2024-09-21 01:35:02
Topline
Nike shares jumped Friday as investors responded positively to a reshuffling at the sneaker giant’s top leadership post, as investors hope incoming CEO Elliot Hill can reverse the fortunes of the stock under incumbent John Donahoe.
Nike CEO John Donahoe will exit his post next month.
Key Facts
Nike announced Thursday afternoon that Hill, who retired as the company’s head of commercial and marketing operations in 2020, will replace Donahoe, who joined Nike as its CEO in Jan. 2020, beginning Oct. 14.
“This highly anticipated leadership change will inject a much-needed sense of urgency” at Nike, noted Deutsche Bank analyst Krisztina Katai in a note to clients, nodding to Nike stock’s extended struggles under Donahoe as profit growth stalled.
The market agreed with Katai’s assessment, as shares of Nike rose as much as 8.7% to $88 on Friday, hitting their highest intraday price since June 27, closing with a 6.9% gain.
That’s Nike stock’s biggest gain since Nov. 2022, though shares remain more than 50% below their 2021 peak.
Hill will be tasked with overseeing Nike’s “effort to rejuvenate innovation, rekindle wholesale relationships, and rebuild sales,” according to Bank of America analyst Lorraine Hutchinson.
Big Number
–16.5%. That’s how much Nike stock returned to investors from when Donahoe took the helm through Thursday’s close, compared to an 87.3% return for the S&P 500, according to FactSet data, accounting for dividends. It was also a down stretch for competitors like Adidas (-26.6% return over the period) and Lululemon (10.4%).
What Went Wrong Under Donahoe?
The end of Donahoe’s tenure as Nike CEO, which followed stints as the top executive at software firm ServiceNow and online resale platform eBay, coincides with dismally low expectations for Nike in its fiscal year ending May 2025. Consensus analyst estimates expect Nike to report a 4.8% annual decline in revenue, its first year-over-year drop since 2010 (excluding the pandemic-affected 2020) and a whopping 21.8% drop in profits. In recent years, Nike has dealt with broader issues like a tougher fight for market share in an increasingly crowded sportswear space and declines in its crucial China business as many retailers in the country flail. But observers traced Nike’s headaches to a wobbling brand reputation. Many tied this to Donahoe’s leadership — Bloomberg published a feature story last week titled “The Man Who Made Nike Uncool” — with criticism centering around Donahoe’s strategy to cut ties with retail partners and a shift away from innovation in the company’s sneakers and athletic clothing. Bernstein analyst Aneesha Sherman said Thursday of Donahoe’s doomed tenure: “The blame seems to fall solely on CEO John Donahoe’s lack of a product/sports background, which hampered his ability to make product decisions. But in our view the issue wasn’t that Donahoe couldn’t himself make decisions on product, but rather that the corporate focus shifted away from product.”
Crucial Quote
“The turnaround will take time, but the market will be more forgiving under a new leader,” wrote Sherman. Wall Street’s impatience was reflected in the company’s most recent financial results, as the stock tanked 20% in June to a 4-year low when Nike disclosed it expected a 10% annual decline in sales for the quarter ending in August.
