Latest Developments:
Nike (NKE) reported 1Q25 revenue of $11.58 billion, marking a 10.43% year-on-year decline. Despite a slight improvement in gross margin, operating margin dropped due to increased SG&A spending. Sales were weak across all regions, except for equipment, and NKE expects continued revenue declines of 8-10% for 2Q25. Consumer sentiment remains low, and despite efforts to revive growth, Nike faces an uphill battle in China, where sales declined by 4%, and domestic competitors continue to outperform.

Investment Case:
Nike's performance is deteriorating, with global sales struggling under weak consumer confidence and macroeconomic headwinds. The company is fighting a losing battle in China, where nationalism and shifting consumer preferences have hurt its standing. Although Nike is trying to innovate and expand its marketing efforts, these initiatives have not yielded a meaningful turnaround. NKE’s valuation appears inflated, with a potential downside of up to 12% based on current growth projections.

Company's Valuation:
The DCF model suggests that NKE is overvalued, with an implied share price of $75.40, representing a potential downside of 3%. In a more conservative scenario, assuming sales deteriorate further, the implied share price drops to $68.59, a 12% decline. Nike faces a lack of margin of safety at current levels.

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