A Calm After the Storm or Just a Temporary Respite?

After enduring a prolonged period of sales declines, margin pressure, and headwinds in China, Nike (NYSE: NKE) is starting to show early signs of operational stabilization. In a recent update, Raymond James maintained a “Market Perform” rating on the stock, with analyst Rick Patel noting that the worst of the company’s sales decline may be behind it. However, significant structural and macroeconomic challenges remain, particularly heading into fiscal year 2026.

Q4 Preview: Better Than Feared, but No Game Changer

According to Patel, Nike’s fourth fiscal quarter (F4Q25) is expected to come in “less bad” than anticipated—a faint, but important positive signal. That said, full-year FY26 earnings per share (EPS) estimates have been revised downward due to ongoing margin pressures, notably from tariffs. These tariffs are expected to reduce gross margins by approximately 150 basis points.

On the positive side, foreign exchange (FX) is expected to provide a roughly 1.5% benefit to revenue growth in FY26—a modest upside compared to prior estimates, which were flat following third-quarter results. While FX tailwinds may offer some relief, they are unlikely to offset the full impact of structural cost pressures and softening demand in certain international markets.

Valuation: Reasonable but Not Cheap Enough to Buy Aggressively

Raymond James is sticking to its neutral stance on Nike, citing a balanced risk/reward outlook. The stock’s current price-to-earnings (P/E) ratio of 25x is slightly below its 5-year average of 29x. This suggests the stock is reasonably priced relative to its historical multiples but not trading at a deep discount that would warrant a strong buy.

In other words, while some downside risk appears to be priced in, upside potential may be limited unless Nike demonstrates stronger-than-expected recovery in revenue and profitability.

FY26 Challenges: Tariffs, China, and DTC Model Under Scrutiny

Looking ahead to the first half of FY26, the report highlights several critical challenges. Chief among them is the likelihood of continued revenue decline, compounded by margin headwinds tied to tariffs, soft demand in China, and growing concerns around the scalability of Nike’s direct-to-consumer (DTC) model.

China remains a particular point of concern. Regulatory unpredictability, changing consumer preferences, and rising nationalism among Chinese shoppers have weighed on foreign brands. Additionally, intensified competition from both global players and emerging local brands adds further pressure to Nike’s positioning in the region.

Operational Progress: Inventory Management and Lower Promotions

Despite these macro challenges, the report notes encouraging signs on the operational front. A detailed review of Nike’s U.S. e-commerce SKUs shows a significant year-over-year drop in promotional activity, particularly in men’s and women’s footwear and apparel. This trend suggests the company has made progress clearing aged inventory and is regaining pricing power—a key driver of margin improvement.

Raymond James also conducted checks across multiple indicators such as Google Trends, web traffic, and physical store footfall. These indicators show quarter-over-quarter improvement, reinforcing the narrative that Nike may be turning a corner operationally, even if financial results still lag.

Conclusion: Recovery is Underway, but It’s a Gradual Climb

Nike is entering a period of transition. While its worst sales declines appear to be behind it, a full recovery remains dependent on multiple factors: margin stabilization, resurgent growth in international markets, and continued improvement in inventory efficiency. Management will also need to reestablish brand momentum and navigate a more fragmented, price-sensitive global consumer environment.

From an investor standpoint, Nike offers a mix of stability and optionality. For long-term investors willing to weather short-term volatility, the current valuation may offer a foothold. However, given lingering headwinds and muted near-term catalysts, Raymond James recommends holding off on aggressive accumulation.

The “Market Perform” rating reflects a belief that while Nike may no longer be in crisis mode, the company has yet to regain the growth momentum that characterized its pre-2022 trajectory. Strategic clarity, innovation execution, and geographic diversification will be key to the next leg of performance.