John Donahoe, the CEO of Nike, seems to be in trouble.

Wall Street’s trust is beginning to wane for the former eBay top executive, who has led Nike since January 2020, following the company’s disappointing fiscal year-ending news.

Nike issued a warning earlier this week, citing the possibility of a startling 10% decrease in sales in the upcoming quarter—much worse than the 3.2% decline that LSEG had predicted—after reporting the lowest yearly sales rise in 14 years, excluding the Covid-19 outbreak.

The corporation also stated that, contrary to its earlier expectations, sales in fiscal 2025 will decline by mid-single digits.

Due to the warning indications, the company’s shares closed 20% down on Friday, marking it the worst trading day since the company’s December 1980 IPO. Nike’s market value dropped by about $28 billion as a result of the decline, from $142 billion to just under $114 billion the day before.

At least six investment firms cut Nike’s shares as Wall Street processed the grim news from the biggest apparel brand in the world. It was furthered by analysts at Morgan Stanley and Stifel, who particularly questioned the company’s management.

According to Jim Duffy, an analyst at Stifel, “the FY25 guide (the fifth downward consensus revision in six quarters) pushes prospects for growth inflection further into 2025 (perhaps FY4Q or spring ’25 at the earliest), asking investors to both underwrite success of not-yet-proven styles and look across an uncertain consumer discretionary backdrop into 2HCY24 until momentum could build again into 2HCY25.” “The possibility of a C-level regime change adds even more uncertainty, seriously undermining management credibility.”

During CEO John Donahoe’s tenure, Nike stock has lagged the S&P 500.

Nike’s stock has dropped more than 25% since Donahoe became the company’s chief executive, considerably trailing the increases of around 67% and 66% during the same period for the S&P 500 and the retail-focused ETF, XRT, respectively.

Matt Friend, the head of Nike finance, gave many reasons for the forecast reduction on Thursday. Some issues, such as the weakness in China and the difficult foreign currency headwinds, are beyond Nike’s control, while other issues are ones that Donahoe’s leadership directly brought about.

As it trims back on historic franchises, reduces new styles, and attempts to mend its connections with important retail partners after cutting them off in favour of a direct-selling approach for the past several years, the business anticipates a slowdown in wholesale orders.

At the same time, devoted Nike online shoppers are no longer buying brand-new Air Force 1, Air Jordan 1, or Dunk sneakers—the brand’s main offerings. The retailer’s trainer lines, according to critics, have dominated its offers for far too long, driving away customers who were looking for cutting-edge designs and new styles from a plethora of upstart competitors.

It is now up to Nike to win back some of its most important clientele, the runners.

As the shop prioritised its direct-selling approach above innovation, tenacious rivals like as On Running and Hoka grabbed market share.

“Towards the conclusion of the call, they mentioned how important running is to customers, which was almost absurd. Since the pandemic, consumers have altered their minds, as seen by their increased activity, Jessica Ramírez, senior research analyst at Jane Hali & Associates, stated. She also added that a management change at Nike is “quite needed.”

“Post-lockdown, we saw that the consumer did adopt running and was serious about that and there was an everyday runner, and Nike didn’t really respond to that,” she said. “I think when you have management missing key consumer shifts, there’s a problem with your company … something changed and they’ve missed the mark.”

Senior research analyst Kevin McCarthy of Neuberger Berman stated that a management change is necessary for the firm and conjectured that Donahoe’s contract may be about to expire.

“Everything that you’ve suggested is wrong with this company seems to flow back to execution, management and everything else,” McCarthy said.

“They’ve got a couple internal candidates right now that are very capable … you’ve got a couple ex-Nike candidates, too, that have been in the discussion, and then you also have other competitors that have been discussed. But I do think that it’s assumed that the leadership of this company will be changing over the next six months.”

To be fair, Donahoe took up the role less than two months into it, and since then, he has had to deal with closed stores, remote employees, and a constantly changing landscape of customer preferences and capabilities.

Nike’s yearly sales have increased under his leadership from $37.4 billion in fiscal 2020 to $51.36 billion in fiscal 2024, a 37% increase despite the company’s stock declining.

Phil Knight, the creator of Nike and current chairman emeritus, believes that Donahoe is performing excellently.

The 86-year-old stated in a statement, “I have seen Nike’s plans for the future and wholeheartedly believe in them.” “I have faith in Nike’s future, and I fully support and unwaveringly believe in John Donahoe.”

(Adapted from Torre.News)