Nike CEO John Donahoe Faces Criticism from Wall Street for Underperformance

Nike CEO John Donahoe seems to be walking on thin ice. The former eBay executive has been leading Nike since January 2020, and after the company ended a lackluster fiscal year with more bad news, he is losing the confidence of Wall Street. On Thursday, Nike warned that its sales for the current quarter are expected to drop by 10%, far exceeding LSEG’s estimated decline of 3.2%, following the slowest annual sales growth in 14 years (excluding the COVID-19 pandemic). The company also stated that it expects sales for the fiscal year 2025 to decline by mid-single digits, reversing its previous forecast of growth. As a result, Nike’s stock plummeted 20% on Friday, with the company’s market value dropping to around $114 billion. As Wall Street grapples with the gloomy outlook for the world’s largest sportswear company, at least six investment banks have downgraded Nike’s stock rating. Analysts from Morgan Stanley and Stifel went even further, questioning the company’s management. Stifel analyst Jim Duffy wrote, “The 25FY guide (the fifth downward consensus revision in the last 6 quarters) pushes the prospects for a growth inflection point further out to 2025 (earliest likely 4Q or 25 spring), asking investors to both underwrite unproven style success and look beyond 2H24 into an uncertain backdrop of non-essential consumption until the 2H25 momentum re-accelerates. Credibility of management is severely challenged, with increased potential for C-suite regime change.” Since Donahoe took over as Nike CEO, the stock has dropped about 25% as of Friday’s intraday trading, significantly underperforming the S&P 500 index and XRT (an ETF focused on retail), which have risen approximately 69% and 67%, respectively, during that time. Nike CFO Matt Friend attributed the downward revision of guidance on Thursday to a range of factors. Some things, such as weakness in China and challenging forex headwinds, are beyond Nike’s control, but other issues are directly caused under Donahoe’s leadership. The company expects wholesale orders to slow down as it expands new styles, regains classic franchise rights, and works to repair relationships with major retail partners, which it severed in recent years to support its direct-to-consumer strategy. Meanwhile, loyal customers who shop on Nike’s website are no longer as enthusiastic about purchasing the company’s core franchise products, such as Air Force 1, Air Jordan 1, or Dunks. Critics argue that the sneaker lineup has long dominated the retailer’s offerings and has left it out of the running for fresh styles and innovative designs sought by customers from a range of up-and-coming competitors. This has forced Nike to win back some of its most important customers – runners. While the retailer focused on its direct-to-consumer strategy at the expense of innovation, competitors like On Running and Hoka have seized market share. Jess Ramirez, senior research analyst at Jane Hali & Associates, told CNBC, “They talked about running as if it was a key sport that the consumer was engaged with, which was almost silly…We’ve known that, we know the consumer has changed their mind post-COVID, and they are much more active,” she added, “Nike needs change in the management badly.” She said, “We’ve seen that the consumer really embraced running post-lockdown and took it seriously, there are runners every day, and Nike didn’t really respond to that.” Kevin McCarthy, senior research analyst at Neuberger Berman, told CNBC’s Scott Wapner on Thursday that the company needs a management shake-up and speculated that Donahoe’s hiring contract may be coming to an end soon. “Everything you say about this company seems to come back to execution, management, and other aspects,” McCarthy said on CNBC’s “Closing Bell.” “They have several highly capable internal candidates now…You also have several former Nike candidates, and they are all in the mix, and then you have other competitors in the mix as well. But I do believe that the leadership at this company will change over the next six months.” To be fair, Donahoe took over just two months before the formal start of the COVID-19 pandemic in the United States and had to navigate through store closures, remote workforces, and constantly changing consumer preferences and abilities. While the company’s stock may be down, under his leadership, Nike’s annual sales have grown by approximately 37%, from $37.4 billion in fiscal year 2020 to $51.36 billion in fiscal year 2024. If you ask Nike co-founder and honorary chairman Phil Knight, Donahoe is doing a good job. The 86-year-old said in a statement to CNBC, “I’ve seen Nike’s future plans, and I wholeheartedly believe in them.” “I’m optimistic about Nike’s future, and John Donahoe has my unwavering confidence and full support.”