John Donahoe, attending the first day of the annual Allen & Company Sun Valley Conference, in Sun Valley, Idaho.
Drew Anger Getty Images
Nike CEO John Donahoe appears to be on thin ice.
Former top executive eBaywho has been at the helm of Nike since January 2020, has since lost confidence on Wall Street after the company closed a poor fiscal year with more bad news.
On Thursday, Nike warned that sales in the current quarter are expected to fall 10% – worse than the 3.2% drop predicted by LSEG – after posting the slowest annual sales in 14 years, excluding the Covid-19 pandemic. .
The company also said it expects fiscal 2025 sales to fall in the mid-digits while it previously expected it to grow.
The warning signs caused the stock to close 20% lower on Friday – making it the worst trading day in the company’s history since its IPO in December 1980. The decline wiped $28 billion from Nike’s market cap, down to just $114 billion from $142 billion. billion days before.
As Wall Street digested the gloomy outlook of the world’s largest sports company, at least six investment banks downgraded Nike shares. Analyst at Morgan Stanley and Stifel take a step further, specifically calling the company’s Management into question.
“FY25 guidance (consensus revisions down 5th in 6 quarters), pushing the prospect for growth inflection further into 2025 (possibly FY4Q or spring ’25 at the earliest) prompts investors to capitalize on the success of an unproven and visible trend that is uncertain. consumer discretionary background to 2HCY24 until momentum can rebuild to 2HCY25,” wrote Stifel analyst Jim Duffy. “Management credibility is severely challenged and the potential for C-level regime change adds to the uncertainty.”
Nike shares have underperformed the S&P 500 during CEO John Donahoe’s tenure.
Since Donahoe took over as Nike’s top executive, its stock has fallen more than 25% on Friday, underperforming. S&P 500 with XRT – Retail-focused ETFs – which have gained around 67% and 66% over the period.
Nike’s chief financial officer, Matt Friend, on Thursday attributed the guidance cut to a number of factors. Some, like the softness in China and foreign exchange challenges, are out of Nike’s control, but others are problems created under Donahoe’s leadership.
The company expects wholesale orders to slow due to new style sizes, pulling back on classic franchises and working to mend relationships with major retail partners after spending the last few years cutting back on its direct sales strategy.
At the same time, loyal customers who shop on Nike’s website won’t get a new pair of Air Force 1s, Air Jordan 1s or Dunks, the company’s core franchise. Critics say the sneaker line has long dominated retailers’ offerings and alienated customers as they sought new styles and innovative designs from a host of new competitors.
That leaves Nike to win back some of its most important customers – runners. As retailers focus on direct selling strategies at the expense of innovation, unscrupulous competitors like On Running and Hoka are grabbing market share.
“It’s almost silly at the end of the call that they talk about running being the main sport that consumers do. pandemic, how they are more active,” Jessica RamÃrez, senior research analyst at Jane Hali & Associates, told CNBC, adding that management change at Nike “is quite necessary .”
“Post-lockdown, we saw that consumers were taking running seriously and there were runners every day, and Nike didn’t respond,” he said. “I think if you have management there is no major consumer change, there is a problem with your company … something has changed and they have missed it.”
Kevin McCarthy, senior research analyst at Neuberger Berman, told CNBC’s Scott Wapner that the company needs a change in management and speculated that Donahoe’s employment contract may soon expire.
“Everything you suggest is wrong with this company seems to go back to execution, management and so on,” McCarthy said on CNBC’s “Closing Bell.”
“They have several internal candidates now who are very capable… you also have a couple of former Nike candidates, who have been in discussions, and you also have other competitors who have been discussed. think that the leadership of this company will change in the next six months.
In fairness to Donahoe, the Covid-19 pandemic began in earnest in the US less than two months into his tenure, and he has had to contend with closed stores, remote workers and the roller coaster ride of changing consumer preferences and capabilities.
While the company’s stock may be falling, Nike’s annual sales are expected to grow about 37% under his leadership from $37.4 billion in fiscal 2020 to $51.36 billion in fiscal 2024.
If you ask Phil Knight, Nike’s founder and chairman emeritus, Donahoe is doing well.
“I have seen Nike’s plans for the future and wholeheartedly believe in them,” the 86-year-old told CNBC in a statement. “I am optimistic about the future of Nike and John Donahoe has my full confidence and support.”
