(Bloomberg) -- Nike Inc.’s new Chief Executive Officer Elliott Hill pledged to reignite growth by refocusing on sports and revamping the company’s products. But first, he has to undo all the things his predecessor did wrong.
The world’s largest sportswear company reported revenue, profit and gross margin that surpassed analyst estimates in the quarter ended Nov. 30 — an early positive development in Hill’s turnaround bid. But the sales slump that began under previous CEO John Donahoe persisted, and Nike expects revenue in the current quarter to fall in the low double digits, a steeper drop than the 7.7% decline posted last quarter.
The shares fell 2.5% at 9:33 a.m. in New York trading, bringing the stock’s year-to-date decline to about 30%.
Hill, who came out of retirement to step into the company’s top job in October, on Thursday gave investors their first look at his strategy to pull Nike out of a deep sales slump. The company is organizing into teams focused around sports like basketball, football and soccer. Nike will also more closely manage inventory to avoid saturation of products — a move that could help the brand regain exclusivity and avoid markdowns.
“I recognize that some of these actions will have a negative impact on our near-term results, but we’re taking the long-term view here,” Hill said on the call.
The company is at a critical juncture as management tries to remedy waning demand for its lifestyle shoe lines, such as the Air Force 1, and a lack of new products and designs. Nike expects greater margin pressure and revenue headwinds in the fiscal fourth quarter, compared with the current quarter, as it realigns its inventory to better match what shoppers want to buy at full price.
Bloomberg Intelligence analyst Poonam Goyal said in a research note that “the planned markdowns to clear inventory are needed, we believe, to pave the way for a turnaround in fiscal 2026 and allow for fresh product in the fall and around the holidays next year.”
Telsey analysts said in note downgrading Nike shares that the turnaround path for the company will require bigger investments in areas such as marketing, resulting in lower sales and profitability over the next year. Analysts also “lack clarity” about how long it will take to “clean up inventory,” launch new products and take other steps that will return Nike to growth.
World Tour
Hill said he kicked off his first two months on the job with a world tour, in part to mend frayed ties with wholesale partners, while meeting with league commissioners in professional football, basketball and soccer. Nike will get “more aggressive” with its sports-related marketing while eliminating discounts for online sales.
Under Donahoe, Nike had moved to divert sales to its own stores and websites and away from retail partners. That backfired, ultimately helping competitors such as On Holding AG and Deckers Outdoor Corp.’s Hoka label to gain ground by occupying the space that Nike had vacated. Hill said he’s working to repair those relationships.
Earlier this month, Foot Locker Inc. announced that it would expand its Home Court basketball sections developed in partnership with Nike to stores worldwide.
Investors have been hungry for details from Hill, who shuffled senior management and shifted some of the company’s priorities in his early days. That included naming new leaders in the human resources, legal and sports marketing departments and shutting down a digital sneaker division.
Hill told employees Thursday that the company doesn’t anticipate any more “broader organizational changes” at this point, according to a memo seen by Bloomberg.
Needham analysts led by Tom Nikic think “the worst may be over” with a new CEO in place.
“While fundamentals will be very challenged in the near-term, we believe that it takes a back seat to the narrative, which is that of a veteran athlete coming out of retirement to pull his once-proud team out of the dumps,” the analysts said.
The Lifer
Hill has built his whole career around the Swoosh, unlike Donahoe, a former leader at Bain and eBay. Hill started at Nike as a sales intern in 1988 and worked his way up over three decades until he retired as the president of consumer and marketplace in 2020, shortly after Donahoe took over.
In September, when it was announced that Hill would come back to replace Donahoe, some employees popped open bottles of prosecco to celebrate the return of someone with a deep knowledge of the company and strong relationships with founder Phil Knight and superstar endorser Michael Jordan.
Nike has already signed two major sports deals that provide long-term stability. Hill extended Nike’s deal with the National Basketball Association and the Women’s National Basketball Association by 12 years, then came to terms with the National Football League to continue its partnership on player uniforms for all 32 teams.
(Updates share trading and adds new analyst commentary)
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