New Nike CEO will prioritize wholesale partnerships: Analyst

Shares of Nike (NKE) are rallying after the company announced that CEO John Donahoe will be stepping down next month after a rocky five years at the company. Nike veteran Elliott Hill will come out of retirement to fill the role of CEO and president effective October 14.

Barclays consumer discretionary analyst Adrienne Yih joins Morning Brief to discuss Nike's leadership shakeup and what it means for the company's outlook.

As Hill steps up to the challenge, Yih believes he will prioritize relationships with wholesale retail partners: "It's the base for kind of the brand strength going forward. And even though it's margin dilutive, when you're a $50 billion global footprint brand, you need both channels to be working in your favor."

She believes that Hill is the right person for the job, explaining that he's well-liked at the company, and before his retirement, his positions at Nike focused on the global marketplace.

"We moved away from what was great about Nike, which is the brand innovation, the pipeline, the high-heat product, and the marketing that goes behind all of that. Remember, their demand creation budget used to be 10% of the top line. It had fallen under this management to about 7 to 8%, partly because there wasn't anything to get behind," she says, adding that she "couldn't think of a better person" for the job.

Yih explains that Hill will be at the helm of the "critical" Nike Investor Day on November 19 and believes his remarks will "set the tone for kind of going back into their channel partners in terms of the pipeline." She notes that new products are coming to the market in early 2025, and adds that by this time next year, the focus will be on what Nike has in store for the latest back-to-school season.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Melanie Riehl

Video transcript

Well, Nike shares are rallying after the sportswear giant announces late Thursday that Ceo John Donahoe will be stepping down next month after a rocky five years at the company Elliott Hill will take the reins as CEO and president here to break down investors reactions.

And what's next for Nike?

We've got Adrian Yee, who's the Barclays consumer discretionary?

I mean, we, we should remind investors, viewers out there that revenue did grow under Donahoe.

But as we're looking at this change, it seems like it's a very welcome uh changing of the guards at the top of the swoosh.

Um Wanna know what Elliott has to get right from your perspective out of the gate here.

And what needs to be prioritized.

Adrian, I think what needs to be prioritized right now is the relationships back with the wholesale, the their retail partners.

Um We've moved away from that obviously, and while sales had grown this year, fiscal 25 they were expected or they were forecasted last quarter to actually contract, you know, anywhere from negative low to mid single digit.

So the reversion back to the wholesale channel is incredibly, um you know, base.

It's the base for kind of the brand strength going forward.

And even though it's margin diluted when you're a $50 billion global footprint brand, you need both channels to be working in your favor.

Adrian, when, when it comes to Elliot Hill, given his experience, 32 years experience at Nike until he did initially retire in 2020.

Is he the right person for the job in your view?

I think he, I think somebody with his background absolutely is we moved away from what was great about uh Nike, which is the brand innovation, the pipeline, the high heat product and the marketing that goes behind all of that.

Remember, their demand creation budget used to be 10% of the top line.

It had fallen under the, you know, this management to about 7 to 8% partly because there wasn't anything to get behind.

So he's well liked at the company.

He obviously had um you know, positions throughout the entire organization, globally, consumer marketplace, Europe, North America.

I mean, I I couldn't think of a better person other than Mark Parker to come back.

I mean, we do love a good Boomerang ceo, why not?

Because there's something that investors can kind of look back to hang their hat on uh in a track record that they can expect to be resumed in many cases.

All these things though considered here, you have someone who was essentially part of the Mark Parker regime back when Mark Parker was still the CEO and prior to him stepping down from the role and then John Donahue taking over the the role a all of these things um considered.

What does Nike look like over these next few years under an Elliott Hill leadership?

What, what does the, the kind of 12 months, 18 months strategy and, and two years out strategy need to really convey not just to their partners but also to investors as well.

Yeah.

Um so I would think, I, I think that when, when John Donahoe came to the helm, we were in this kind of digital craze, right, you know, direct to consumer, led by digital, everything was going e-commerce.

And I think that that movement right at the time, the ecommerce digital footprint was about 20% just under 20% of total sales.

They wanted to move that to 40% right over the in the upcoming five years.

And so you needed a tech, a technology leader, somebody who is going to have this consulting background.

And I think what happened is that we had all sorts of crazy issues with inventory and manufacturing and supply chain and all of a sudden inventory and supply chain, all the details that underpin retail and consumer companies sort of came to the forefront.

And so there's a very sort of, you know, dual channel where yes, we want to get to the future world where it's going to be a digital economy.

But at the same time, you can't abandon all the things that were the, the underpinning of Nike's success.

Up to that point, Adrian, when investors are trying to figure out how long until this trickles down until we actually do see some movement here for Nike.

And I I, in terms of the payoff, what do you think or how long until we see true product or true brand evolution?

So when a new CEO comes in and what they're already have been trying to do is, you know, they already said that they're going to go back to the wholesale retail partner channel.

So that's already been in process certainly for the fall season of this year.

So let's assume that we're kind of 3 to 6 months into sort of going back and, and channel balancing.

Um He's going to start on October 14th.

He'll be at the helm for the critical, right?

We haven't had a Nike Investor Day for years.

So November 19th, everybody's gonna congregate in Oregon and we're going to hear from him.

Um, you know, in his first couple of, in his first month, I think that will the tone for kind of going back and to their channel partners.

Um in terms of the the pipeline, we already know there's some new product that's coming to market in early 2025.

Uh in terms of Greenfield, right?

So from the point where he gets in there and starts to kind of Greenfield innovate.

We're probably talking 9 to 12 months.

So this time next year we should have a very nice look at what Baptist School and Fall looks like for Nike under this new leadership, Adrian, we only got about 15 seconds left here.

You and I have talked about this in the past and the need for innovation.

The need for newness.

Does this mean more or less Nike dunks?

Oh, I think, you know, they're the franchise managing it out.

So, how about this when we get to the point of the end of fiscal 25?

Right?

So end of May where their franchise managing it out, then we stabilize and we grow again.

But with new stuff, with new, new stuff, not the old stuff, new innovative stuff.

Is that what you wanted to hear it?

Spot on?

I mean, everything Adrianne says is what I wanna hear.

Adrian always great to have you.

Thank you so much for your in here this morning for hopping on with us.

A Jan Yee Barclays consumer discretionary analyst.

Thanks so much.

Have a good weekend.