Investing.com -- Nike shares fell sharply after the sportswear giant delivered a mixed fiscal first quarter, with an earnings beat failing to offset weaker-than-expected revenue and another quarter of pressure across key parts of the business.

Nike reported adjusted earnings of 48 cents per share, topping Wall Street expectations for 44 cents. Revenue, however, came in at $11.21 billion, below estimates of $11.35 billion and down 5% on a currency-neutral basis from a year earlier.

The revenue weakness was broad, with declines in Greater China and EMEA, while Nike Direct revenue fell 8%. The results underscore the challenge facing CEO Elliott Hill as he attempts to revive growth at the world’s largest sportswear company after several years of weaker demand and strategic repositioning.

Gross margin increased 60 basis points to 42.8%, helped primarily by lower warehousing and logistics costs. But the improvement did little to offset concerns about the company’s top-line trajectory.

Nike also offered a relatively weak outlook for the year. The company expects fiscal 2027 revenue to decline by high-single digits, while adjusted EPS is expected at $1.15 to $1.35, excluding about $0.15 of restructuring expenses.

The company is simultaneously embarking on another major restructuring effort. Nike said its new Pace operating model is expected to generate approximately $2.5 billion in cumulative savings through fiscal 2031, through changes including supply-chain modernization, a new campus in India and a reorganization around three geographic regions.

Nike expects to incur approximately $1 billion in pretax charges related to the program through fiscal 2031, including about $300 million in fiscal 2027.

Hill said the company’s "Sport Offense" strategy is producing measurable progress in its performance business, while acknowledging that Nike has more work to do in Sportswear, Jordan Brand and Greater China.

The reaction is particularly notable given how much pessimism is already reflected in Nike’s stock. Short interest stands above 7% of the company’s float, meaning a sizable portion of investors are positioned for further weakness. That could make the stock particularly sensitive to any signs that Nike’s turnaround is beginning to gain traction — or that the recovery is taking longer than expected.

For investors, the central question is therefore shifting beyond whether Nike can beat quarterly earnings estimates. The more consequential issue is whether Hill’s turnaround can eventually return the company to sustainable revenue growth, particularly in China and its direct-to-consumer business, while restoring profitability without relying primarily on cost cuts.

Original Article