Mired in one of its worst slumps in recent history, as reflected in the stock's 50% plunge since the beginning of 2022, NIKE (NKE, Financial) has determined that a change at the top is needed to return to its former winning ways. After the close last night, NKE announced that Elliott Hill will be returning after retiring from the company in 2020, replacing John Donahoe as President and CEO, effective October 14, 2024.
Based on the positive reaction in the stock, it's evident that shareholders are optimistic that Mr. Hill can reignite NKE's innovation and growth engine following a rough stretch that saw revenue decline by 1.6% in 4Q24, preceded by flat growth in Q3, and a pedestrian 0.8% sales increase in Q2. Those hopes are partly grounded on the fact that Mr. Hill, a 32-year veteran of NKE, rose to the position of President of Consumer and Marketplace and is well-versed with all aspects of the business, including the key retail partnerships that need to be reprioritized.
Interestingly, when Mr. Donahoe was appointed CEO in January 2020, after serving as eBay's (EBAY, Financial) CEO, one of his first moves was an executive shakeup that included Mr. Hill's retirement as President of Consumer and Marketplace. At the time, NKE's focus centered on building out its digital and DTC channels, so bringing in a leader with an extensive eCommerce background was fitting. When Mr. Donahoe arrived, he looked to build an executive team that would help steer NKE away from its retail partners to drive higher-margin DTC sales.
Just two months after Mr. Donahoe's appointment as CEO, the pandemic struck, making the company's pivot towards digital look prescient. Business was booming in 2020 and 2021 as the stay-at-home movement drove consumers to NKE's digital platforms while the athleisure wear and fitness categories took off. However, once the pandemic's grip began to loosen in 2022, NKE was too slow to readjust and kept relying on best-selling products to drive DTC sales.
The end result was that NKE began losing its main competitive edge—product innovation and brand power—as competitors like Deckers' (DECK, Financial) HOKA and On Holdings (ONON, Financial) filled the new product void, capturing market share in the process.
NKE's struggles were on display when it issued disappointing Q4 results on June 27 that included a 10% drop in digital sales and a 1% decline in North America revenue. The company also lowered its FY25 revenue outlook, forecasting a mid-single-digit decline compared to its prior outlook for positive growth. Mr. Donahoe, who characterized FY25 as a transition year for NKE, stated that early results in the innovation efforts were encouraging and that a pipeline of new products in the lifestyle and footwear categories are planned for 2H25.
It's apparent, though, that NKE's Board of Directors and Founder Phil Knight are not satisfied with the progress and are ready for a new direction. For a company known for its top-notch execution, it's been surprising to see it struggle through some painful missteps, so the change at the top doesn't come as a huge surprise. Lastly, the choice of Mr. Hill looks like a solid one given his long history with NKE and his knowledge of what has made the company such a success in the past.
