As Nike (NKE) gears up for a pivotal leadership transition, the iconic brand faces a challenging road ahead in an increasingly competitive retail landscape, according to a research note from financial firm Jefferies (JEF).
The uncertainty leaves Nike’s shares in “no man’s land,” likely to remain “range-bound for several quarters” as investors await signs of revitalization, the firm noted.
With new CEO and longtime company veteran Elliott Hill set to take the reins on Oct. 14, the stakes are high as the company grapples with soft foot and web traffic and with growing market share from rivals such as Adidas (ADDYY) and Hoka (DECK). Despite Jefferies nudging Nike’s price target up to $85 from $80 due to optimism surrounding the leadership change, the real impact may not be felt or seen until fiscal 2026.
Nike’s investor day, which was expected to take place this November, is likely to be postponed as the new CEO gets his bearings.
Analysts say the company’s product-innovation pipeline needs better definition. They anticipate Nike will emphasize the importance of its product pipeline for long-term growth, but currently, its lineup for “2025 and beyond remains unclear.”
While Nike’s shift to direct-to-consumer (DTC) sales has boosted profits and brand control, the reduced number of traditional retail touch points may be negatively affecting recent performance because consumers have fewer opportunities to engage with the brand. That is partly due to current CEO John Donahoe’s decision to significantly reduce DTC partnerships with retailers such as Foot Locker (FL) and Macy’s (M).
As the North American sportswear market normalizes to typical growth rates, economic conditions appear to be worsening. And Nike isn’t immune to the trend. The brand is still facing a decline in consumer engagement, with foot traffic and web visits showing significant year-over-year drops. Meanwhile, scrutiny of Nike’s international growth, particularly in China, is increasing due to potential economic challenges and the uncertain impact of government stimuli.
As Nike embarks on its multiyear product innovation cycle in the second half of 2024, it may encounter several challenges. For instance, the company faces pressure on its revenue due to increased competition, economic difficulties affecting consumer spending, and a lukewarm reception to new products. Additionally, markups and an unfavorable channel mix could hurt profit margins, analysts say, and these headwinds may impact Nike’s financial performance moving forward.
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