We're starting a position in an apparel giant that's in the midst of a turnaround
HS 26/09/2025
We are initiating a position in Nike , buying 540 shares at roughly $68. Following the trade, Nike will have a weighting of 1% in Jim Cramer’s Charitable Trust. We’re calling up Nike from the Bullpen , our watch list of candidates for the trust. We added the stock of the global leader in sportswear to the Bullpen on Monday, and it has since pulled back about 5%. We view this decline as an opportunity to take a small position ahead of Nike’s quarterly earnings next week. We want to be clear: This purchase isn’t a call on the upcoming quarter. Instead, it’s a call on the long-term turnaround plan being executed under CEO Elliott Hill. Nike was one of the best growth stories for decades, but the stock has been in the house of pain since late 2021. Part of the weakness stemmed from its exposure to China, where sales suffered due to the country’s struggling economy. There were structural issues, too. Under the leadership of former CEO John Donahoe, the company went all-in on its direct-to-consumer business. The strategy was initially successful as consumer shopping preferences moved online during the early days of the pandemic. But this shift alienated key retail partners such as Dick’s Sporting Goods and Foot Locker , ultimately hurting Nike. Competition was another factor. Nike lost its focus and edge in signature product innovation, allowing competitors like On Holding , Hoka, Lululemon , and New Balance to take share. A string of poor results cost Donahoe his job last September, leading Nike veteran Elliott Hill to come out of retirement to turn things around. Hill launched what he’s calling a “Win Now” strategy, which centers on five fields of play — running, basketball, football, training, and sportswear — across three key countries (the United States, the United Kingdom, and China) and five major cities: New York, Los Angeles, London, Beijing, and Shanghai. Instead of trying its hand at everything, Nike is focusing on its best-performing categories and locations. Hill has also cleaned house and brought in a new team to lead the company. In May, Nike announced a series of senior leadership changes, including the retirement of the company’s former president of consumer, product, and brand, and split the responsibilities across three separate executive roles. Also in May, Nike said it would begin selling directly on Amazon for the first time since 2019. This showed the company was serious about driving growth and restoring its relationships with retail partners. Nike’s last earnings report in June showed that confidence in the turnaround was growing. It reported better-than-expected results, and commentary for the fiscal year was well received. For Nike to get back to growth, it first needs a clean inventory slate. Having excess inventory can crush margins due to forced markdowns. One of the important lines from the last earnings call was that management expected to exit the first half of its fiscal year 2026 with a “healthy and clean” inventory position. Once the excess inventory is liquidated and cleared out, Nike’s margins will improve through improved full-price selling. On tariffs, Nike’s exposure is significant due to its global supply chain and manufacturing presence in China and Vietnam. On its last earnings call in late June, management estimated a gross incremental cost increase of $1 billion based on the current tariff rate. The company said it can fully mitigate its tariff headwinds over time through initiatives like sourcing optimization and reducing China footwear imports from 16% to a high single-digit range by the end of fiscal 2026. Nike is also working with suppliers and retail partners to mitigate other cost increases, and has implemented a “surgical price increase” beginning this fall. But these actions won’t happen overnight, which is why Nike expects a 75-basis-point headwind to gross margin in fiscal year 2026. Nike may have lost its way in recent years, but we’re encouraged by the steps Hill has taken to put the company back on the path to recovery. By the way, next summer’s FIFA World Cup could be a sales catalyst as people buy the latest boots (cleats), kits (jerseys), and other apparel to support their countries and favorite players. We’re initiating the position with a price target of $80, roughly in line with the current consensus, and implying about 17% upside from current levels. (Jim Cramer’s Charitable Trust is long NKE. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
