Why Are Nike (NKE) Shares Soaring Today

What Happened:

Shares of athletic apparel brand Nike (NYSE:NKE) jumped 5.5% in the morning session after Bill Ackman's Pershing Square Capital Management revealed a new stake in the business in its Q2'2024 13F. The activist investor's hedge fund holds 3M class B shares valued at $229M. Typically, activist investors take stakes in companies and push for changes such as management refreshes, business/asset divestitures, or a recalibrating of investment priorities, among other moves. Notably, a day before the 13-F filing, research firm Gordon Haskett noted that Nike could be the next target for activist investors. After the initial pop the shares cooled down to $81.67, up 4.1% from previous close.

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What is the market telling us:

Nike’s shares are not very volatile than the market average and over the last year have had only 5 moves greater than 5%. In context of that, today’s move is indicating the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was about 2 months ago, when the stock dropped 19.6% on the news that the company reported second-quarter earnings results. Unfortunately, its constant currency revenue missed. The company recorded weaknesses in its Lifestyle brand, especially in the Digital channel. Notably, digital channel sales declined 10% due to softer traffic, higher promotions, and lower sales of certain classic footwear franchises. Management cited these issues, in addition to macro headwinds (especially in China) and unfavorable FX, as the reasons for revising FY'25 guidance. Nike now expects fiscal 2025 sales to be down mid-single digits. Sales in the first half (1H'25) are expected to be down high single digits (vs. previous guidance for low single digits decline). Precisely, revenue is expected to be down 10% in Q1'25, given most of the challenges called out during the earnings call. Overall, this was a bad quarter for Nike.

Nike is down 23.4% since the beginning of the year, and at $81.67 per share it is trading 33.4% below its 52-week high of $122.64 from December 2023. Investors who bought $1,000 worth of Nike’s shares 5 years ago would now be looking at an investment worth $1,027.

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