The consumer cyclical sector has been one of the worst performers so far in 2024. Within this broader segment, the apparel retail industry has generated just a 0.2% return while the footwear and accessories market has declined 9.8% so far this year.
Given these data points, it's not entirely surprising to see that shares of shoe and clothing company Nike (NKE 0.22%) have cratered by more than 20% in 2024.
While that may spook many investors, Pershing Square Capital Management CEO Bill Ackman sees opportunity. According to his latest 13F filing, the famed hedge fund manager scooped up 3 million shares of Nike during the second quarter. With nearly a quarter of a billion dollars at stake, I think Ackman has some intentions to shake things up at Nike.
Let's dig into what's going on with the struggling sneaker brand, and assess why a change at the executive level could be the right move for Nike in the long run.
NYSE: NKE
Key Data Points
Nike's battle with fickle consumers
Nike is one of the most recognized brands on the planet. Yet over the last couple of years, the company's growth has started to decelerate. While some of these problems can be attributable to a challenging macroeconomic environment, the issues at Nike are a bit more pernicious.
During the company's recent earnings call, management alluded that Nike is experiencing some inconsistencies among consumer engagement. In other words, consumers have been migrating toward competing shoe companies such as Crocs or Birkenstock amid souring popularity at Nike.
Image source: Getty Images.
Why Bill Ackman may be interested in Nike
Nike's current CEO is John Donahoe. Prior to Nike, Donahoe served as CEO of e-commerce marketplace eBay between 2008 and 2015. Following his tenure at eBay, Donahoe became CEO of IT company ServiceNow in 2017 -- a role he kept until becoming CEO of Nike in January 2020.
Given the corporate history above, I think it's a fair position that Donahoe earned a strong reputation in the technology sector in particular. However, success in one industry doesn't necessarily correlate with the required skill set to succeed elsewhere. Since Donahoe took the reins at Nike on Jan. 13, 2020, the stock has returned negative 18.5%.
Clearly this isn't the best track record. While Ackman may see Nike's current depressed price action as a simple value opportunity, I think his intentions may go a bit deeper. Ackman is an activist investor. Activist investors work closely with a company's board of directors to try to identify new ways to ignite growth at struggling businesses.
A classic example of inspiring change at a company is hiring a new CEO. Another high-profile brand Ackman is invested in is Chipotle Mexican Grill. Ackman initially invested in Chipotle back in 2016 when the company was in the midst of a turnaround -- similar to the current situation at Nike.
By 2018, Chipotle had replaced its CEO with food industry veteran Brian Niccol. Of note, Niccol just resigned from Chipotle after six years at the helm and will be joining Starbucks as its new CEO.
The combination of a historically low valuation and the potential to influence change makes Nike one intriguing case study for Ackman.
Should you invest in Nike stock right now?
I think investing in Nike at this very moment carries too much risk. The company's outlook isn't bright right now, and the specifics around Ackman's investment thesis are still unfolding.
Moreover, while I'm predicting that Nike will replace its CEO, that is not enough of a reason to buy the stock. Rather, investors should be considering what type of CEO Nike needs. In my opinion, it is not a tech-oriented leader such as Donahoe.
Given how quickly consumers can change preferences (especially in an area such as fashion), I think Nike's best move is to hit the reset button and tap a leader that is an expert in understanding consumer demographic data at a deep level and knowing how to best reach the consumer through various marketing channels.
Perfecting the intersection of data analytics and marketing campaigns could really help Nike better understand why some of its competitors are succeeding right now, despite seemingly lower brand recognition.
In turn, these techniques can help rehabilitate Nike's brand identity and strengthen customer loyalty over time. I think the best thing for investors to do right now is keep an eye out for any major announcements coming from Nike, and be on the lookout for exclusive interviews that Ackman may give in the near future.
