Elliott Hill Returns to Drive Nike’s Next Growth Phase — Is the Future Uncertain?

Nike #NKE exceeded earnings expectations, but the stock dropped for two reasons: the company is retracting its full-year financial forecasts and delaying its first investor day in seven years, which was set for November. On September 19, Nike announced that Elliott Hill would take over as president and CEO, starting October 14, 2024.

He mentioned that its revenue expectations have been adjusted downward for the year, citing factors like shifts in traffic on its digital platforms, changes in retail sales trends, and the impact of final spring season orders.

Here’s a quick breakdown of the Q1 FY25 numbers (ending August 31, 2024):

ℹ️ Total revenue came in at $11.6 billion, down 10%.

ℹ️ NIKE Direct revenue reached $4.7 billion, a decline of 13%.

ℹ️ Wholesale revenue was $6.4 billion, down 8%.

ℹ️ Gross margin improved by 120 basis points to 45.4%.

ℹ️ Net income stood at $1.1 billion, down 28%, with adjusted EPS at $0.70, a drop of 26%.

Balance sheet overview:

➡️ Inventory stands at $8.3 billion, down 5% year-over-year, driven by changes in product mix and lower production costs.

➡️ Cash and short-term investments total $10.3 billion, up around $1.5 billion year-over-year, with cash from operating activities offset partially by share buybacks, dividends, and capital spending.

Shareholder returns 

☝ Nike has consistently raised its dividend payments for 22 consecutive years.

☝ In Q1, the company returned approximately $1.8 billion to shareholders, including $558 million in dividends (a 6% increase year-over-year).

☝ As of August 31, 2024, Nike has repurchased a total of 99.7 million shares, amounting to $10.2 billion, under its four-year, $18 billion buyback program approved in June 2022.

🎯In fact,

✅ Nike’s first-quarter underperformance was largely anticipated. The company has been gradually losing market share to competitors, impacting sales growth in every market. Revenue declined in all four of its major global regions, with North America experiencing the steepest drop at 11%.

✅ The sportswear maker provided “additional information” to clarify how management views the business. Full-year revenue is expected to drop by a mid-single-digit percentage, with the first half of the year seeing a high-single-digit decline. Gross profit is projected to decrease year-over-year due to a focus on innovation. Although the company withdrew its full-year forecast, it intends to offer quarterly guidance. For its fiscal second quarter, ending in November, Nike anticipates an 8% to 10% revenue decline. Gross margins are expected to fall by 1.5 percentage points, mainly due to increased markdowns.

✅ After Hill’s confirmation, investors were optimistic, hoping he would help steer Nike back on track and regain its winning momentum (at that point, #NKE had risen by 9%). However, after the report, #NKE dropped about 7%, and since the start of the year, it’s down by 22%. I believe there are at least three clear issues: sky-high prices, brands like Hoka becoming more popular for both running and casual wear, and the loss of retail space in stores to competitors. That said, the new CEO hasn’t taken the reins yet, and everyone is waiting for a fresh strategy. Nike’s stock performance will hinge on what Elliott does next, but right now, it’s too early to tell. It will take time before his vision impacts the numbers. On a broader scale, the global sportswear market is facing years of structural changes ahead.