Nike shares tumbled Tuesday evening after the company issued disappointing quarterly guidance, further proof the turnaround is taking longer than expected. Total revenue in the company’s fiscal 2026 third quarter was flat year over year at $11.28 billion, topping Wall Street expectations of about $11.24 billion, according to analyst estimates compiled by LSEG. Earnings per share (EPS) fell 35% from the year-ago period to 35 cents, beating the consensus of 29 cents, LSEG data showed. The 9% after-hours drop in shares Tuesday is sending Nike to its lowest levels since 2015. The shoe and apparel maker’s stock ended regular trading Tuesday down 17% year to date, underperforming the S & P 500’s 4.6% decline over the same period. NKE 1Y mountain Nike’s stock performance over the past 12 months. Bottom line Nike believes it is still in the middle innings of its comeback, but it’s hard for the market to have faith that it’ll win the game when management keeps forcing Wall Street to lower its estimates thanks to weak guidance. To be fair, the company outperformed both its revenue and gross margin guidance in the reported quarter, which covered the three months ended in February. Back in December, management projected fourth-quarter revenue to decline in the low-single digits and gross margins to be down approximately 175 to 225 basis points (1 basis point is equal to 0.01%). The actual numbers were a beat. Revenue end up flat and gross margins contracted 130 basis points, leading to an earnings per share beat of 6 cents. But it was also another quarter that required clearing out of bad inventory, resulting in what management called a five-point headwind to its reported results. This time it was their classic footwear franchise. “It was intentional. It was necessary,” CEO Elliott Hill said on the earnings call about the clean out of inventory. “And while it weighed on the quarter, it is improving the health of the marketplace, the quality of our revenue, and the foundation for more sustainable growth ahead.” As is often the case in difficult turnarounds, a company could report positive results one quarter and then lower expectations for the next. Stocks generally follow earnings, so when the company takes down earnings expectations, they take down the stock with it. Nike shares will rally when they break this downward revision cycle, but it hasn’t happened yet. The company’s fourth-quarter guidance was below the Street on both revenue and earnings per share, explaining this steep decline in after-hours trading. What’s even more disappointing is that the March-to-May quarter was where many bulls expected Nike to see a big tailwind from the upcoming World Cup soccer tournament being held this summer in North America. Clearly, this turnaround is taking much longer than what management anticipated, and we misjudged where the company was in its “Win Now” initiative when we started buying the stock last fall. This doesn’t mean the turn is dead; there’s a lot of…
Read More: Nike’s disappointing guidance signals its turnaround is farther from finish
