Nike’s Biggest Drop in 23 Years Puts Pressure on CEO Donahoe

(Bloomberg) -- Nike Inc.’s management team, led by Chief Executive Officer John Donahoe, is facing growing criticism from Wall Street as a prolonged sales slump sparks the stock’s biggest rout since 2001.

The world’s largest sportswear company sees revenue declining in the mid-single digits in the company’s current fiscal year, while investors had expected an increase. That has stoked concerns about waning demand and heightened competition from upstarts On and Hoka as well as longtime rival Adidas AG. At least seven analysts tracked by Bloomberg downgraded their ratings on Nike stock following the earnings and guidance update.

“Management credibility is severely challenged, and potential for C-level regime change adds further uncertainty,” Stifel analyst Jim Duffy wrote in a research note on Friday morning.

Nike co-founder Phil Knight reiterated his support for Donahoe in a statement. “I am optimistic in Nike’s future and John Donahoe has my unwavering confidence and full support,” Knight said, adding that he believes in the company’s plans.

The shares fell as much as 21% on Friday — Nike’s biggest fall since 2001. As of 1:53 p.m., the drop had wiped out nearly $29 billion in market value. The stock had already declined 17% over the past 12 months.

Nike's Stock Has Trailed the Broader US Market | The shares' performance has lagged the S&P 500 in recent years

The lower guidance at Nike isn’t due to “a broader slowdown in the athletic footwear industry,” but rather “a lack of newness and proactive actions to reduce supply,” said Telsey Advisory Group analyst Cristina Fernández in a research note. She added that brands such as Adidas, Puma and New Balance are growing in the casual category.

Nike’s executives are “on thin ice,” said Neil Saunders, managing director at GlobalData. “The incredibly gloomy fiscal 2025 guidance has increased pressure on management significantly. Management has tried to sell a story of improvement to investors, but is not prepared to back it up with positive forecasts.”

Donahoe took over Nike in January 2020 after CEO stints at auction site eBay Inc. and cloud computing platform ServiceNow Inc. His appointment followed huge growth in Nike’s e-commerce business and signaled to Wall Street that the retailer was committed to modernizing its digital operations.

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Under Donahoe, Nike took advantage of consumer shifts toward more casual footwear as the world eased out of the pandemic. Annual sales rose by almost $14 billion from fiscal 2020 to fiscal 2023, surpassing the $50 billion mark for the first time.

However, the casual segment is now under pressure. Nike executives partially attributed soft sales in the fiscal fourth quarter to weakness among its lifestyle brands, including Air Force 1 and Dunks. The category’s sales fell for the first time since the start of the pandemic.

“During the pandemic, Nike stuffed the market with Jordan 1, Air Force 1 and Dunks,” Matt Powell, a senior adviser at BCE Consulting and an expert on the footwear industry, said in a post on LinkedIn. “All of these programs are now on life support and may not ever recover.”

Donahoe outlined a restructuring plan in December to cut $2 billion in costs over three years in response to weaker sales. That includes slashing global headcount by 2%, including layoffs at its Oregon headquarters and its European hub outside Amsterdam. The layoffs and other belt-tightening measures followed a move to prioritize Nike’s own stores and website that has failed to produce the promised levels of profits and growth.

Weakness in those direct channels, which also missed expectations in the latest quarter, are a “reason for concern, as the activewear giant could be turning its core shoppers away due to lack of newness,” said Bloomberg Intelligence analyst Poonam Goyal.

Donahoe said that the current fiscal year will be a “transition year” for the business as it kickstarts a “multiyear” cycle of introducing new products. The company is focusing on increasing the speed at which it gets products to consumers, but analysts have still voiced concerns that new merchandise could take too long to arrive. Evercore analysts including Michael Binetti said “truly transformational products won’t be scaled until” autumn of 2025.

Saunders said executives will now have to show results quickly.

“It’s not like the company is drifting aimlessly,” he said. “However, it needs to show some signs of progress and a sequential improvement across the new fiscal year.”

--With assistance from Kim Bhasin and Tim Loh.

(Adds comment from Telsey analyst and stock chart)

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