Nike Inc (NYSE:NKE) stock is up 5.5% at $85.42 at last glance, after news that CEO John Donahoe is retiring in October and will be replaced by former executive Elliott Hill, who is coming out of retirement for the role after working 32 years at the company. Donahoe's stint at the helm has been rocky, and investors are optimistic about the change.
The stock has yet to recover from June 28, when it dropped 22.4% for its worst day ever after mixed earnings results and a guidance warning. Still, today's pop has the shares pushing closer to $93, where they resided before the bear gap. Year to date, the equity is down 21.3%.
Options bulls are chiming in on the buzz, with 111,000 calls exchanged so far in comparison to 58,000 puts. Overall, NKE has already seen more than double its average daily options volume. Expiring at the end of the day, the September 85 call is the most popular by far, where new positions are opening.
Several analysts raised their price targets on Nike stock today as well, citing the positive change. The 12-month consensus price target of $92.25 is a slim 7.8% premium to current levels, so more bull notes could be on the way if the stock continues to rise on the charts.
Nike (NKE) stock popped more than 7% in early trading Friday after the company named a new CEO amid its efforts to reinvigorate slowing sales growth.
Nike said Thursday that Elliott Hill, a former Nike executive who retired in 2020, will return to the company as the CEO and president on Oct. 14. John Donahoe, Nike's current CEO, will retire effective Oct. 13 and will remain an adviser to the company until January 2025.
Before retiring, Hill was president of Nike's consumer and marketplace business, leading commercial and marketing operations for Nike and the Jordan brand.
"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,” Nike executive chairman Mark Parker said in a press release.
The news comes as Nike stock has stumbled this year, falling more than 25% amid slowing revenue growth and concerns about the success of the company's pivot to direct-to-consumer sales.
"This is very good news for the stock, both the executive named as well as the timing," Bernstein senior analyst Aneesha Sherman told Yahoo Finance. "Elliott Hill has worked at Nike for 32 years. He's a product guy. He's ran retail in [Europe, Middle East, Africa] and US in North America. He knows the company and the product very well."
The stock fell 20% in June when the company reported fiscal fourth quarter earnings and said it expects revenue to decline more than it previously thought in the coming year. The company said quarterly revenue in the fourth quarter fell 2% from the year prior to $12.61 billion, below Wall Street's estimates for $12.86 billion. Meanwhile, Nike's $0.99 earnings per share exceeded analysts' expectations of $0.66. Nike's direct-to-consumer sales declined 8% from the same quarter a year ago to $5.1 billion.
Wall Street has been closely watching Nike's product pipeline as the Oregon-based company works to fend off competition in its core athletic footwear market from rivals like Adidas (ADDYY) and relative upstarts like On (ONON) and Deckers' (DECK) Hoka brand.
Nike's Recent Struggles
Being in Nike (NKE 6.38%) stock hasn't exactly been a winning game in recent years. Shares of the iconic athletic shoe maker have badly trailed the returns of the S&P 500 index over the last decade. But yesterday the company said it was replacing CEO John Donahoe with company veteran Elliott Hill effective Oct. 14. Hill worked at Nike for over three decades prior to retiring in 2020 after Donahoe was named CEO. Investors today think that change will be a good thing and aren't waiting to buy Nike stock.
The decision was approved by Donahoe himself. In a statement he said, "It became clear now was the time to make a leadership change, and Elliott is the right person. I look forward to seeing Nike and Elliott's future successes."
Hill was president of Nike's consumer division and oversaw marketing and commercial successes including the Michael Jordan brand before leaving the company. Investors are welcoming his return, as competitors including Deckers Outdoor's Hoka One One brand and On Holding have been taking market share.
Hope for a Turnaround
Nike announced Thursday afternoon that Hill, who retired as the company’s head of commercial and marketing operations in 2020, will replace Donahoe, who joined Nike as its CEO in Jan. 2020, beginning Oct. 14.
The market agreed with Katai’s assessment, as shares of Nike rose as much as 8.7% to $88 on Friday, hitting their highest intraday price since June 27, moderating to a roughly 6.5% gain by late morning. Friday is on track to be Nike stock’s biggest gain since Sept. 2023, though shares remain more than 50% below their 2021 peak.
Hill will be tasked with overseeing Nike’s “effort to rejuvenate innovation, rekindle wholesale relationships, and rebuild sales,” according to Bank of America analyst Lorraine Hutchinson.
Donahoe's Legacy
-16.5%. That’s how much Nike stock returned to investors from when Donahoe took the helm through Thursday’s close, compared to an 87.3% return for the S&P 500, according to FactSet data, accounting for dividends. It was also a down stretch for competitors like Adidas (-26.6% return over the period) and Lululemon (10.4%).
The end of Donahoe’s tenure as Nike CEO, which followed stints as the top executive at software firm ServiceNow and online resale platform eBay, coincides with dismally low expectations for Nike in its fiscal year ending May 2025. Consensus analyst estimates expect Nike to report a 4.8% annual decline in revenue, its first year-over-year drop since 2010 (excluding the pandemic-affected 2020) and a whopping 21.8% drop in profits. In recent years, Nike has dealt with broader issues like a tougher fight for market share in an increasingly crowded sportswear space and declines in its crucial China business as many retailers in the country flail. But observers traced Nike’s headaches to a wobbling brand reputation. Many tied this to Donahoe’s leadership — Bloomberg published a feature story last week titled “The Man Who Made Nike Uncool” — with criticism centering around Donahoe’s strategy to cut ties with retail partners and a shift away from innovation in the company’s sneakers and athletic clothing. Bernstein analyst Aneesha Sherman said Thursday of Donahoe’s doomed tenure: “The blame seems to fall solely on CEO John Donahoe’s lack of a product/sports background, which hampered his ability to make product decisions. But in our view the issue wasn’t that Donahoe couldn’t himself make decisions on product, but rather that the corporate focus shifted away from product.”
“The turnaround will take time, but the market will be more forgiving under a new leader,” wrote Sherman. Wall Street’s impatience was reflected in the company’s most recent financial results, as the stock tanked 20% in June to a 4-year low when Nike disclosed it expected a 10% annual decline in sales for the quarter ending in August.
The Future Under Hill
Nike may give investors an idea of what Hill has planned when it reports its first-quarter fiscal 2025 financial results on Tuesday, Oct. 1.
Investors are hoping that Hill, who has a long history at Nike, will be able to turn the company around and restore its previous glory. Hill has a deep understanding of the company and its products and is seen as a strong leader. He is also known for his focus on innovation, which is something that Nike has been lacking in recent years. However, it remains to be seen whether he will be able to meet the high expectations that investors have for him.
It is still early to say whether Hill will be successful in reviving Nike, but the initial reaction from investors is positive. If he is able to deliver on his promises, Nike could be back on track to becoming a leading force in the sportswear industry.
