Nike’s Index Exit and the Repricing of Sports Brands

On Monday, Nike drops out of the S&P 100 after nearly eighteen years. Nike’s seat, and three others, go to Dell, Palo Alto Networks, Arista Networks and SanDisk.

The effect on the share price should be small. Nike stays in the S&P 500, where almost all the index money sits. The removal follows a shift that has been underway for months. Sports brands are being repriced, and the summer showed it happening across the group at once, including to the companies performing well.

Lululemon fell 20% reportedly on September 11 to an eight-year low. Nike hit a 12-year low in August. And on July 30, adidas reported the biggest quarter in its history, raised its full-year sales forecast, and fell about 18% in a single day, the worst session since it listed in 1995.

adidas fell short on one line only, and it was profit. Revenue hit €6.7 billion, up 14% once you strip out currency moves, with its own shops and website up 25%. Operating profit rose just 5%, to €574 million, against the €623 million analysts had forecast, after a €924 million marketing bill around the World Cup, some €212 million more than a year earlier. Chief executive Bjorn Gulden told analysts he had not expected a reaction anything like it.

The shortfall is real. It also reflects a company buying visibility during the biggest football tournament on earth, with 14 national teams in its kit and the match ball, then absorbing an 18% fall for the cost of doing so.

The usual explanation for the sportswear selloff does not cover that.

When everyone cut prices at once

The problem facing sportswear brands was simple: too much inventory and not enough demand at full price. Brands cut prices to clear the surplus. Shops cut prices to keep up. Older sneaker styles, the retro models and the launch drops, were where it hit hardest. Dick’s Sporting Goods chairman Ed Stack told analysts the industry has the hangover right now, and said it runs at least to the end of the year.

Nike is the clearest case. revenue was flat last year at $46.4 billion while the company works through the legacy of its previous strategy, which leaned heavily into selling direct and ceded shelf space to rivals.

Lululemon has the steeper decline. Same-store sales fell 9% last quarter and 12% in the Americas, still its biggest market. The full-year forecast has been cut twice in three months, from sales growing 2% to 4% to sales falling 5% to 7%. That is a swing of around ten percentage points. A new chief executive, Heidi O’Neill, arrives to a brand losing customers.

Under Armour began its own turnaround earlier and is now cutting its product range by another quarter. Kevin Plank says the aim is fewer styles, sold in bigger volumes, at full price. In August, it cut its full-year revenue outlook to a mid-single-digit decline, from a slight one, with North America down 9% and Asia Pacific down 7%. Margins improved in the same quarter, though partly on tariff refunds tied to fiscal 2026 costs rather than on better trading.

The Adidas exception

If this were only about companies making mistakes, the one avoiding them would supposedly be the winner – Adidas is that company. It grew 14% while most of the group shrank, gained ground in football and running, and raised its sales outlook rather than cutting it.

The trigger was narrow. Profit came in €49 million under forecast, on marketing the company chose to spend, and the full-year profit target was held rather than raised alongside revenue. For a business that size, a shortfall of that scale costing 18% in a session suggests investors had already grown less willing to pay what they had been paying.

On Holding, which is growing faster than anyone in the category, fell 22% on its own results in August for a similarly small miss.

So the selling is not really about who runs their business well. Investors are paying less to own a sports brand, working or not. That is a repricing rather than a verdict on management, and it is slower to resolve than too much stock in a warehouse, because it sits with the market rather than with any one company.

Nike’s remaining premium

For Nike this matters most. The shares have fallen roughly 78% from their November 2021 high, wiping out something like $200 billion of value. That alone makes it look like a stock priced for disaster.

It trades at about 22 times expected earnings. The average large American company trades at about 21.

So after one of the steepest multi-year falls a large consumer name has seen, Nike is not priced as a broken business. It is priced as a recovery investors still expect to work. Falling a long way and being cheap are not the same thing, and the gap between those two ideas is where most of the risk sits.

Compare that with Adidas, where the chief executive bought 3,600 shares of his own company at €139.98 on September 10, and the incoming finance chief bought as well. Insider buying is not proof of a recovery. It is a more encouraging signal than a 22 times multiple on falling sales.

Why the pressure may ease

Three things suggest it eases from here.

• Demand is still there. Adidas grew football and running business by 39% and clothing by 35%. Nike’s running shoes have grown at double-digit rates for five quarters straight.
• Profit is being defended. Nike is shipping less to retailers on purpose. Under Armour is cutting its range by a quarter to protect full prices.
• Part of the cost hit is temporary with tariffs refund. Nike recovered $986 million of tariffs and Lululemon $134.5 million.

None of that is a company in retreat. adidas held its profit target while paying for a tournament that comes round once every four years, and it expects another $250 million to $300 million of tariff money it has not put in its guidance.

The wider rotation

Consumer stocks are the worst-performing part of the US market this year, down about 5% while energy is up nearly 48% and the index sits near record highs. That is not four companies having a bad summer.

Monday’s index change points the same way. Colgate-Palmolive goes out alongside Nike, and every one of the four replacements sells hardware behind the AI buildout. S&P frames it as keeping the index representative by company size, which is accurate and is also the substance of it. Brands have been growing less valuable next to servers and switches.

Why it may not

• Nobody is guiding to a recovery. Nike sees sales falling for another six months. Lululemon has cut guidance twice in three months. Under Armour now expects a mid-single-digit decline.
• adidas has World Cup stock to clear. Inventories are up 12% to 13%, and it has to sell at full price while everyone else cuts.
• Reported profits flatter the picture. Nike’s 72 cents a share was 20 cents without the tariff refund. Lululemon’s $2.92 was $2.06.

Nike’s lifestyle clothing and older shoe franchises are still shrinking into next year, and Adidas raising its revenue forecast while leaving its profit forecast alone tells you the extra sales are not reaching the bottom line. More at ‘The Retail World Cup: Adidas vs. Nike‘ on LSEG.

The hangover runs to December at the earliest, Christmas price cutting comes first, and the tariff money does not arrive again, so the comparisons get harder before they get easier.

The holiday quarter

If brands hold their prices through the holiday quarter and shops stop cutting theirs, the selloff from late July to early September was a rough patch and nothing more. If the price cutting runs into next year, then selling adidas on record sales was an early warning rather than an overreaction.

Three markers between now and then:

• Nike, October 1. No tariff refund in the comparison, and the first real test of that 22 times multiple.
• adidas, second-half margins. Whether the World Cup stock cleared without price cuts.
• Lululemon, the Americas. Whether a 12% decline in same-store sales has found a floor.

Sport is not in trouble. What investors will pay to own a sports brand is a different matter, and right now they are paying less for all of them, including the ones that are working.

All brands mentioned are tradable as Shares CFD with VT Markets: Nike (NKE), Lululemon (LULU),Under Armour (UAA), and adidas (ADS). Put them on your watchlist ahead of Nike’s results on October 1.

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