Nike CEO John Donahoe seems to be walking on thin ice. The former eBay executive has been leading Nike since January 2020, and after ending a lackluster fiscal year with more bad news, he is losing the confidence of Wall Street. On Thursday, Nike warned that its sales for this quarter are expected to decline by a significant 10%, far exceeding the projected decrease of 3.2% by LSEG, after reporting its slowest annual sales growth in 14 years (excluding the COVID-19 pandemic). The company also stated that it expects sales for the fiscal year 2025 to decline in the mid-single digits, whereas they were previously expected to grow. On Friday, the day after the quarterly report was released, Nike’s stock plummeted by 20%. The company’s market value was last estimated at around $114 billion. As Wall Street digested the gloomy outlook of the world’s largest sportswear company, at least six investment banks downgraded Nike’s stock rating. Analysts from Morgan Stanley and Stifel went even further by questioning the company’s management. Stifel analyst Jim Duffy wrote, “The 2025 guidance (5th downward consensus revision in 6 quarters) pushes the prospect of a growth inflection point further out to 2025 (earliest 4Q or 25 Spring), requiring investors to underwrite success of a style yet to be proven, and to look past 2H24 in an uncertain non-essential backdrop until momentum reaccelerates in 2H25… Management credibility is severely challenged, with increased potential for C-level changes.” Since Donahoe took over as CEO of Nike, the stock has fallen by approximately 25% as of Friday’s intraday trading, significantly underperforming the S&P 500 index and XRT (an ETF focused on retail), which have risen by roughly 69% and 67%, respectively, during this period. Nike CFO Matt Friend attributed the downward revision of guidance on Thursday to a range of factors. Some things, such as weakness in China and challenging foreign exchange headwinds, were beyond Nike’s control, but other issues were directly caused under Donahoe’s leadership. The company expects wholesale orders to slow down as it reconnects with major retail partners after cutting ties with them in recent years to support its direct-to-consumer strategy, while it expands into new styles, takes back classic franchise rights, and works to repair relationships with these partners. Meanwhile, loyal customers who shop on Nike’s website are no longer as enthusiastic about buying the company’s core franchise products, such as Air Force 1, Air Jordan 1, or Dunks. Critics argue that the sneaker lineup has long dominated the retailer’s offerings and has shut out customers seeking fresh styles and innovative designs from a range of upstart competitors. This has forced Nike to win back some of its most important customers – runners. While the retailer has focused on its direct-to-consumer strategy at the expense of innovation, competitors like On Running and Hoka have gained market share. Jess Ramirez, Senior Research Analyst at Jane Hali & Associates, told CNBC, “They almost laughed at running being a key sport that consumers engaged in… We’ve known for a while, we know consumers changed their minds after the pandemic and became more active,” adding that Nike “desperately needs a change in management.” She said, “We’ve seen that consumers have embraced running after lockdown and taken it seriously. There are runners out every day, and Nike hasn’t really responded to that.” Kevin McCarthy, Senior Research Analyst at Neuberger Berman, told CNBC’s Scott Wapner on Thursday that the company needs a change in management and speculated that Donahoe’s employment contract may be up soon. “Everything you say about this company seems to come back to execution, management, and other things,” McCarthy said on CNBC’s “Closing Bell.” “They have several very capable internal candidates now… You also have some former Nike candidates in the mix, and you have other competitors in the mix as well. But I do think that the leadership of this company is going to change in the next six months.” To be fair, Donahoe took office less than two months before the official start of the COVID-19 pandemic in the United States, and he had to deal with closed stores, remote workers, and constantly shifting consumer preferences and capabilities. While the company’s stock may have declined, under his leadership, Nike’s annual sales grew by approximately 37%, from $37.4 billion in fiscal year 2020 to $51.36 billion in fiscal year 2024. If you ask Nike’s co-founder and honorary chairman Phil Knight, Donahoe is doing a good job. The 86-year-old said in a statement to CNBC, “I’ve seen the future plans for Nike and believe in them wholeheartedly.” “I am optimistic about Nike’s future, and John Donahoe has my unwavering confidence and full support.”
