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resolving the crisis will be a long road

After the stock market euphoria with the arrival of its new CEO, Elliot Hill, investors once again found themselves confronted with the complicated reality of Nike. The sports footwear and fashion giant presented its accounts with very bad news. The impact on its revenues and, above all, the deterioration of the outlook have reminded Nike that it is still at the bottom of a crisis and that, before turning it around, it will need a period of suffering. Now, in the hours before trading, the company is down 6%.

On the one hand, fiscal first quarter sales, down 10%, to $11.59 billion, just below analysts’ average estimate. Declines were particularly pronounced in North America and the region that includes Europe, Africa and the Middle East, while problems also persisted within the Converse brand.

These poor figures were obtained despite a good performance in a key market: China, where, despite lower sales of 4%, it is the area where it has resisted the best, despite the problems that seemed to appear the Asian giant. “Even though there has been some initial progress, we are not yet out of the crisis,” said Matt Friend, the chief financial officer.

However, the problems lie more with the future, which does not seem to show any substantial improvement. In fact, the company withdrew its full-year guidance in the face of a much less predictable outlook. And these doubts about its performance come precisely from a declining activity. Nike expects revenue to decline between 8% and 10% for the next quarter.

Elliott commented on this, after this “painful moment” on some key dates. However, he expects the trend to begin to reverse during the latter part of the year. Regardless, the company stressed that withdrawing guidance is not necessarily in response to instability in the business, but rather as a move to give its new management some breathing room. “This move gives Elliott the flexibility to reconnect with our employees and teams, evaluate current business strategies and trends, and develop our plans to better position the company,” Friend said.

A new era at Nike

Nike is seeking to turn away from the downward trend in which the company finds itself and that is why it announced at the end of September a radical change in its strategy. The company brought in John Donahoe, who was its star signing in 2020. The former chairman of Bain & Company was a renowned executive who was tasked with leading the company to steer Nike’s vast business toward a new structure of profitability and unlock the company’s potential. with the help of one of the big stars of senior management.

To this end, Donahoe conducted an extensive restructuring to focus the company on direct-to-consumer sales, abandoning influence and losing key partners. The new DTC model created inventory and logistics issues that hurt its margins in the short term. However, the big change occurred in its sections, with the removal of categories to focus on the most profitable businesses.

On his Linkedin account, Massimo Giunco, former brand director of the company, explained that this process has led to a gradual loss of innovation in which “the experience built on decades of leadership in running , football, basketball, fitness… has been lost.” .”, which led to a “loss of creativity, lack of innovation and erosion of image” that blew away its rivals. Particularly in the running sector, the company continues to lose positions to to competitors such as New Balance.

This led the company to lose 30% of its value in 2024 and 55% from the highs of 2020, when the pandemic sparked the use of sportswear in a boom for the company that peaked a year later. To stop this trend, the brand brought out of retirement Elliot Hill, a “soldier” who went from intern to CEO, passing through every position in between for 32 years.

This movement seduced the market because it shows the intention to modify the path taken with the previous management and to recover the old Nike model, therefore the markets received it with powerful increases of 7% on the stock market and 10% Since. This Tuesday, the company found itself faced with its first stress test.

“The idea here is that everyone understands that Nike’s stock will now depend on what Elliott does in the future, and that’s a problem that can’t really be solved,” said Simeon Siegel, an analyst at BMO Capital Markets. “It’s the image of a reality that we already know has changed.”

In any case, the company has shown its willingness to undertake change. “We recognized that we had lost market share in the specialty running sector,” Friend said. To highlight the importance of the segment, he added that “Nike is a running company, Nike is a running brand and it is extremely important for Nike to capture the runner market.”

For now, today’s meeting marks the end of the old leadership. Even if Donahoe wasn’t there, Elliott Hill hasn’t shown up yet (he will in two weeks). Amid this interregnum, only Friend was responsible for answering investors’ questions and presenting the data. However, one thing has become clear to investors: Nike’s road to recovery, if successful, will be long and winding.

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Katy Sprout
Katy Sprout
I am a professional writer specializing in creating compelling and informative blog content.
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