Nike's Sales Recovery Challenges

By Nicholas P. Brown and Ananya Mariam Rajesh

(Reuters) – Nike (NYSE:NKE)'s new CEO Elliott Hill warned of a long road to sales recovery for the sportswear giant, but the veteran executive's plan to turn the spotlight on sports like basketball and running allayed some investor worries.

On Thursday, the company announced it expects third-quarter revenue to decrease by low double digits, despite recent quarterly results exceeding market estimates.
In his first public address as CEO during the post-earnings call, Hill acknowledged that Nike had "lost its obsession with sport" and promised to realign the brand by refocusing on sports and selling more products at premium prices.

"The recovery is going to be a multi-year process, but he (Hill) seems to be going back to the roots, back to Nike being Nike," said John Nagle, chief investment officer at Kavar Capital Partners (WA:CPAP), a Nike shareholder.
"(Hill plans to shift focus) away from some of the streetwear and fashion that had taken over the brand, the heavy discounting, and the neglect of retailers. Just taking it back to what worked," Nagle explained.

Returning as CEO in October after over three decades with Nike, Hill aims to revive demand amidst obstacles caused by strategic missteps that strained relations with retailers like Foot Locker (NYSE:FL).
The company's market share has also declined as competitors, including Roger Federer-backed On and Deckers' Hoka, attracted consumers with fresher and more innovative styles.

Hill emphasized that a lack of new offerings had made Nike overly promotional, and he plans to shift focus towards selling more items at full price via its website and app.
Shares of Nike, which have lost about half their value in the last three years, fell roughly 4% in premarket trading following the muted forecast, as some analysts predict short-term margin pressures.

"With another half year of franchise management coupled with investment to reinvigorate the brand, we believe the next four quarters could be the worst for margin erosion and EPS reductions," noted Barclays (LON:BARC) analyst Adrienne Yih.

Nike's forward price-to-earnings ratio for the next 12 months stands at 27.53, in comparison to 33.47 for Deckers and 32.32 for Adidas (OTC:ADDYY).

"A rudderless ship now has a rudder and a sailor who knows how to drive it," stated Eric Clark, portfolio manager at the Rational (LON:0FRJ) Dynamic Brands fund, which also holds Nike shares.