American sportswear company, Nike Inc. shares have dropped more than 6% this week after an investor meeting with CEO Elliott Hill and CFO Matt Friend, as analysts express doubts about the company’s ability to quickly regain momentum.
Jefferies analysts caution that Nike’s recovery could take years.
“We see a multiyear turnaround, and with valuations not cheap, ‘Just Don’t Buy It,’” they wrote in a note to clients.
While analysts are optimistic about Hill’s leadership, they argue that previous management left Nike with significant challenges, including misaligned distribution and product strategies.
“Having spent 30 plus years with Nike, Hill drew parallels of the current issues to 2017, when Nike simply was able to reset its product. However, he also referenced that the current challenges were more complex, which would require time to address,” analysts noted.
A key difference this time, they believe, is Nike’s inventory struggles.
“Management cited the need for inventory (aged product) to come out of the marketplace, which will result in a more promotional environment in the near term. Most of this clearance will involve higher-margin lifestyle franchises like Air Jordan 1, Air Force 1, and Nike Dunk,” they wrote.
Jefferies also emphasized the importance of rebuilding Nike’s wholesale partnerships.
“Early in his tenure, Hill has met with retail partners and started implementing an integrated consumer-led marketplace to foster stronger collaboration between NKE's Direct and Wholesale businesses,” they wrote. “That said, we anticipate retail partners will continue featuring competitors like On, HOKA, Adidas, and New Balance, as these brands are resonating with consumers.”
Jefferies maintains a ‘Hold’ rating on Nike’s stock with a $75 price target.
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