Why Nike’s Stock Crashed 60% in 4 Simple Charts

Nike‘s (NKE -1.95%) stock hit an all-time high of $172.49 on Nov. 5, 2021. At the time, investors were impressed by its quick recovery from the pandemic, the ongoing expansion of its Nike Direct business, and its robust growth in China.

However, Nike shares now trade nearly 60% below that record high. Let’s review that decline — and what exactly happened — in four simple charts.

1. Its revenue growth flatlined

From fiscal 2020 to 2024 (which ended this May), Nike’s revenue increased at a compound annual growth rate (CAGR) of 8%. But on a constant currency basis, its revenue rose just 1% in fiscal 2024 as it dealt with macro headwinds in the lower-end market, soft brick-and-mortar sales in China, uneven demand across its EMEA (Europe, Middle East, and Africa) region, and weak demand for some of its classic footwear franchises.

Nike expects that slowdown to deepen, with a mid-single-digit drop in its reported revenue in fiscal 2025. Analysts are bracing for a 5% decline.

2. Nike Direct lost its momentum

Nike’s core growth strategy over the past several years has been the expansion of Nike Direct, its direct-to-consumer (DTC) business that handles its first-party online and brick-and-mortar stores. That expansion boosted its gross margin by cutting wholesale retailers out of the loop, widened its moat against third-party e-commerce marketplaces, and gave it tighter control over its own supply chain and pricing strategies.

From fiscal 2020 to 2024, Nike Direct’s revenue rose at a CAGR of 15% as its wholesale revenue only increased at a CAGR of 5%. Nike generated 42% of its sales from Nike Direct in fiscal 2024, compared to 40% of its revenue in fiscal 2020. Unfortunately, that growth engine also sputtered out in fiscal 2024.

During a CNBC interview this April, CEO John Donahoe admitted that Nike had “over-rotated away from wholesale a little more than we intended” in its aggressive DTC expansion, and that it was now “investing heavily” in its wholesale retail partners to balance its business. Donahoe claims that shift will alleviate some of the pressure on its operating margin and inventories, but it also suggests the company is running out of fresh ways to boost its first-party revenue.

3. Its lackluster growth in China

Nike, like many other American brands, once considered China its next major growth market. It generated double-digit revenue increases in the Greater China region on a currency-neutral basis for seven consecutive years through fiscal 2021.

But over the past three years, Nike’s Chinese business lost its momentum. China’s draconian “zero COVID” lockdowns stunted its economic recovery, consumer spending slowed, and Nike faced intense competition from domestic competitors like Anta Sports (which owns the Chinese rights to FILA) and Li-Ning.

4. Its unimpressive gross margin

Nike’s gross margin declined in fiscal 2023 as it grappled with steeper markdowns and higher logistics costs in an inflationary environment. However, its gross margin expanded again in fiscal 2024 as it reined in those discounts, sold a higher mix of more expensive products, and benefited from lower logistics and freight expenses.

Nike expects its gross margin to rise 10 to 30 basis points in fiscal 2025. That outlook is encouraging, but it’s still lower than its higher-growth competitors like On Holding and Lululemon, which reported gross margins of 59.7% and 57.7%, respectively, in their latest quarters.

So is Nike a potential turnaround play?

Nike’s gross margin is rising, but analysts still expect its earnings to drop 21% in fiscal 2025 as its revenue growth stalls out. Its stock might seem reasonably valued at 23 times forward earnings, but the shares could head lower if it fails to stabilize its top line. So for now, I’d stay far away from Nike until a few green shoots actually appear.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica and Nike. The Motley Fool recommends On Holding and recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.