilt key wholesale relationships. The slide appears to have stopped. But stopping the decline was the easier task. Rebuilding the earnings profile is far harder. Image source: Getty Images. The reset was unavoidable Nike's challenges were structural, not cosmetic. Fiscal year 2025 (ended May 31, 2025) revenue fell roughly 10% year over year, a rare contraction for a company that once delivered steady mid-single-digit growth. Gross margins compressed meaningfully (down 190 basis points to 42.7%) as promotions increased to clear excess inventory. While the brand power remained strong, the operating model had weakened. In particular, Nike's earlier push into direct-to-consumer, while it made sense, did not deliver on the promised higher margins and deeper customer relationships. Worse, digital growth did not scale quickly enough to offset reduced wholesale exposure. Consequently, inventory forecasting faltered, leading to massive discounting to reduce inventories. Meanwhile, competition intensified in performance categories, particularly running -- a segment that historically reinforced Nike's pricing power. Put together, these factors led to revenue contraction, margin compression, and a change in investors' perception of Nike's future. ExpandNYSE: NKENikeToday's Change(-2.77%) $-1.77Current Price$62.18Key Data PointsMarket Cap$92BDay's Range$61.54 - $62.7552wk Range$52.28 - $80.96Volume950KAvg Vol18MGross Margin40.72%Dividend Yield2.59% Stabilization is only phase one To revive the business model, Nike has begun its turnaround centered on its new focus of "Win Now." While still early, recent quarters suggest that the worst of the revenue pressure may be behind the company. For perspective, revenue increased 1% in the second quarter of fiscal 2026, led mainly by a recovery of Wholesale performance. Inventory also appeared better aligned with demand, down 3% due to lower units. Those are essential steps. But they represent stabilization, not restoration. At its peak, Nike operated with operating margins comfortably in the mid- to high teens. In the first half of fiscal 2026, operating margin fell to just 7.8%, significantly below historical levels. Until operating leverage rebuilds, the turnaround work remains incomplete. What would signal real progress For Nike to move from stabilization to recovery, three things must occur. First, gross margin must expand consistently, not just rebound for a single quarter. Structural improvement signals restored pricing power. Second, revenue growth must return without reliance on heavy promotions. Third, operating expense discipline must improve. Revenue growth without cost control will not restore earnings momentum. If these elements align, even modest revenue growth can translate into meaningful earnings-per-share acceleration over the next several years. What does it mean for investors? Nike has already completed phase one of its reset: Stopping the deterioration. Phase two -- restoring margin resilience and earnings compounding -- will determine whether the company regains its premium standing. Investors are no longer debating whether Nike can survive. They are debating whether it can rebuild durable operating leverage. That distinction will define the stock's long-term trajectory, so investors should track that closely in the coming quarters.Read NextFeb 23, 2026 •By Rick MunarrizNike, Target, and Home Depot Stocks Just Got a Massive Win From the Supreme Court. Here's What Investors Need to Know.Feb 23, 2026 •By Jennifer SaibilNike vs. On: Which Stock Is the Better Buy?Feb 19, 2026 •By Neil PatelCould Investing $10,000 in Nike Make You a Millionaire?Feb 19, 2026 •By Timothy GreenWhy Nike Partnering with Costco Is Actually a Genius MoveFeb 15, 2026 •By Adam Levy1 Beaten-Down Value Stock to Buy Now With $100Feb 11, 2026 •By Neil PatelIs Nike Stock Going to $100?About the AuthorLawrence Nga is a contributing Motley Fool stock market analyst covering technology, consumer goods, e-commerce, AI, fintech, and China stocks. Before joining The Motley Fool, Lawrence wrote for Motley Fool Singapore and held roles as a lecturer at Kaplan Financial China and Liverpool College of Management Science, a performance analyst at AB Sugar, a financial analyst at BSO China Limited, and manager of supply chain finance at British Sugar. He earned a Bachelor of Science in Applied Accounting from Oxford Brookes University and holds credentials from both the Association of Chartered Certified Accountants (ACCA) and the Chartered Institute of Management Accountants (CIMA).TMFLawrencengaStocks MentionedNikeNYSE: NKE$62.18(-2.77%)-$1.77*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.