Nike Faces Tough Earnings Outlook as Market Prices in Volatility

As Nike prepares to release its fiscal fourth-quarter 2025 earnings on June 26, the options market is signaling heightened uncertainty. Historically, Nike’s stock has moved by about 6% in the week following its quarterly earnings reports.

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However, current options pricing suggests the market is bracing for a larger swing. The at-the-money $60 straddle expiring June 27 is priced at roughly $5.70, equating to about 9.5% of the stock’s current value. This elevated pricing reflects investor anxiety about Nike’s near-term prospects.

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Several factors are contributing to this outlook. Nike is navigating a tough environment characterized by softer consumer demand, stiff competition, and broader macroeconomic headwinds, including potential tariffs.

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Recently reappointed CEO Elliott Hill — a longtime Nike executive returning to lead a turnaround plan dubbed “Win Now” — is attempting to revitalize the brand with a focus on innovation, strengthening wholesale partnerships, and refreshing Nike’s image.

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However, alternative data sources present a mixed picture. Bloomberg’s Second Measure data shows a troubling 14.95% year-over-year drop in observed sales through May 31 — far worse than the industry average decline of 7.9%.

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Meanwhile, Placer.ai, which tracks real-world foot traffic via mobile location data, reported a 4.3% rise in store visits, beating the industry’s 1.1% decrease. Placer’s methodology has historically aligned more closely with company-reported figures in similar retail sectors, adding some optimism.

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On the other hand, Similarweb data, tracking global web traffic, showed a steep 20.8% drop in Nike site visits, far below the industry average decline of just 0.5%. While informative, the Similarweb metric is new and lacks a track record with Nike specifically.

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Nike’s most recent earnings report (for Q3 FY2025, ending February 28) underscored continued difficulties. Revenue fell to $11.3 billion, down 9% from a year ago. The Nike Direct business — which includes digital and store sales — brought in $4.7 billion, down 12% year-over-year.

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Within that, digital sales plummeted 15%, while store sales dipped 2%. Wholesale revenue also declined, dropping 7% to $6.2 billion. Weakness in China and Europe weighed heavily, even as North America saw strength in certain segments like running and training.

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For Q4, Nike expects a revenue decline in the “mid-teens” range — between 13% and 15% — which is worse than analysts’ expectations of an 11.4% drop to $11.07 billion. The rough start to the quarter stems from what Nike described as “double-digit declines” in January and February following strong December holiday sales. This indicates a significant pullback in consumer demand heading into the spring.

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Product performance was mixed. While new launches in running and training (such as the Pegasus Premium and Vomero 18) showed promise, this growth was offset by sharp declines in key lifestyle categories. The Sportswear and Jordan segments, including popular shoes like the Air Force 1 and Dunk, saw double-digit revenue drops. Competitors like Hoka and On Running, known for their stylish and innovative footwear, continue to eat into Nike’s market share, especially in the performance running space.

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Looking ahead, analysts expect Q4 revenue to come in between $10.6 billion and $10.8 billion — a steep year-over-year drop driven by weak consumer spending, reduced digital sales, and sluggish demand in China. While Hill’s efforts to reinvigorate the brand are showing early signs of progress — particularly through product launches and stronger wholesale ties — the broader economic challenges may outweigh those gains in the short term.

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Margins are also under pressure. Gross margins are expected to fall by 400 to 500 basis points to land between 37% and 38%. Key contributors include markdowns on unsold inventory — with $7.5 billion to $8 billion worth of stock still to be cleared — higher import costs from tariffs, and increased production expenses.

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Over the long term, margin recovery hinges on Nike’s ability to push more full-price sales through its direct-to-consumer (DTC) channels and maintain momentum in innovation.

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The current valuation reflects cautious optimism. Fair value estimates range from $80 to $85 per share, using earnings multiples of 38 to 40 and EV/EBITDA around 22x. If Nike’s turnaround gains traction, there’s potential upside toward $90–$100. However, if current challenges persist, the downside risk could pull shares down to the $50–$60 range.

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Options Strategy: Managing Volatility Risk

Given the elevated options premiums ahead of earnings, one strategy to consider is a diagonal strangle swap, which aims to benefit from volatility without taking outsized directional risk. This trade structure profits from significant stock movement in either direction — beyond about 12.5% — while reducing the potential for large losses if the stock stays relatively flat after earnings.

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The suggested trade setup is:

• Buy the Oct 17 $50 put
• Buy the Oct 17 $70 call
• Sell the July 18 $67.50 call
• Sell the July 18 $52.50 put

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This structure balances longer-dated directional exposure with short-term premium collection, offering defined risk and reward in a high-volatility environment.

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In summary, Nike is entering its earnings report amid a wave of uncertainty, with deteriorating fundamentals, mixed data, and growing competitive threats. The options market reflects this reality, and investors are watching closely to see whether Nike’s new leadership can pull off a meaningful rebound or if further downside lies ahead.

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