Under the Spotlight Wall St: Nike Inc

Just do it. It’s been Nike’s tagline since 1988, but it could also be the cry among investors desperate for the footwear giant to regain its magic touch and arrest this year’s 30% share price decline.

Nike ($NKE) stock is trading at its lowest since March 2020 after the company warned, last month, that FY25 sales would fall by mid-single digits. As these had previously been expected to grow in 2025, many shareholders sprinted for the exit.

Shoe Dog to doghouse

Nike co-founder Phil Knight’s memoir, Shoe Dog, traces how Nike built its brand and popularity among runners by handing out shoes in the 1972 US Olympic trials, which drove demand for the waffle soles and made them iconic. An IPO came in 1980; add an exclusive deal with basketball legend Michael Jordan – the stuff of Hollywood – and the rest is history.

But time has moved on and so have the tastes of today’s runners. Nike’s focus on streetwear opened the door for rivals like Hoka (owned by Deckers Outdoor Corp $DECK), Brooks (of Warren Buffett’s Berkshire Hathaway $BRK.B), On ($ONON), Adidas ($ADDYY) and Mizuno to steal both the minds and share of wallet of runners keen for new products designed for their needs. Both Deckers and On Holdings shares are up around 40% this year.

Air Jordan

The shoes named in Michael Jordan’s honour have remained the king of sneakers for two decades after his retirement. But that appeal seems to be waning now.  

Nike has been able to count on frequent – and increasingly pricey – additions to the Air Jordan range to drive sales and plumpen margins. But cost of living pressures mean hypebeasts don’t have much spare cash to throw at a new pair of kicks. 

More subdued demand for Air Jordan 1s has crunched the premiums resellers enjoyed in recent years, as the shoes haven’t sold out as quickly.

Competitive battlefield

CEO John Donahoe acknowledged Nike had been wrong-footed in the running category, calling it a ‘competitive battleground’ on the Q4 earnings call. He’s pinning the company’s hopes on the launch of the Pegasus 41. 

Having lost ground to competitors, Nike has embraced the tactics used by upstarts. Donahoe promised a refreshed ground game to engage neighbourhood running clubs in a sales campaign that will last for several seasons. Funnily enough, brands like Hoka are actually copying Nike’s 1970s playbook, with sales reps that engage community running groups across the U.S. offering support, free merch and opportunities to try out the latest models. 

The problem for Nike is that this strategy will take time to pay off. Chief Financial Officer Matt Friend warned ‘a comeback at this scale takes time’. He sees a 10% sales slump in the first quarter of FY25 due to a lack of new models, weakness in the lifestyle unit (we’re looking at you Air Jordans) and an uncertain outlook for China.

The Paris Olympics, which start 26 July, would normally offer Nike an opportunity to showcase its products. The company is going to spend more on advertising during these Olympics than any other. The rub for Nike is none of the new models in the pipeline will be available during the premier sporting event.

Going the distance

Unsurprisingly, analysts cut their price targets following the shock FY25 guidance. Many see Nike’s path to victory as more a middle distance run than a sprint. 

It will take time to refocus its product range and move away from trying to be all things to all people. While US$2b of costs will be removed, plans to launch a range of sub-US$100 shoes show the pressure to win over consumers squeezed by high interest rates and inflation.

Nike shares are down around 58% from their November 2021 highs, but bargain hunters may wait for proof the hype around new product lines can translate to renewed sales growth. Nike needs to pick up the pace and innovate more rapidly to keep up with nimble rivals snapping at its heels.  

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