NIKE's Inventory Cleanup Continues: Is it Too Little, Too Late?

NIKE Inc.’s NKE ongoing efforts to streamline inventory and reset the marketplace remain central to its turnaround strategy. However, concerns linger about whether these moves are coming too late to reverse the broader slowdown in growth. In fourth-quarter fiscal 2025, revenues dropped nearly 12% year over year, while inventory remained flat, signaling that while progress has been made, excess stock still weighs heavily on the business. The company has aggressively discounted aging products like Air Force 1, Dunk and AJ1 through value channels, but its digital business continues to struggle with weak traffic and ongoing promotions.

To regain control, NIKE is pursuing a phased inventory reset. It expects to reach a “healthy and clean” inventory position by the end of the first half of fiscal 2026. That means more discounting in the near term and continued pressure on digital traffic, which was down 26% in the fiscal fourth quarter. In key regions like North America and EMEA, the inventory quality is improving, with better sell-through rates and growing full-price sales. However, markets like Greater China still lag, requiring deeper discounting, supply cuts and retail concept overhauls.

While NIKE maintains that its inventory cleanup is on track, some analysts are skeptical. Ongoing reliance on markdowns and value channels risks brand dilution and weakens long-term consumer perception. With a $1 billion tariff headwind looming, any misstep in inventory or pricing could further delay the path to profitable growth. Success now hinges on the company’s ability to clear aging stock while reigniting demand for new, full-price products.

NKE’s Competition in the Global Arena

adidas AG ADDYY and lululemon athletica inc. LULU are the key companies competing with NIKE in the global market.

adidas has made notable progress in normalizing its inventory after being weighed down by excess stock, particularly from discontinued Yeezy products. In its recent earnings reports, the company highlighted double-digit declines in inventory levels, noting that cleaner inventory helped improve sell-through rates and reduce discounting pressure. adidas has become more disciplined in supply planning, enabling it to focus on core franchises with improved full-price sales.

lululemon has taken a more cautious approach to inventory management, though pressures are rising. The company reported a 23% increase in dollar inventory and 16% in units in the first quarter of fiscal 2025, mainly due to tariffs and FX, and not overstocking. While traffic in the United States remains soft, lululemon is confident in its inventory quality and has only modestly raised markdown expectations for the second half.

NKE’s Price Performance, Valuation & Estimates

Shares of NIKE have lost 2.2% year to date compared with the industry’s decline of 6.6%.

From a valuation standpoint, NKE trades at a forward price-to-earnings ratio of 41.17X compared with the industry’s average of 29.33X.

The Zacks Consensus Estimate for NKE’s fiscal 2025 earnings implies a year-over-year plunge of 22.7%, while that for fiscal 2026 indicates growth of 55%. The company’s EPS estimate for fiscal 2025 and fiscal 2026 has moved down in the past 30 days

NIKE stock currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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