Release Date
September 21, 2024
Nike Inc. shares soared on Friday as investors reacted favorably to the sneaker giant’s CEO shakeup, hoping that new CEO Elliot Hill can reverse the stock’s fortunes under current CEO John Donahoe.
Nike CEO John Donahoe is set to step down next month.
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Highlights: Nike announced Thursday afternoon that Hill, who retired as Nike’s head of commercial and marketing in 2020, will take over as CEO on Oct. 14, succeeding Donahoe, who joined Nike as CEO in January 2020.
“This much-anticipated leadership change will bring a much-needed sense of urgency to Nike,” Deutsche Bank analyst Christina Katai wrote in a client note, noting Nike’s shares have long underperformed under Donahoe amid stagnant profit growth.
The market agreed with Khatai’s assessment, and Nike shares rose 8.7 percent to $88 on Friday, their highest price since June 27, and closed up 6.9 percent.
This is Nike shares’ biggest gain since November 2022, but the stock remains more than 50% off its 2021 high.
Hill will be tasked with overseeing Nike’s “efforts to revitalize innovation, rebuild wholesale relationships and turn around sales,” according to Bank of America analyst Lorraine Hutchinson.
Big numbers
That’s down 16.5% from the amount of Nike shares returned to investors since Donahoe took over as president through Thursday’s close, and it compares with the S&P 500’s 87.3% return, which takes dividends into account, according to FactSet data. It also represented a downturn for competitors such as Adidas, which returned -26.6% in that period, and Lululemon, which returned 10.4%.
What went wrong under Donahoe?
Donahoe’s tenure as Nike’s CEO comes at a time when Nike’s expectations for its financial performance in the fiscal year ending May 2025 are disastrously low, after previously serving as chief executive of software company ServiceNow and online resale platform eBay.
Analysts are skeptical that Nike’s sales will decline 4.8% year over year, the first year-over-year decline since 2010 (excluding the pandemic-hit 2020), and that profits will plummet 21.8%. Nike has dealt with broader issues in recent years, including increased competition for market share in an increasingly competitive sportswear industry and a decline in its key China business as many retailers struggle there. But observers say Nike’s biggest woes are due to a fragile brand reputation.
Many have linked this to Donahoe’s leadership – Bloomberg ran a feature last week titled “The Man Who Made Nike Lame” – and criticism has focused on Donahoe’s strategy of cutting ties with retail partners and moving away from the company’s innovation in sneakers and sportswear.
Bernstein analyst Aneesha Sherman said Thursday about Donahoe’s ill-fated tenure: “CEO John Donahoe’s lack of product or sports experience appears to have been the only thing that hindered his ability to make product decisions. However, in our view, the problem isn’t Donahoe’s own inability to make product decisions, but rather the company’s focus shifting away from product.”
Important Quotes
“A recovery will take time, but the market is likely to be more forgiving under new leadership,” Sherman wrote. Wall Street’s impatience was reflected in the company’s latest earnings report, when Nike’s shares fell 20% in June to their lowest in four years after the company said it expected sales for the quarter ending in August to fall 10% from a year earlier.
