NIKE, Inc

NIKE's long record is steady, but at this price the margin of safety is too thin for the lens you chose.

NIKE designs and sells athletic footwear, apparel and equipment under the NIKE, Jordan and Converse brands. It sells through its own stores and digital platforms, which the filing calls NIKE Direct, and through wholesale accounts such as retailers and distributors. Across 15 years of filings the company has never reported a loss, and return on equity averaged 34%. The latest year is weaker: net income was $3.1B, operating margin was 9.1%, and the company is in a reset of its Greater China, Converse and NIKE Direct operations. At a share price of $37.99, the base value of $38.44 sits close to the price, while the bear value of $22.50 sits far below it.

NIKE designs and markets athletic footwear, apparel and equipment under the NIKE, Jordan and Converse brands. It sells through two routes: NIKE Direct, which covers its own stores and digital platforms, and wholesale accounts such as retailers and distributors. Nearly all products are made by independent contractors outside the United States, so the company earns the gap between what it pays for product and what it charges for it.

• Wholesale sales to retailers and distributors, which grew in the latest year
• NIKE Direct sales through stores and digital platforms, which fell in the latest year
• Pricing and product mix, measured by average selling price per pair
• Brand demand, marketing spend and endorsement contracts
• Discounts and markdowns that reduce what the company keeps per unit

Inside the circle? Across 15 years of filings the company has never reported a loss, and return on equity was at or above fifteen percent in 10 of the years measured, which suggests a brand with a durable record so far. The latest filings show a reset: Greater China and Converse are shrinking, NIKE Direct traffic has fallen, and management is cutting inventory through markdowns, so the next decade depends on whether that reset works and what it costs. Fashion shifts, digital shopping changes and rising endorsement costs are hard to forecast, and the excerpts do not show the reset's full cost, so the value range is wide. At the base case the margin of safety is 1.2%, well short of the 25% this lens requires.

The main protection for NIKE's profits appears to be its brand and trademarks, which the filing calls among its most valuable assets. The record supports this for a long period: return on equity averaged 34% and gross margin averaged 44%. The latest year is weaker, with operating margin at 9.1% against an average of 12%, and return on invested capital at 22%. The filing's own ROIC figure is lower than our computed figure, so the two should be read with care. Because Greater China, Converse and NIKE Direct traffic are all falling, we rate the moat as narrow, and the evidence does not show how long the damage will last. At the base case the margin of safety is 1.2%, short of the 25% this lens asks for.

Management returns most of its cash to owners through dividends, with a payout ratio averaging 47%. Owner earnings, which is the cash an owner could take out after the capital spending needed to keep the business competitive, were $3.2B in the latest year. The share count has changed by -1.5% a year, so buybacks have reduced the number of shares, but the filing says repurchases were paused in fiscal 2026. The retained earnings test, which asks whether each dollar kept creates at least a dollar of market value for owners, returns -1.6×, so it fails. The filing admits the reset has had a negative impact on revenues and profit, which is candid, but the test is a blunt tool here because market value also moves with share prices and the wider market, and the excerpts do not show the full cost of the reset.

• Share repurchases were paused in the first quarter of fiscal 2026, and the company says funding for any future buybacks will come from operating cash flows.
• The filing gives an average repurchase price well above the share price in our data, $37.99, so earlier buybacks were made at higher prices.
• The chief financial officer is leaving the company, and the filing describes a move to an advisory role before separation in September 2026.

• FailsThe $1 retained testFails

  Each dollar retained over the period has been matched by -1.6× of market value created ($21.0B retained in total).

  Why this test
• MixedMargin of safetyMixed

  At $37.99, the price is 1.2% below the base-case value of $38.44 (the bear case is $22.50). The standard lens asks for a 25% margin.

  Why this test

Your first test is whether you understand the business. Footwear and apparel are easy to follow, and the filing is clear about the two routes to market, so the circle of competence test is met. The moat is narrower than the record suggests. The filing says "We consider our NIKE and Swoosh Design trademarks to be among our most valuable assets" [0000320187-26-000088:business:16], which points to a brand-based advantage. Pricing power is less clear. In the EMEA footwear discussion the filing says "Lower ASP per pair was primarily due to higher discounts, partially offset by product mix" [0000320187-26-000088:mdna:17], which suggests the company has had to give up price to move product. On owner earnings, the latest figure is $3.2B against a normalised figure of $3.8B, and the trend is down at -2.7% a year. Rates are a useful check. The owner earnings yield is 6.8% against a 10-year Treasury yield of 5.2%, so the cash return looks attractive on paper, but that only helps if the cash holds up. Our tests fail the retained earnings test, which returns -1.6×, so the money kept in the business has not yet created a dollar of market value for each dollar kept. The filing also says "We paused repurchases under this program during the first quarter of fiscal 2026" [0000320187-26-000088:mdna:36], so buybacks, which Buffett only favours below intrinsic value, are on hold. Margin of safety is the decisive test here. Your required margin is 25% and the base case gives 1.2%.

• Whether the reset finishes on the timetable in the filing, with product, marketplace and brand actions due by the end of December 2026.

  The filing says Greater China and Converse will keep weighing on results through fiscal 2027, so the timing decides how long earnings stay below their average.

• Gross margin and the share of sales through NIKE Direct.

  The filing ties lower selling prices to channel mix and discounts, so these two numbers show whether pricing power is recovering or still being given away.

• Whether share repurchases restart, and at what prices.

  Buffett's rule is to buy back shares only below intrinsic value, so a restart near the current price would tell you how management sees the value.

• Cash from operations and the collection of the IEEPA tariff receivable.

  The filing says the receivable drove a large part of the working capital drag in fiscal 2026, and cash conversion looks flattered until it is collected.

• The chief financial officer transition, which the filing dates to 17 August 2026.

  Capital allocation decisions pass through the finance function, and a change in that role during a reset makes continuity worth checking.

Questions the filings couldn't answer

• What is the full cost of the reset? The excerpts show severance charges but not the total cost of markdowns, write-downs and store changes across every segment.
• Is the fall in NIKE Direct traffic a lasting change in how people shop, or a cyclical dip? The excerpts do not settle this.