Why Nike (NKE) Stock Is Nosediving

What Happened?

Shares of athletic apparel brand Nike (NYSE:NKE) fell 8.8% in the morning session after the company reported third-quarter earnings results. Its constant currency revenue declined 9% and unfortunately missed. Looking ahead, Nike withdrew its FY2025 guidance and postponed its Investor Day event, deflating investors' expectations heading into the announcement. The company provided some color on the current situation, with management adding, "Looking forward, our revenue expectations have moderated since the start of the year, given traffic trends on NIKE Digital, retail sales trends across the marketplace, and final order books for spring." 

With the stock up 10% over the previous month (September 2024) due to the applauded appointment of once-intern now CEO Elliott Hill, the market seemed to return to the reality that Nike is still struggling to reignite sales growth.

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What The Market Is Telling Us

Nike’s shares are not very volatile and have only had 6 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business. 

The previous big move we wrote about was 13 days ago when the stock gained 10.5% on the news that the company announced the appointment of Elliott Hill as President and Chief Executive Officer, effective October 14, 2024. He will replace John Donahoe, who is retiring from his role as President and Chief Executive Officer and from the Nike Board effective October 13, 2024. 

Hill is a seasoned veteran in the footwear industry and at Nike. Before retiring in 2020, he spent 32 years at the company (Nike), starting as an Apparel Sales Intern; he gradually ascended the ranks and held varying leadership roles across Europe and North America, helping grow the business to more than $39 billion. Also, Hill is considered well-liked at Nike, and his experience suggests he has intimate knowledge of the culture, unlike the outgoing CEO, Donahoe. 

The transition follows a period of underperformance under Donahoe's leadership, with Nike's most recent earnings falling short of Wall Street expectations. At the same time, the company also lowered its sales outlook for the fiscal year 2025, which is never a good sign. Under Donahoe, the company juggled a direct-to-consumer push (which was tricky because it meant alienating some important retail partners) and may have lost track of product innovation. 

The stock's reaction suggests markets are optimistic about Hill's return, with investors hopeful for a turnaround after the company's recent struggles.

Nike is down 21.8% since the beginning of the year, and at $83.34 per share, it is trading 32% 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 $910.76.

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