- John Donahoe to step down
- New CEO Hill has successful track record
- No quick fix for Nike’s problems
Nike’s (NKE:NYSE) shares surged 6.8% higher to $86.5 in after-hours trading on Wall Street after the company announced that veteran Elliott Hill is coming out of retirement to take the reins as chief executive officer.
You can see why the mood has been lifted. John Donahoe, who has been in the hot seat since January 2020, will retire on 13 October 2024 after a patchy stint running the iconic American sportswear firm that has seen more than 20% wiped off the share price. The S&P 500 has almost doubled in that time.
It’s the sort of bold move investors have been hoping for as the sneaker giant struggles with flagging US and China sales, and competition from upstart rivals, such as On Running and Hoka.
HITTING THE GROUND RUNNING
A 32-year Nike veteran who retired in 2020, Hill will become the company’s president and CEO on 13 October 2024, succeeding Donahue. And he should hit the ground running, having previously led Nike’s commercial and marketing operations, helping grow the Europe and North America business significantly.
Executive chairman Mark Parker insisted that Hill’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.’
The world’s biggest sportswear firm is in the middle of a major restructuring after botching its shift in strategy to sell directly to consumers.
Critics argue that in the process of driving sales through its own stores and website, Nike lost sight of innovation and failed to produce the kinds of groundbreaking sneakers it had become famous for.
At the time of poorly received fourth quarter results in June, Nike warned it expected sales to plunge 10% during the first quarter, far worse than the 3.2% decline analysts had expected, and cut full year 2025 guidance, blaming ‘uneven consumer trends’ around the globe and with sales in China remaining soft.
Nike’s adjusted earnings per share of $1.01 for the fourth quarter to May 2024 beat the 83 cents expected by Wall Street thanks to the sneakers-to-basketball boot seller’s cost-cutting drive.
However, revenue of $12.61 billion was down 2% year-on-year and shy of the $12.84 billion analysts were looking for, while revenues in North America, the Oregon-based behemoth’s biggest market, came in below market expectations at $5.28 billion.
NO QUICK FIX
Jefferies observed that Hill’s well-received appointment reflects confidence in his leadership.
‘However, Hill faces challenges after his four year absence,’ said Jefferies, ‘including rising competition and changes in distribution, brand building, and product. As Hill settles in, we look toward the upcoming analyst day for a clearer view of Nike’s strategy. Until then, we expect shares to remain range-bound as the market seeks a clearer direction forward.’
AJ Bell investment director Russ Mould commented: ‘Efforts to sell direct to consumers rather than through retailers hasn’t quite gone to plan, Chinese consumers seemed to have lost their appetite for Nike shoes, and Donahoe put too much reliance on selling limited edition shoes rather than positioning products as every day, essential items. His reorganisation of Nike also appears to have backfired, shifting from divisions organised by individual sports and towards men’s, women’s and children’s segments.’
Mould added: ‘Elliott Hill worked his way up the ladder in Nike, having previously spent 32 years with the company before leaving in 2020. This experience is priceless in an industry as ruthless and competitive as footwear. Fashions come and go but the key to success is being a trendsetter, not a follower, and Nike needs to get back on top.
‘Nike’s share price jumped on the news that Donahoe is leaving, implying that investors are not only happy to see someone else take the reins, but also the return of someone who knows the business inside and out.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
