Quantfury Gazette

Nike’s (NYSE: NKE) new CEO has his work cut out for him

by
Nathan Crooks
Quantfury Team
nike

Nike (NYSE: NKE) investors gave a collective sigh of relief last month after the world’s most valuable apparel brand became the latest company to ditch a lackluster CEO with roots in the consulting industry and name a proven veteran as a replacement. But it’s only just becoming clear exactly how big of a challenge the new leader will face.

Elliott Hill—who started at Nike as an intern in 1988 and eventually rose to run marketing before retiring in 2020—will return and take over as CEO next week. He’ll find a company that’s struggling on many fronts after a disastrous few quarters and with declining interest in some of its most famous footwear franchises like Air Jordan. 

“A comeback at this scale takes time…while there are some early wins, we have yet to turn the corner,” CFO Matthew Friend said last week during an earnings call after reporting that fiscal first quarter revenue declined 10%. Outgoing CEO John Donahoe, who spent the first 20 years of his career at consultancy firm Bain & Company, didn’t address investors with any parting words. The abrupt shuffle has parallels with the recent change at Starbucks (NASDAQ: SBUX), which in August dumped its consultant CEO for a tried and tested industry insider in an attempt to recover a more dominant position in the market and get back to its roots. 

Nike—which made a number of strategic blunders under Donahoe’s leadership such as cutting out wholesalers to focus on its own retail operations—withdrew its full-year guidance and postponed an upcoming event with investors to give incoming Hill some time to find his footing. The company expects revenue in the next fiscal quarter to decline as much as 10% and anticipates having to use heavy discounting to clear out growing inventories.

“While Q1 revenue was largely in line with our plan 90 days ago, we delivered lower unit sales than we expected,” CFO Friend continued, citing a competitive environment and saying it would take time to regain market share. “We are moving aggressively to shift our product portfolio, create better balance in our business, and reenergize brand momentum through sport.”

Nike shares are down more than 50% from an all-time high seen in late 2021, and while they got a bump from the announcement that Hill was returning to the company, they’ve since given back most of those gains as the extent of the challenge ahead became evident. On a year-to-date basis, Nike shares have fallen 24%, far underperforming rising stars On Holding (NYSE: ONON) and Hoka-maker Deckers Outdoor (NYSE: DECK), whose shares have surged 96% and 45%, respectively, over the same time period. Under Armour (NYSE: UAA), another major competitor also pursuing a turnaround, is down 1%. 

Having already backtracked on its move to ditch wholesalers, Nike is expanding partnerships with retailers like Dick’s Sporting Goods (NYSE: DKS) and Foot Locker (NYSE: FL) to re-engage with consumers wherever they might be. It’s also increasingly looking toward runners as it plots a recovery.

“We are especially encouraged by the momentum building in our Running offense,” Friend said, adding that the sector was one of the few that grew in the last quarter. “This has been one of our toughest fights over the past few years and it is one of our biggest opportunities…we expect that the return to strong growth will take time, but we believe that we have all the right building blocks, especially with Elliott now leading us forward.”

On a regional basis, the CFO highlighted a new Nike & Jordan World of Flight store in Mexico City that’s now the company’s largest retail operation in Latin America and first dual-brand shopping experience. He said that traffic and sales have been exceeding initial expectations in a rare bright spot for the company. 

Nike may still be the preeminent sportswear company and is known for its unmatched roster of celebrity athlete endorsers including Michael Jordan, Cristiano Ronaldo, Serena Williams, Rafael Nadal, LeBron James and Caitlin Clark. The company is learning, however, that having the biggest names might not be enough in a market where customers are increasingly demanding high-quality performance products. Hill, who has a master’s degree in Sports Administration and was an athletic trainer with the Dallas Cowboys before first joining Nike, may be just what the doctor ordered. But things could get worse before they get better. 

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