A Major Investor Exits Nike Amid Turnaround Doubts

Bill Ackman, the high-profile hedge fund manager, has closed out his firm's entire stake in Nike. Pershing Square Capital Management liquidated its position, citing concerns over the pace of the athletic wear giant's recovery under CEO Elliott Hill. The central issue, according to the investor, is the company's apparent inability to restore its profit margins to pre-pandemic levels in the medium term. This departure represents a significant vote of no confidence, contributing to a 2.5% decline in Nike's share price to $57.22 on Monday.

The company's most recent quarterly results for Q2 of fiscal 2026 highlight a complex picture. While revenue held nearly steady at $12.4 billion, marking a 1% increase, and earnings per share of $0.53 surpassed the $0.38 consensus estimate, underlying metrics were less encouraging. The gross margin contracted by 300 basis points to 40.6%. This squeeze is attributed to annual tariff costs of $1.5 billion and aggressive discounting strategies.

The situation in China is particularly stark, with sales plummeting 17% and digital revenue collapsing by 36%. This marks the sixth consecutive quarter of decline in this crucial market. In response, Citi analyst Paul Lejuez reduced his price target from $70 to $65 on Monday, maintaining a "Hold" rating. Concurrently, Seeking Alpha downgraded the stock from "Hold" to "Sell," pointing to risks for dividend sustainability in light of shrinking cash flow.

Should investors sell immediately? Or is it worth buying Nike?

A Glimmer of Hope from North America

Amid the challenges, there are positive developments in North America. CEO Hill's "Win Now" strategy appears to be gaining traction, with wholesale revenue surging approximately 24%. This growth suggests Nike's strategic shift back to traditional retail partners, following years of intense focus on direct-to-consumer sales, is beginning to yield results. In a contrasting bullish take, Jefferies named Nike its "Top Pick" for 2026, arguing that the current valuation already reflects a worst-case scenario.

The divergence between institutional skepticism and isolated optimism underscores a deeply divided market sentiment. Trading around $57, Nike's shares now sit roughly 30% below their August peaks.

A Cautious Near-Term Forecast

Management's guidance for the current third quarter anticipates a slight revenue decline. Furthermore, the gross margin is projected to contract by an additional 175 to 225 basis points. From a technical analysis perspective, the stock is on precarious footing; having breached the $58 support level, the 52-week low of $52.28 is now in view. While a planned "NikeSkims" collaboration in September could provide a fresh catalyst, the immediate priority for the company is to demonstrate a viable plan for arresting the decline in China and offsetting tariff impacts through operational efficiencies.