Yahoo Finance

Nike CEO, John Donahoe is stepping down, replaced by Elliot Hill. Nike veteran Elliot Hill will become president and CEO, effective October 14th. Here with Morris Bernstein senior analyst, Anisha Sherman. Anisha, it is good to see you. So big news after hours. Elliot Hill is in, John Donahoe is out. Investors, at least initially here, celebrating this. Stocks are about 10%, but you know the company backwards and forwards. Anisha, what do you make of this news?

I think this is very good news for the stock. Both the both the executive named as well as the timing. Elliot Hill has worked at Nike for 32 years. He's a product guy. He's ran retail in EMEA, in US, in North America. He knows the company and the product very well, and from what we've heard at Nike amongst former employees that we've spoken with, he's also very well liked at Nike. So this is not only the right skill set in terms of understanding product and understanding Nike. I think he will be the right leader in terms of communication and vision because he's already very well known and liked within the organization. And the timing is great too, because Nike's having an investor day in exactly two months, on November 19th and, you know, they're they've promised talking about medium-term targets. It doesn't make a whole lot of sense for an outgoing CEO to talk about medium-term targets. So you need the new leader in place before you can have that conversation. So the timing works very well also.

Anisha, you sound very positive. It's Julie here. It's good to see you. Sound very positive on Nike. But the stock is down 25% year to date, and I I I understand you wanting to look forward and the idea of this new CEO, but I do want to spend at least a beat talking about John Donahoe. How much damage did he do at Nike?

So a lot of the blame has been placed on Donahoe himself and his lack of a product background, and I think that did contribute. You know, it helps to have a CEO with a brand and product background, who can make calls that need to be made, who can identify whether there are red flags, because they have the experience to do that and the outgoing CEO did not. But part of the problem also was not his specific experience, but the fact that the company focus moved away from product and moved towards tech and digital and other things, and so they lost talent in product, and they didn't spot some of the red flags in product. They cut out a lot of the feedback loops in product, so it was an organizational shift. Not necessarily the background of one individual, but the organization's culture shifted away from product, and that's something that needs to be fixed.

So Anisha, Elliot Hill now coming in, what are his priorities, Anisha?

So I think the first priority will be to set a path forward, and so the investor days coming at a good time. He needs to set the path forward for the next five years, set some targets, give investors a sense of where this company is headed and what kind of numbers to expect, what kind of algo to expect for growth and earnings growth, and that will set the course of of investor expectations and probably stabilize the stock a little bit, and then he needs to do more work. I mean, this is not a slow, this is a tanker that needs to be moved, and it takes time. Um, but I think investors will give him a pass if the targets sound reasonable, the goals sound reasonable, and we'll give him a pass for the next six months to a year to fix the ship before it starts working again.

Anisha, what needs to be the goal in terms of product?

So Nike has somewhat lost its Mojo in the market. Um, you know, it made several different mistakes. One was just the product process got so convoluted and delayed with a couple of different reorganizations, changing the way product reviews are done, to the point where even small incremental additions take a year to get out to market. So we need some more nimbleness. We need some more speed and reaction to the market. And then the second piece is we just need to they just need to control scarcity in the market. They over distributed several of the hot products to the point where they lost their brand heat. So they need to regain that scarcity and demand pull.

You know, as you know, Nike made these missteps, lost its Mojo, as you say. Who gained from those missteps?

Um, what happened at the same time is there were a couple of emerging brands, On and Hoka in particular, that took over the shelf space that Nike gave up that gained a lot of the consumers that didn't like what they saw from Nike anymore. So they gained a lot of the market share. And then more recently, Adidas, which has been on a similar journey of its own with a new CEO and a turnaround, has has had a great year so far. So they've gained some on the lifestyle side, where their Samba and Gazelle shoes are sort of the it shoe of the summer this year, and Nike's Jordans and Dunks aren't anymore.

And I know that you've got an outperform rating on Nike. Um, your price target's 109. Um, is that, especially with this management change? Is that your top pick here in footwear, or would you look at some of those competitors?

I think Nike is not an immediate pick. I mean, the CEO catalyst was on the horizon, you know. We knew it was coming at some point before the investor day. We expected that it would be at the September 20th, the October 1st, um quarterly results. We didn't expect it to be sooner than that, but that isn't a catalyst that the market was expecting. It's very good for the stock. The November investor day will be another catalyst, but beyond that, we just need to see this turnaround play out. So it's going to be a little bit of a slower burn beyond that. I think elsewhere in the market, you could probably find faster recovery stories um for more beaten down names, but I do like Nike. I think I like it over the next six months, and I like it on a longer term horizon.

Anisha, big news after hours. Thank you so much for helping us think through it. Appreciate it.