Nike: "A Transition Year"

From “Nike: Falling Short” (January 2024): “My gripe isn’t management’s inability to forecast results with pinpoint accuracy. Instead, it’s the lack of conservatism in the face of consistent underperformance… It’s a red flag… Storytelling is an important part of Nike’s brand perception and business model - but it shouldn’t be part of their communications with investors.”

On Friday, Nike closed at ~$75 per share. It has fallen nearly 60% from the November 2021 highs, inclusive of a ~20% drop following the Q4 FY24 results. That outcome is partly reflective of uninspiring results in recent quarters relative to reasonable expectations. As I’ve discussed in the past, I think that move has also been exacerbated by a management team that has consistently failed to adequately adjust to today’s headwinds, which has led to a seemingly endless number of cuts to financial guidance. Simply put, investor confidence in this management team has waned - and rightly so.

As we look forward, the hopeful take is that this latest round of pain provided a needed wake-up call to management. While I do not own Nike, for reasons that I have discussed with subscribers over the past two years, that would likely change if the stars aligned (it helps when the stock goes down ~60%). In today’s write-up, I’ll share my current analysis on Nike. Specifically, what explains the recent (significant) shortfall relative to management’s long-term financial targets, and what’s a reasonable base case for the years ahead?

Let’s start with a straightforward question: what just happened at Nike?