Nike Stock Rebounds After Company Brings Back Elliott Hill as CEO

Nike (NYSE: NKE) which is the third worst performing Dow Jones constituent this year, is up sharply in US premarket price action today after the company announced that Elliott Hill would replace John Donahoe as the company’s CEO effective October 14, 2024.

Hill worked at Nike for 32 years before retiring in 2020. Donahoe took over as the CEO in January 2020 and led the company during the COVID-19 pandemic. While Nike stock rose to an all-time high in late 2021 under his watch, the stock now trades below the price levels when he took over.

Nike Brings Back Veteran as Stock Sags

“Given our needs for the future, the past performance of the business, and after conducting a thoughtful succession process, the Board concluded it was clear Elliott’s global expertise, leadership style, and deep understanding of our industry and partners, paired with his passion for sport, our brands, products, consumers, athletes, and employees, make him the right person to lead Nike’s next stage of growth,” said Mark Parker, Nike’s executive chairman.

Notably, Donahoe revamped Nike’s sales and distribution strategy to focus on the Direct channel – which includes both its stores and online sales through its website. In the process, the company cut down on wholesalers which are an important distribution channel.

The strategy paid off well during the COVID-19 pandemic when many people pivoted to ecommerce and Nike’s online sales soared. However, by cutting back on wholesalers, Nike opened the gate for competition to occupy its shelf space at third party retail outlets. While direct sales are invariably high margin as compared to channel sales, the strategy backfired as people returned back to stores – many of which either did not had Nike products or had limited stock.

Earlier this year, Nike acknowledged that the company went a little too aggressive in its sales strategy. Notably, Nike’s sales have sagged and the company missed topline estimates in three of the four quarters in the last fiscal year.

NKE’s Revenue Growth Turned Negative

Nike reported revenues of $12.6 billion in the fiscal fourth quarter that ended in May. The company’s sales fell 2% YoY in the quarter and fell short of the $12.84 billion that analysts expected.

In the full fiscal year, Nike’s revenues were $51.4 billion which is only marginally higher than the previous year. It was the worst revenue growth that Nilke has witnessed since 2010, after excluding 2020 when the COVID-19 pandemic took a toll on its sales.

During the earnings call, Nike’s CEO John Donahoe said that the company “saw strong gains within performance product. However, this was more than offset by declines in lifestyle.” The company said that these factors had a “pronounced impact on our digital results” – a segment that it has been banking on for the last few years.

Nike Cut Its Guidance

Moreover, Nike cut its guidance and said that sales would fall 10% YoY in the fiscal first quarter of 2025 which was far worse than the 3.2% decline that analysts were modeling.

Commenting on the guidance, Nike’s CFO Matthew Friend said, “We are managing a product cycle transition with complexity amplified by shifting channel mix dynamics.” He blamed “increased macro uncertainty, particularly in Greater China, with uneven consumer trends continuing in EMEA and other markets around the world.”

Analysts Have Been Apprehensive About NKE Stock

After Nike’s dismal earnings report, brokerages including UBS and Stifel downgraded the stock and lowered their target prices. Yesterday also, Bernstein analyst Aneesha Sherman lowered Nike’s target price by $3 to $109 while maintaining her overweight rating.

‘Nike didn’t innovate’ has been one of the sweeping statements thrown around this year,” she said in her note. Sherman however sees Hill’s return as a positive for Nike.

Jessica Ramirez, senior research analyst at Jane Hali & Associates, also believes that Hill’s return to lead Nike is a positive move. “He is up against a tough environment in terms of morale at the company, rebuilding some of that culture that the company has lost,” she said in her note.

Ramirez added, “He does have quite some work to do across various teams but I think that’s what needs to be the focus, its culture and therefore, enabling the ability to have better products and newness.”

Disney Had Also Brought Back Its Previous CEO

Notably, in Q4 2022, Disney also did something similar and brought back Bob Iger as its CEO, replacing his successor, Bob Chapek. Under Chapek’s leadership, Disney doubled down on streaming and added millions of subscribers. However, it wasn’t a profitable strategy and the segment’s quarterly losses peaked at nearly $1.5 billion in fiscal Q4 2022.

Also, while focusing too much on streaming, Disney took its eyes off storytelling and entertaining people – something which it is famous for. Since Iger took over, he has been working to cut down streaming losses and the segment finally turned profitable in the previous quarter.

However, while Disney’s stock rebounded after Iger’s returns it has since sagged. It remains to be seen whether Hill’s return to Nike would lead to a similar outcome or can the company veteran pull the sneaker giant out of its current slump.