RBC Capital downgraded Nike to “Sector Perform” from “Outperform” as analysts at the Toronto-based investment firm see the turnaround under Elliott Hill making progress, but “slower and narrower” than anticipated.
In a note entitled, “Patience required – limited near-term catalysts,” RBC also slashed its price target on Nike to $50 from $70. Shares of Nike closed Wednesday at $43.96, down 69 cents, or 1.6 percent. Shares are down from $63.71 at the start of the year.
RBC further reduced its EPS estimates by 10 percent, bringing its forecast to 2 percent below consensus for fiscal years 2027 and 2028.
In the note, RBC analysts led by Piral Dadhania assessed the share price reaction of Nike and Adidas’ respective turnarounds. Dadhania noted that Nike has lost around half of its market value since Hill took over in October 2024, while Adidas’ hiring of Bjørn Gulden in January 2023 led to a 70 percent share gain in a comparable time period of 1.6 years, “underscoring the extent of the Nike underperformance.”
Dadhania wrote that while many changes in Nike’s leadership didn’t happen until fall 2025, some improved innovation was expected by now, with product lead times running from 12 to 18 months. He wrote, “One of the main frustrations with the Nike equity story is a perceived slowness in execution for us and some investors, which perhaps reflects the size of the Nike business (supertanker rather than dinghy) which simply takes longer to maneuver.”
RBC also noted that while it upgraded Nike last September on expectations that World Cup category momentum, a continuing category “refresh,” and ongoing inventory rationalization would lead to a sales growth inflection by the second half of the 2026 calendar year, Nike cautioned in reporting fiscal third-quarter results in late March that top-line progress wouldn’t be visible until calendar 2027.
Dadhania wrote in his note, “Progress to date is mixed so far, with positives around organizational elements and inventory clearance offset by lack of momentum on the product side and lack of breadth in terms of newness across categories. We also note Nike is not as deep as Adidas in the long tail of sports particularly for certain hardware categories such as padel/tennis rackets, etc. A cursory website check suggests Adidas offers products across 29 sports verticals whilst Nike offers sports products across 23 verticals, which, given its larger revenue base, implies higher concentration.”
Dadhania further stated that investors can no longer “assume that Nike has an automatic right to compete” given its dominant leadership position, scale and marketing expertise. The analyst wrote, “Today’s scrappier and more competitive sportswear marketplace requires a different formula for driving brand momentum and consumer relevance and Nike’s product offer is arguably still not where it needs to be.”
RBC estimates Nike’s mid-term revenue growth outlook at 3 percent, below the average growth of 6 percent in the sector, marking an improved growth rate versus declines in recent years but continued market share losses. Dadhania wrote, “Based on available evidence today, we are not sure Nike is competitive enough in terms of product design, price/value, or brand desirability to engineer a mean reversion revenue acceleration. More needs to be done on all these vectors before we are likely to see an improvement in our view.”
In footwear, Nike is seen losing share to On Running, Hoka, New Balance, Puma, Li Ning, Skechers and Asics in sports footwear, particularly in performance categories. RBC’s latest pricing survey also shows that while Nike still commands the highest median prices in lifestyle footwear for Nike and Jordan brands with a broad offering, the brand has lost its price leadership in running footwear to Hoka, On Running and New Balance.
In apparel, share gainers in the past five years are Lululemon and Arc’teryx, while several upstarts, citing Alo Yoga and Vuori at the premium level and Adanola and Sweaty Betty at the mid-tier level, are gaining traction. Dadhania wrote, “Nike needs to regain its competitive edge in lifestyle footwear, increase relevance amongst the Woman consumer, and perhaps rebalance its price/value equation to better address the fragmenting nature of the sportswear industry, which is premiumizing at the high end, and becoming more price competitive in the mid-tiers.”
Other factors in the downgrade cited include Nike’s challenges driving full-price direct-to-consumer sales and the risk that the merger of Dick’s Sporting Goods and Foot Locker will lead to fewer net orders for Nike, as well as margin pressures as Dick’s secures a “stronger negotiating position.” Dadhania also questioned whether Nike’s stock still commands its traditional premium P/E valuation to peers, given its slowing sales trajectory.
Dadhania said, “In our experience in other industries such as luxury goods, a premium valuation for the market leader is not defensible if competitors are delivering stronger growth and taking market share, which is also the case in the sporting goods sector.”
Several investment firms in early April likewise downgraded their ratings on Nike after the firm on its quarterly call issued a soft forecast for the upcoming quarter and the rest of the year. At the time, Goldman Sachs lowered its rating to “Neutral” from “Buy,” JP Morgan to “Neutral” from “Overweight,” and HSBC to “Hold” from “Buy.”
Image courtesy Nike
