A company designing, developing, and marketing footwear, apparel, equipment, and accessory products, Nike (NYSE: NKE), stock is down 28% since the beginning of this year, compared to 23% growth in the S&P 500 over the same period. In comparison, Nike's peer Lululemon (NASDAQ: LULU) is also down 27% over the same period. See Why Is Lululemon Stock Underperforming?

So what's happening with Nike stock?

Nike reported earnings and is trading near $77 per share (Dec 19). Nike beat on the top and bottom lines in its second quarter (which ended November 30), though revenue and profit were down year-over-year (y-o-y). Sales fell to $12.35 billion, down about 8% y-o-y. Its net income fell to $1.16 billion, or 78 cents per share, compared with $1.58 billion, or $1.03 per share, a year earlier. Separately, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

Nike is struggling with macro pressures, uneven consumer trends, sluggish brick-and-mortar sales, a weak wholesale order book, and softer digital sales. During the second quarter, sales at Nike's stores and online were down 13% while wholesale revenues were down 3%. Nike saw sales down in all four of its geographies. In North America, Nike saw sales of $5.2 billion, an 8% decline. In Europe, Middle East and Africa, sales were down 7% to $3.3 billion. In Asia Pacific and Latin America, sales fell 3% to $1.7 billion, and China saw sales decline 8% to $1.7 billion.

Notably, NKE stock has performed worse than the broader market in each of the last 3 years. Returns for the stock were 19% in 2021, -29% in 2022, and -6% in 2023.

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The company's previous strategy, which emphasized online sales growth through performance marketing and selective wholesale partnerships, is being reevaluated. The new approach will involve unwinding these initiatives, which have consumed a significant portion of the company's resources. Nike is in a transitional period focused on streamlining the sluggish sales of many of its brands in FY 2025.

Nike's margins have stayed within a tight range for a long time due to its mature nature of business. The steep discounting contributed to a 100 basis point decline in gross margin in Q3, which came in at 43.6%. This decline was driven by higher discounts and changes in channel mix, partially offset by lower product input costs as well as lower warehousing and logistics costs. However, Nike still has a lot of pricing power and can offset promotional sales of low-margin products by selling higher-margin premium products in the long run. It should be noted that Nike's rival Lululemon still reports much higher gross margins of ~59% (Q3 2024).

We forecast Nike's Revenues to be $46.5 billion for the fiscal year 2025, down 9% y-o-y. We forecast earnings per share to come in at $2.62. Given the changes to our revenues and EPS forecast, we have revised our Nike's Valuation to $80 per share, based on a $2.62 expected EPS and a 30.4x P/E multiple for the fiscal year 2025 - almost 5% higher than the current market price (Dec 19).

It is helpful to see how its peers stack up. Check out how Nike's Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.