Nike shares rose steadily in early trading on Friday as analysts and investors reacted to the sportswear giant's decision to replace Chief Executive John Donahoe.
Nike (OF) which has lost about $45 billion in market value this year, is currently trading where it was before the Covid pandemic hit in 2020 and is one of the worst five-year performers within the Dow Jones Industrial Average.
The company has been suffering from both a slump in consumer spending in China, a key growth market, and intense competition from European rival Adidas. (ADD) and mistakes related to a focus on its direct-to-consumer business rather than on traditional retailers and wholesalers.
The group launched a $2 billion cost-cutting plan last year aimed at boosting underlying profit margins and reviving store sales, but it failed to capitalise on a summer of high-profile sporting events, including the Paris Olympics and the 2024 European Championship.
Nike forecast a double-digit decline in overall revenue for its current fiscal year, which began in June, versus the Wall Street consensus estimate of a 1% increase, in what it called a “transitional year for our business.”
The group received some support for its recovery last month when billionaire investor Bill Ackman's hedge fund Pershing Square Capital Management disclosed a stake of about 3 million shares. But many analysts saw the activist stake as a tool to oust Donahoe as chief executive.
Nike's 'next stage of growth'
Late Thursday, Nike said Donahoe would step down next month, and would be succeeded by former Nike executive and 30-year company veteran Elliott Hill on Oct. 15.
“I'm excited to welcome Elliott back to Nike,” said Nike President Mark Parker.
“Taking into account our needs for the future, the past performance of the business and after conducting a thoughtful succession process, the board concluded that it was clear that Elliott's global experience, leadership style and deep understanding of our industry and our partners, coupled 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,” he added.
Related: Nike shares rise after appointment of new CEO
Wells Fargo analyst Kate Fitzsimons, who raised her price target for the group by $9 to $95 per share following last night's update, said Hill's return would be a “key catalyst that bulls have been waiting for and should help drive a new narrative for the company.”
Baird analyst Jonathan Komp, who raised his price target to $110 a share from $10, said Hill's appointment will likely have a major impact on Nike's long-term earnings outlook as well as the stock's outlook in six to 12 months.
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Hill's uphill battle
Deutsche Bank analyst Krisztina Katai said Hill's return to Nike as CEO “increases our confidence in Nike's ability to return to sustained growth.”
“This long-awaited leadership change will likely bring a renewed focus on product innovation, marketing and rebuilding wholesale partnerships, areas that had been challenged under previous leadership,” Katai said.
He has a buy rating with a $92 price target on Nike stock ahead of its Investor Day presentation on Nov. 19.
Related: Analysts revise Nike stock price targets after earnings
“Hill's strong relationships internally and with retail partners should provide an immediate morale boost,” he added. “While Nike's fundamentals remain weak, we believe they will be largely overlooked in the near term.”
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Ashley Owens, an analyst at KeyBanc Capital Markets, which has a sector-weighted (effectively neutral) rating on the stock, said Hill's “long connection to the company and her experience in the marketing space are encouraging as Nike looks to revitalize its brand narrative.”
“We believe the timing of the leadership change was relatively within expectations, and we note that Nike is taking swift action during its broader restructuring initiative,” he added.
Nike shares rose 6.9% in premarket trading, indicating an opening price of $86.53 each.
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