Nike's Biggest Drop in 23 Years Raises Pressure on CEO Donahoe

Key Takeaways:

• Significant Decline: Nike shares plummet 20%, marking the largest drop since 2001.

• Management Scrutiny: CEO John Donahoe faces criticism amid prolonged sales slump.

• Competitive Landscape: Intensified competition from On, Hoka, and Adidas.

Nike Inc. is facing increased scrutiny from Wall Street as a prolonged sales slump leads to the stock’s biggest rout in over two decades. Shares of the world’s largest sportswear company fell as much as 20% on Friday, wiping out more than $27 billion in market value.

Revenue Outlook Misses Expectations

Nike projects a mid-single-digit decline in revenue for the current fiscal year, falling short of investor expectations for growth. This forecast has heightened concerns about waning demand and rising competition from emerging brands On and Hoka, as well as established rival Adidas AG.

“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.

Support from Phil Knight

Despite the downturn, Nike co-founder Phil Knight reaffirmed his support for Donahoe. “I am optimistic about Nike’s future and John Donahoe has my unwavering confidence and full support,” Knight stated, expressing belief in the company’s strategic direction.

Analyst Perspectives

Neil Saunders, managing director at GlobalData, noted that Nike’s executives are “on thin ice.” He added, “The incredibly gloomy fiscal 2025 guidance has increased pressure on management significantly.”

Leadership Transition and Strategic Shifts

John Donahoe, who took over as CEO in January 2020, aimed to modernize Nike’s digital operations following significant growth in its e-commerce business. However, the company’s pivot to casual footwear has faltered, with sales of key lifestyle brands like Air Force 1 and Dunks declining for the first time since the pandemic.

“During the pandemic, Nike stuffed the market with Jordan 1, Air Force 1, and Dunks,” observed Matt Powell, senior adviser at BCE Consulting. “All of these programs are now on life support and may not ever recover.”

Cost-Cutting and Strategic Adjustments

In response to weaker sales, Donahoe unveiled a restructuring plan in December to cut $2 billion in costs over three years, including a 2% reduction in global headcount. However, the shift towards direct sales channels, such as Nike’s own stores and website, has not delivered the expected profits and growth.

Concerns Over Direct Channels

Bloomberg Intelligence analyst Poonam Goyal expressed concern over weaknesses in Nike’s direct channels, which missed expectations in the latest quarter. “The activewear giant could be turning its core shoppers away due to lack of newness,” Goyal noted.

Future Outlook

Donahoe described the current fiscal year as a “transition year,” aiming to initiate a “multiyear” cycle of new product introductions. However, analysts, including those at Evercore, caution that significant new products may not be available until autumn 2025.

Immediate Challenges

Saunders emphasized the need for Nike’s leadership to demonstrate tangible progress. “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.”