One month ago, Nike (NKE 0.79%) stock bizarrely jumped when Starbucks named a new CEO. While that news had nothing to do with Nike, it seemed to give investors a glimmer of hope that change was possible at the struggling footwear giant as Starbucks, which had been similarly flopping, jumped when it announced Brian Niccol as its next CEO.
Now Nike is indeed following in Starbucks' footsteps, having announced its own CEO change after hours on Thursday, and the stock jumped 7.6% after hours on the news.
Nike said that Elliott Hill, formerly a longtime executive, would become its next CEO, replacing John Donahoe, whose stewardship led to a decline in the brand and its performance since he took over in 2020.
Hill will become CEO on Oct. 14, while Donahoe will stay on as an advisor through Jan. 31, 2025, to aid in the transition.
Image source: Nike.
Who is Elliott Hill?
Hill differs from Brian Niccol, who came to Starbucks after an impressive run at Chipotle that included turning around the fast-casual Tex-Mex restaurant chain after its E. coli crisis.
Hill started at Nike in 1988 and spent 32 years there before retiring. During his time, he served in a wide range of roles, including president of consumer and marketplace, president of geographies & integrated marketplace, and president of geographies & sales. Hill also worked closely with executive chairman and former CEO Mark Parker.
Nike has a deep bench of executives who could potentially step up and serve as its next CEO, but Hill seems like one of the best fits, given his wide range of experience at the company. Donahoe, by contrast, had previously served as CEO of ServiceNow, a cloud software company, and had no day-to-day position at Nike, though he had served on the board of directors.
In the press release announcing his new position, Hill said, "Nike has always been a core part of who I am, and I'm ready to help lead it to an even brighter future. For 32 years, I've had the privilege of working with the best in the industry, helping to shape our company into the magical place it is today."
Hill's naming as CEO shows that Nike is intent on getting back to business as it was before Donahoe, who shifted focus from the wholesale channel to the direct-to-consumer channel, creating an opening for competitors, and neglected its product development and marketing in the process.
A turnaround will take time
The press release didn't offer any information about Hill's turnaround strategy, though it quotes him as saying, "Together with our talented teams, I look forward to delivering bold, innovative products, that set us apart in the marketplace and captivate consumers for years to come."
However, at this point, Nike is meaningfully impaired. The company forecasts a decline in revenue for fiscal 2025. Meanwhile, rivals have gained market share and momentum, in particular On Holding and Deckers' Hoka One One products.
Rebuilding its product pipeline and brand buzz will take time for Nike, and investors shouldn't expect an immediate change.
NYSE: NKE
Key Data Points
Is Nike a buy?
Investors will need to be patient with the sportswear giant, but over the long run, Nike should recover its recent losses. It has a number of competitive advantages, including its globally recognized brand, roster of elite athletes, and marketing expertise, and it still has a lot of goodwill with its customer base.
At this point, I'd like to see evidence that Nike is making progress in its turnaround before calling the stock a buy, but replacing the CEO is a good first step.
Nike stock is still expensive, considering that revenue is expected to decline this year, but if it makes progress in its recovery, investors should be rewarded with an increasing share price.
