Why I’m Buying Nike After Warning About Its Relevance Problem

Why I’m Buying Nike After Warning About Its Relevance Problem

A few months ago, I wrote that Nike's real problem was not sales. It was relevance. I still think that was the right way to look at the company, because in consumer brands the numbers are usually the last thing to admit the truth. Sales can hold up for a while. Margins can look respectable. The brand can still be everywhere. But underneath, behavior starts to move. Consumers get excited by something else. Product drops do not create the same urgency. Competitors that once looked small start taking the cultural moments. The business does not collapse. It drifts. That is what makes it so dangerous. One reason I avoid retail investments is that they are rarely compelling. 

That was the concern with (NKE) . It was not that (NKE) had suddenly become a bad company. It was that one of the greatest consumer franchises in the world had started to feel less unavoidable. (NKE) was never just a footwear company; it was a brand that mattered to investors. It was sport, culture, aspiration, performance, and identity wrapped into one of the most recognizable logos on earth. When that connection weakens, investors should not dismiss it as a temporary sales issue. Relevance is what gives a brand its pricing power. It is what supports margins. It is what makes consumers want the product before it has to be discounted. Once that fades, the financials follow. So, I have not changed my mind on the problem. I have changed my mind about the stock.

From Premium Compounder To Turnaround

That is an important distinction. Earlier this year, the risk was that investors were still viewing (NKE) through the old lens. They were treating it as the same premium compounder that had earned the market’s trust over decades. That old Nike had product heat, athlete credibility, China growth, scale, distribution power, and direct-to-consumer excitement. It was not just a good business. It was an effortless business for investors to own. You could put it in a quality portfolio, a growth portfolio, or a long-term consumer portfolio and not have to explain yourself very much. (NKE) was (NKE).

But that is not how the market sees it now. The premium has gone. The trust has gone. The stock has been reset. Investors are no longer asking how high the multiple should be on a great global brand. They are asking whether this is a turnaround, how long it will take and whether the brand has lost something it cannot easily get back. That is a very different setup, and it is why I am now interested.

When a compounder becomes a turnaround, the shareholder base changes. Growth investors leave because the growth is no longer clean. Quality investors start questioning the moat. Momentum investors are long gone. Analysts become cautious. Every weak quarter confirms what people already fear. It is uncomfortable, but this is often where the opportunity starts if the underlying asset is damaged rather than broken.

Nike’s Numbers Are Still Messy

(NKE)’s numbers are still messy. In the third-quarter of 2026, revenue was $11.3 billion, flat on a reported basis and down 3% on a currency-neutral basis. (NKE) brand revenue was up 1% reported but down 2% currency-neutral, with weakness in EMEA and Greater China offset partly by North America. Wholesale revenue rose 5% reported and 1% currency-neutral, while (NKE) Direct revenue fell 4% reported and 7% currency-neutral, with (NKE) Brand Digital down 9%. Converse was down 35%. Gross margin fell 130 basis points to 40.2%. None of that screams fixed. It screams work in progress.

But this is exactly where I think investors need to look past the headline. The improvement in wholesale matters. The market spent years applauding direct-to-consumer because it sounded cleaner and higher-margin. Own the customer. Own the data. Control the brand. That was the theory. The problem is that (NKE) is not a small DTC brand trying to build awareness. Nike is a global sports and culture brand that must be seen, touched, discovered, and wanted across the marketplace. Wholesale is not just a sales channel for (NKE). It is part of the stage.

That is where the old strategy went too far. In trying to control more of the consumer relationship, (NKE) weakened parts of the ecosystem that helped keep the brand culturally present. Retail partners matter. The mall matters. The sports store matters. The running wall matters. The place where a teenager sees the shoe next to everything else matters. A brand does not stay relevant by disappearing from places where consumers make choices.

Elliott Hill’s Reset Matters

This is why Elliott Hill’s reset matters. He is not just trying to produce a better quarter. He is trying to put sport back at the center, repair wholesale relationships, clean up the product engine, reduce excessive promotion and make Nike feel sharper again. Reuters reported after the latest quarter that Hill has been trying to revitalize the brand by limiting promotions and focusing on innovation and core products, including running shoes, although the recovery is taking longer than investors hoped. That sounds about right to me. This was never going to be a two-quarter fix.

The Bear Case Is Real

The bear case is easy to see, and frankly, it should be easy to see. (NKE) has lost heat. (ADS.D.DX) has improved. Hoka and On have taken mindshare in the running category. New Balance has become more culturally relevant. (LULU) and others are competing for the same consumer wallet. China is difficult, with (NKE) reporting Greater China weakness in the latest quarter and Reuters noting that China remains one of the biggest drags on the turnaround. Digital is weak. Promotions have hurt margins. Inventory cleanup has taken longer than investors wanted. This is not a clean story. It is not meant to be.

The question for me is simpler. Has Nike lost the consumer, or has it lost its way?

It has lost its way. That is not a small problem, but it is a different problem. Losing the consumer permanently impairs the brand. Losing its way means management made mistakes, the channel strategy became unbalanced, product cycles weakened, competitors took advantage, and the business now must earn back trust. That is hard, but it is not impossible, especially when the brand still has the scale, awareness, athlete roster, and emotional memory that (NKE) has.

The World Cup Is A Test Of The Thesis

This scenario is where the 2026 World Cup becomes a compelling opportunity. I would not buy (NKE) just because of the World Cup. That would be too easy and likely a mistake. A tournament cannot resolve China, rebuild gross margins, or solve a multi-year relevance issue. But it can provide (NKE) a global stage at exactly the right time. Reuters recently noted that (NKE) is using the World Cup to challenge (ADS.D.DX), promote new products, rebuild retailer relationships, and push its “Rip the Script” campaign across major retail outlets. Nike sponsors 12 national teams, while (ADS.D.DX) remains the official World Cup sponsor and supports 14 teams. That is a proper relevance battle, not just a marketing event.

For me, the World Cup is not an investment thesis. It is a test of the thesis. Can (NKE) look like (NKE) again? Can it feel sharp, competitive, and culturally alive? Can it connect football, streetwear, women’s sports, athletes, and products in a way that feels like leadership rather than catch-up? Can the wholesale partners feel the brand coming back? Can the consumer want the product rather than have to be pushed into it through discounting? Those are the things we need to consider.

Why I Am Buying Nike

I am buying because I think the market has moved too far from patience to disbelief. A year ago, too many investors still wanted to believe (NKE) was the old (NKE). Now, many seem to assume the old Nike cannot come back at all. That is a big swing in expectations, and stocks are made in that gap. (NKE) does not need to prove it is perfect from here. It needs to prove it is stabilizing. It needs to show that wholesale repair is real, that the product is improving, that inventory is cleaner, that promotions can be eased and that the brand still has enough pull to regain authority.

That is not a low bar operationally, but it is a lower bar than the stock used to face.

There are risks. If the product keeps missing, if China gets worse, if gross margins do not rebuild, if competitors keep taking the most important categories, or if consumers have genuinely moved on, then this stock can remain a value trap. A famous logo and a lower share price do not make a stock cheap. The business still must prove it can recover. I am not ignoring that. It is exactly why the stock is where it is. 

But I like buying great assets when the market is no longer willing to call them great. Nike is not broken in the obvious sense. It is bruised, questioned, and under pressure. The old confidence has been stripped away. That is what makes it investable to me now.

My earlier view was that (NKE) had a relevance problem. I still believe that. The difference is that the market now sees it and may be pricing it as if it cannot be fixed. I think that is too harsh. (NKE) has lost rhythm, not its place in global sport. If Elliott Hill can restore product authority, repair the marketplace, and make the brand feel urgent again, the stock does not need every number to be perfect before investors start to care.

That is why I own (NKE) at $45. Not because the problems have gone away. Because they are now obvious. And obvious problems, in a great franchise, are often where a better investment begins.