Nike is aiming to regain its former success. On Thursday, the footwear giant announced the appointment of company veteran Elliott Hill as its new CEO, prompting a positive reaction from investors. The stock surged by 8% in after-hours trading on Thursday and continued to rise on Friday morning. Hill will take over for John Donahoe, who is retiring after a term that initially showed promise but faced challenges due to an aggressive direct-selling strategy that opened pathways for increased competition and declining sales.
Donahoe received praise for steering Nike through the COVID-19 crisis, which was reflected in a substantial increase in the company’s stock price. Since he took the helm in January 2020, Nike’s shares more than doubled, reaching a peak of $177.51 in November 2021. However, the company’s fortunes have since declined sharply, with the stock down 24% for the year and closing Thursday just above the $80 mark. It was reported to be up 6% on Friday morning, trading just under $86.
Previously the CEO of eBay and ServiceNow, and a former consultant at Bain & Company, Donahoe’s goal was to transition Nike fully into the digital era. During his leadership, Nike aggressively cut ties with numerous retail partners, reducing its presence with major outlets like Amazon and Foot Locker, as highlighted in a recent Bloomberg feature.
Initially, this transformation proved effective, as the company achieved record sales of $51 billion last year. However, key competitors such as Adidas and Puma, along with emerging brands like Brooks, Hoka, and On, have gained traction in the market while Nike struggled to consistently deliver new models that fans expect.
During its latest earnings call in June, Nike projected a 10% sales decline for the current quarter, significantly worse than the 3.2% decrease analysts had anticipated. Efforts to cut costs, including a layoff of 2% of its workforce, have not reversed the downward trend. Insiders expressed concerns about a loss of talent within a company that has historically been protective of its heritage and innovative image.
Despite these challenges, investors seem hopeful that Hill can lead Nike to a turnaround. He has a long history with the company, starting as an intern in the 1980s and most recently serving as president of the consumer and marketplace division. Lorraine Hutchinson, a managing director and retail analyst at Bank of America, noted that Hill’s extensive experience within Nike is promising for revitalizing innovation, reigniting wholesale partnerships, and boosting sales. The firm maintained its Buy rating, viewing Hill’s appointment as a pivotal first step toward recovery.
Phil Knight, co-founder and chairman emeritus of Nike, expressed confidence in Hill’s capability, stating that his deep understanding of the company is vital for its progress. Knight acknowledged the challenges ahead but is looking forward to seeing Nike regain its momentum.
To incentivize him in this significant role, Nike is providing Hill with a compensation package worth $27 million, and shareholders are eagerly anticipating a positive return on this investment.