There are very few companies where the brand name and logo immediately come to mind when you think of an industry or product.

Phones? Apple.
Search? Google.
Shoes? Nike.

Nike is one of those rare businesses that doesn't just sell products — it shapes culture, identity, and aspiration. But despite that iconic status, the company is facing one of the most challenging stretches in its modern history.

Sales are slowing, margins are under pressure, and tariffs threaten the entire supply chain. Add to that a shaky DTC strategy, strained wholesale relationships, and a stretch of underwhelming innovation, and you’ve got a company in the middle of a full-blown reset.

Today’s question is whether Nike can get back on track and whether the opportunity is attractive enough to add the stock to our The Intrinsic Value Portfolio (featured at the bottom of this newsletter).

Let’s dive in.

— Daniel

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Nike’s story starts on a track in Oregon. In the 1960s, University track coach Bill Bowerman teamed up with his former student Phil Knight to sell high-quality Japanese running shoes in the U.S. under the name Blue Ribbon Sports.

Their inspiration? Japanese cameras. At the time, brands like Canon and Nikon were taking market share from dominant German makers. Bowerman and Knight believed the same disruption could happen in footwear, where Adidas and Puma ruled the track.

So they partnered with Japanese shoe manufacturer Onitsuka Tiger, and the business took off. Sales grew, momentum built — until they found out Onitsuka was quietly shopping for new U.S. distributors behind their back.

Feeling betrayed, Bowerman and Knight made a bold decision: go solo. No more reselling — they’d make their own shoes.

And just like that, Nike was born. One of the most iconic brands in the world was created in a matter of days. The name “Nike” came from the Greek goddess of victory. The Swoosh? Designed by a college student for $35.

But don’t worry — a few years later, Knight gave her 500 shares of Nike. If she held on, that little logo turned her into a millionaire.

Nike’s early strategy was simple but effective: selling shoes straight out of car trunks at track meets, building personal relationships with runners, and even creating one of the first informal customer databases — tracking shoe sizes, race schedules, and athlete preferences to stay connected. It worked. The first 50,000 pairs were sold almost entirely through word of mouth.

One of the most iconic early models was the Moon Shoe — designed by Bowerman and inspired by his attempt to improve traction using a waffle iron from his kitchen.

Perhaps the first signal of just how far Bowerman and Knight were willing to go to build the best running shoes in the world — and the Moon Shoe became their first true breakthrough.

From there, Nike’s innovation streak took off: the Waffle Trainer, Air cushioning in the Tailwind, and later the futuristic Nike Shox, made famous by Vince Carter’s Olympic dunk over a 7'2" Frenchman in 2000.

While Nike’s early models laid the foundation for its reputation in performance and innovation, what truly catapulted the company into global dominance was arguably the greatest marketing move in sports history.

In October 1984, Nike signed a young, promising rookie named Michael Jordan. It wasn’t an easy deal — Jordan had his heart set on Adidas, but they weren’t focused on basketball then. Nike saw the opportunity and took a bold swing.

They offered him a five-year, $2.5 million contract, which, at the time, was basically their entire marketing budget, and built an entire brand around him. The goal was to sell $1 million worth of Air Jordans in the first year.

Instead, they sold $126 million.

That single bet didn’t just change Nike’s trajectory — it redefined how athletes, brands, and marketing would work for decades to come.

For a long time, there were two dominant players in the global footwear and apparel industry: Nike and Adidas. And yes — both still lead the pack. But the momentum has shifted, and lately, it hasn’t been in Nike’s favor.

In the U.S. market, Adidas has grown its share from 6% to 11% over the last decade, while Nike’s share has stagnated. At the same time, a new trend has emerged: smaller, performance-focused brands are entering the market and gaining serious traction. Two of the most talked-about in recent years are the Swiss brand On and the French brand Hoka.

Before we dig into the impact these rising players have had — and Nike’s loss of global market share — it’s worth asking: How did we get here?

Like most major shifts, it’s not monocausal. A handful of factors played a role. But in Nike’s case, there’s a particularly clear catalyst: the company’s DTC pivot under former CEO John Donahoe — a strategy that, in hindsight, didn’t play out the way investors had hoped.

Nike originally built its dominance through wholesale. For years, it was the undisputed leader in almost every major shoe retailer. But if you look at the 2024 numbers, Nike’s wholesale-to-DTC ratio is now only slightly tilted in favor of wholesale — a big shift from how the business used to operate.

That change began in 2017, when Nike made a strategic pivot toward direct-to-consumer. Under then-CEO Mark Parker, Nike’s digital business took off. In 2014, online sales totaled just over $1 billion. Five years later, that number had grown fivefold.

The direction seemed clear: Nike would leverage its brand power by focusing more on DTC, especially through digital channels.

And then came what looked like a perfect fit. Just a few years earlier, John Donahoe had joined Nike’s board. With experience as CEO of eBay and ServiceNow, and as Chairman of the Board at PayPal, he brought deep digital expertise. So when Parker stepped down, Donahoe — the tech operator — was tapped to lead Nike into its next phase: a digital-first future.

Before Donahoe, Nike had only three CEOs. First, the founder, Phil Knight. Then William Perez, Nike’s first external hire, and finally, Mark Parker, who came up through the company and led for over 13 years. Perez, on the other hand, lasted just two. He left after being deemed “not a good cultural fit.”

At Nike, culture matters. It’s a fuzzy term — one that’s often used as corporate filler. I’m (Daniel) the first to roll my eyes when someone brings up “culture” in a boardroom pitch. But there’s a difference between talking about culture and living it — and Nike has always lived it. You see it in the stories, the athlete relationships, and the leadership style. More on that later when we talk about Elliott Hill, Nike’s new CEO.

The problem Nike had with Perez came back with Donahoe. Despite years on the board, he never quite embodied the Nike way. He led like a consultant, which isn’t all that surprising given his background. Before eBay and ServiceNow, Donahoe spent 20 years at Bain & Company, one of the most prestigious consulting firms in the world, eventually becoming CEO and President.

Still, despite the cultural mismatch, Donahoe’s first year as CEO looked like a success. Nike quickly doubled online revenue, surpassing $10 billion in digital sales. The pandemic certainly helped — stores were closed, and running became a go-to hobby when it was one of the few things people could still do outdoors.

It was around this time that Donahoe said what’s now become an almost iconic quote: “The consumer today is digitally grounded and simply will not revert back.”

Well… the consumer did revert back.

People were eager to get out again and experience shopping in person. And honestly, I get it. Call me old-school, but I’ve never really understood how people buy shoes online. I need to try them on, walk a few steps. If I ordered without trying them, I’d be sending 90% of them back.

But let’s get back to Nike’s problem. A major part of the DTC strategy was cutting ties with wholesalers — including Foot Locker, Dick’s Sporting Goods, and many others. The idea was to drive more traffic through Nike’s own channels. But that came at a cost.

Just Foot Locker and Dick’s alone have around five times as many stores as Nike does across the U.S. Cutting those partnerships meant walking away from shelf space — and from millions of eyeballs, free marketing, and the impulse purchases that come with it.

Naturally, a lot of shoppers didn’t head straight to Nike stores — they went to wholesalers. Many of them probably still wanted to buy Nike shoes. And historically, they could. Nike was the No. 1 brand in almost every major retailer. In 2020, 75% of Foot Locker’s inventory comprised Nike and Jordan products.

That changed quickly.

After Nike decided to scale back wholesale partnerships, Foot Locker’s Nike allocation dropped by more than 20%. Other retailers saw even steeper declines. The move hurt both sides — retailers lost a key traffic driver, and the abrupt decision caused many to lose trust in Nike.

And when Nike realized it had overestimated its brand pull, it was already in a tough spot. Consumers weren’t walking out of Foot Locker empty-handed and heading to the nearest Nike store — they were just buying something else. The shelves were filled with other brands, and to the retailers’ surprise, those brands sold just fine.

So when Nike tried to return, it no longer had the same leverage. Retailers didn’t feel the urgency to bring Nike back at the same volume — or on the same terms.

And that opened the door for a new wave of brands like On and Hoka. Both were founded by athletes, both offered innovative technology, and both captured consumer excitement, especially among runners and performance-focused shoppers.

Which leads us to Nike’s second big mistake during its DTC push:
It neglected the product.

I’ve mentioned how Nike used to be an innovation machine. In its early days, product came first — and Nike made sure that mindset stayed at the core of the company. That’s what culture meant at Nike: being product-obsessed, hungry to win, and always pushing new ideas forward.

But in recent years, Nike has lost that edge. There haven’t been many groundbreaking innovations. Sure, there have been announcements — but not much to back them up.

So what happened?

As the company focused on building out its online presence, the product took a back seat. Resources were reallocated, and the goal quietly shifted — from making the best shoes to making more shoes, in order to drive DTC volume and hit digital growth targets.

That’s why we got wave after wave of Air Max and Air Jordan re-releases in every colorway imaginable — instead of truly new technology. And to be clear: I like those shoes. A lot of people do. But when you flood the market with them, they start to lose their appeal.

For years, Nike struck the perfect balance — selling at scale while still keeping sneakerheads engaged through scarcity, excitement, and originality. But as the product strategy leaned too far into mass availability, that balance began to slip—and with it, demand.

Under Donahoe, the balance tipped further toward the volume game, while Nike drifted away from speaking to sneaker culture — the very community that helped build its brand. And look, it would be easy to pin all of this on Donahoe. But that wouldn’t be fair — or true.

Nike’s size alone makes it incredibly hard to tailor products to every consumer. Smaller brands like On and Hoka are naturally more agile and can move faster in terms of both design and messaging.

But here’s the thing: Nike has always had that disadvantage. Long before Donahoe ever became CEO. Something else changed.

What changed was how Nike approached its customers.

Historically, Nike thrived in what’s called a pull market — where you first create a product, and then create demand for it. And Nike mastered this model for two key reasons:

First, it was relentlessly product-focused. The innovation was there. The designs were there. Nike shoes didn’t just look good — they performed. In 2019, Kenyan runner Eliud Kipchoge became the first human to run a marathon distance in under two hours. The controversy? His Nike Vaporfly shoe. Designed so well, it was rumored to have a material impact on the runner’s time. World Athletics even banned the shoe from subsequent races.

Second, Nike had — and still has — the most powerful athlete portfolio in the world. From Michael Jordan to Serena Williams, LeBron James to Cristiano Ronaldo — no brand has paired product with star power as effectively as Nike.

I know firsthand how powerful Nike’s pull factor used to be. As a kid, I didn’t just want football shoes — I wanted the exact pair my favorite player wore. Nothing else mattered. The same goes for kids who idolize basketball players, tennis stars, golfers, or even celebrities. Nike made it easy to create demand because when you combined that emotional connection with a high-quality product, Nike was unbeatable.

But in recent years, that model started to break down. As Nike shifted away from its product-first mindset, it also moved away from operating in a pull market. Instead, it started behaving like a typical push brand — trying to predict what consumers wanted and then building products to match.

That approach doesn’t work for Nike.

They’re too big, too slow, and frankly, too far removed from niche consumer trends to play that game well. And more importantly, they’ve historically had an edge most brands could only dream of: the ability to shape taste, not follow it.

But once Nike realized it couldn’t reliably guess what consumers wanted, it made a familiar move — it doubled down on its legacy models. As I mentioned earlier, that’s how we ended up with a flood of Jordans and Air Maxes in every color combination imaginable.

Last October, a new chapter began at Nike. Elliott Hill returned to the company — this time as CEO — after working his way up through Nike’s ranks from 1988 to 2020. He started as an intern. When he left, he was the President of Consumer and Marketplace.

Hill understands and embodies Nike like few others. For perspective, when he joined in 1988, Nike’s market cap was around $700 million. Today, Nike generates that much in revenue every five days.

Since returning, Hill has wasted no time. He launched what he calls the Win Now strategy — a plan to get Nike back on track by doing what it once did best: focusing on product, rebuilding retail relationships, partnering closely with athletes, and returning to a pull market model.

The shift is already showing up in bold marketing moves. Nike just ran its first Super Bowl ad since 1998, spending $16 million on the campaign. They signed Caitlin Clark, the biggest name in women’s basketball, to a $28 million deal. And — this one hits especially close to home — they signed a $700 million sponsorship deal with the German national football team, ending a 70-year partnership with Adidas.

Beyond bold marketing moves, Hill is also shifting focus away from the volume game that defined Donahoe’s DTC strategy. His goal is to re-establish Nike Direct as a premium destination — not just a high-traffic sales channel. He’s been clear: Nike became too promotional in recent years.

Now, Nike isn’t a luxury brand, but it has always carried a premium image. And if you read our Moncler newsletter, you’ll remember why excessive discounting can damage that kind of brand equity.

It didn’t just hurt Nike’s image — it hurt retailers, too. Whenever Nike slashed prices, retailers were forced to follow suit just to stay competitive. That strained relationships and further complicated Nike’s wholesale reset.

But that chapter’s behind them — at least in intention. Since taking over, Hill has been on the road nonstop, visiting wholesalers, Nike factories, and athletes around the world. His message? “We have to earn our way back to the shelves.”

But that was October. So now the big question is: How’s the “Win Now” strategy going?

Well, there’s not much that suggests Nike is “winning now” — at least if you’re looking strictly at the numbers.

In the most recent quarter, sales declined 9% overall, with drops across every brand, region, and sales channel. Gross margin took a heavy hit, falling 330 basis points (3.3 percentage points) to 41.5%. And if you looked at the EPS and thought, “Well, that’s not that bad,” keep in mind: it was propped up by a 10% drop in the effective tax rate — a one-off that helped polish otherwise rough results.

So, why is Elliott Hill’s confidence “reinforced”? Why does he say Nike is on “the right path”? Is he seeing different numbers than the rest of us?

I don’t think so. And believe it or not, I actually don’t dislike the recent trends as much as the headlines suggest.

Yes — the results are not good. And they’re even going to get worse. Nike’s guidance for Q4 includes mid-teen revenue declines and a 5% drop in gross margins.

But here’s the thing: the Win Now strategy was never meant to deliver short-term wins. Hill made that clear from the beginning. He said his plan would hurt the numbers in the short run, but he’s taking the long-term view. I know, calling it “Win Now” is a bit of a lie then. But honestly, would you call your strategy “Win Later?”

One of Hill’s first major tasks was reducing Nike’s inventory problem. After pandemic-era supply shocks eased, a flood of delayed product hit Nike all at once, leaving them with several seasons’ worth of inventory. Fixing that was going to hurt. But it was necessary.

Retail brands like Nike suffer tremendously when inventory levels get out of control. It clogs up the cash flow statement — you’ve already spent the money to make the product, but you're not getting paid because it’s just sitting there. The longer it sits, the more working capital is tied up and the higher the carrying costs.

But clearing that inventory also comes at a cost. You have to discount heavily to move product quickly, which not only hurts margins but also dilutes the brand and strains retailer relationships.

Hopefully, by now, you can see how everything we’ve discussed — from the DTC pivot to product missteps and retailer tension — fed into this reinforcing cycle that’s been dragging Nike down.

And speaking of things hurting Nike…

We can’t ignore the most recent development — the one that crushed the stock by 15%, only for it to bounce right back a few days later. You probably know what I’m talking about: Tariff mania.

The U.S. recently announced a new round of tariffs on imports from Vietnam — a country where Nike now produces over 50% of its footwear and nearly 30% of its apparel.

Depending on how Nike responds — whether by absorbing the cost, passing it on to consumers, or renegotiating with suppliers — the impact could vary widely. But in all scenarios, there’s potential for weakened demand and further pressure on margins.

There are no precise estimates yet on how Nike’s financials might be affected. Some industry experts suggest shoes that currently retail for $150 could rise to $220–$230, a range that likely assumes the full cost of tariffs is passed on to consumers.

But in reality, that may not be feasible. Pushing prices that high risks damaging demand, especially in an already soft consumer environment. On the other hand, if Nike absorbs the cost, margins would take a substantial hit. Each option comes with trade-offs, and none of them are easy.

For now, the situation remains uncertain. Reciprocal tariffs from Vietnam have been paused for 90 days, and initial talks between the U.S. and Vietnam have already taken place. But until there’s more clarity, the uncertainty remains yet another headwind for a business already in reset mode.

We’ve now covered Nike’s strengths — and its many current challenges: declining sales, margin pressure, inventory cleanup, and a strategy reset that will take time. So, when it comes to valuation, I try to reflect all of that — while knowing full well that the more precise a model tries to be, the more likely it is to be wrong.

Still, here’s the thinking behind my assumptions.

Before the recent tariff announcements, Q4 was already expected to be the low point, with management guiding for mid-teen revenue declines and another 450 basis point drop in gross margin. Now, with added uncertainty from the tariff situation, I remain cautious even beyond that.

For fiscal 2025, I assume a 15% revenue decline and an operating margin of 6.5% — down 5.5 points from 2024 and the lowest in over a decade.

When Shawn and I recorded our podcast on Nike (before reciprocal tariffs were announced), I assumed a gradual recovery: 5% revenue growth and a 10.5% margin by 2030. Even under those more optimistic assumptions, Nike would have only returned to its 2024 earnings by the end of the decade.

Given everything that’s changed, I’ve now revised those numbers: Just 2% annual revenue growth and a 2030 operating margin of 9%. That would mean that, even five years out, operating margins would be lower than at any point in the last decade, except for 8.3% in 2020 when the Covid pandemic hit.

From there, I total Nike’s expected earnings per share and dividends, apply a range of exit multiples, and assign probabilities to reflect different long-term scenarios. No one knows what multiple investors will pay five years from now, but this gives some structure to that uncertainty.

Discounted back at 8%, the model suggests a fair value of $63 per share — roughly 16.5% above today’s price of $54.

Don’t focus too much on the precise numbers here. For me, the key takeaway is that even if I assume a very grim outlook for the next five years, Nike’s current price seems attractive. Considering the dividend and the buybacks, your total shareholder return, depending on the exit multiple, could look like this (historic P/E between 25-28):

(Download the model here to play around with your own assumptions.)

Yes, the outlook is cloudy. Yes, more tariff headlines could push the stock lower. But from a long-term perspective, this entry point looks increasingly attractive. On the podcast, Shawn and I held off on adding Nike to our portfolio. Under the current circumstances, I’d now favor initiating a small starter position (explained in the below section) after the stock has sold off significantly since we recorded.

The bottom line: if you still believe in Nike’s brand, scale, and staying power, the stock offers solid upside from here (i.e., low-to-mid double-digit expected returns annually with very cautious assumptions, looking out 5 years or so)— especially if the turnaround gains traction and the tariffs end up as negotiating leverage, not a long-term policy.

"History provides a crucial insight regarding market crises: they are inevitable, painful and ultimately surmountable”

— Shelby M.C. Davis

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