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Pressure Eases on Nike, But Problems Remain

The sportswear giant posted flat sales in its latest quarterly report, beating Wall Street expectations. To fully recover, the business must demonstrate greater product innovation, analysts say.
Nike Air Max Dn shoes
Many analysts and sneakerheads were left underwhelmed by the Air Max Dn, despite Nike's lofty expectations for the lifestyle sneaker set to launch in March. (Nike)

Key insights

  • Nike’s latest earnings report revealed flat sales in the quarter ending Feb. 29, but it surpassed Wall Street expectations.
  • Even so, CEO John Donahoe faces an identity crisis within the company amid slowing growth and an exodus of influential leaders at the company.
  • The brand must focus on innovation to excite consumers and maintain its competitive edge, analysts say.

Nike beat Wall Street expectations with its latest earnings results, posting flat growth in the quarter ending Feb. 29 compared to the same period last year, with sales of $12.4 billion. Analysts were expecting a slight decline.

It’s hardly a robust sign of recovery for the beleaguered sportswear behemoth. But it will provide breathing room for a company which faces a deepening identity crisis under chief executive John Donahoe, who announced a $2 billion cost-cutting plan late last year amid stagnant sales.

In conversations with BoF, Nike insiders lamented the influence of consultants over strategy decisions once led by Nike lifers and on-the-ground regional teams.

Nike’s retro sneaker business, while still driving sales, is being left behind a trend cycle which now favours performance running footwear and terrace sneakers. A distinct lack of innovation means the brand has failed to excite consumers with fresh product in years. Partners in sports, from athletes like Devin Booker to Major League Baseball and FC Barcelona have publicly expressed their dissatisfaction with the brand’s services in recent months.

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On Thursday, Donahoe said there are initial signs of success with Nike’s multi-year plan for innovation, particularly in running footwear. He highlighted the upcoming launch of the Air Max Dn sneaker, calling the Air franchise a “true source of competitive advantage” for the brand.

“We know it’ll take some time to scale these innovations, but we see some early green shoots and we’re also carefully managing our most important franchises for the long term health,” Donahoe said on the earnings call.

Nike brand footwear sales posted 2 percent growth in its latest results, while apparel dropped 3 percent. Sales in North America and the China region also grew 3 percent and 5 percent respectively — reflecting a slight improvement in its two key markets.

Nike’s projected sales growth of 1 percent in the fiscal year ending May 2024 means the company is on course to register its worst performance in 25 years, outside of the 2009 recession and the pandemic. The company updated its immediate guidance however, now projecting slight growth in its upcoming quarter. Shares rose 4 percent in after-hours trading following the announcement Thursday. The stock is down 14 percent in the last year.

All the while, Adidas’ post-Yeezy recovery continues to gather momentum, and brands like On and Hoka continue to chip away at market share in key areas such as performance running and training, with double digit revenue growth.

“We know Nike is not performing [to] our potential,” said Donahoe in a call to analysts Thursday evening, underscoring his plan to better focus on sports, improve product innovation, refine marketing efforts, and double down on wholesale, which rose 3 percent in the most recent quarter while direct-to-consumer sales dropped 3 percent — the first time digital sales fell since 2020.

“While Nike Direct will continue to play a critical role, we must lead in with our wholesale partners to elevate our brand and grow the total marketplace,” he added.

Management Feeling the Heat

Donahoe and his orbit are increasingly coming under fire for the brand’s current predicament as veterans of the brand continue to jump ship. Andrew Campion, one of Phil Knight’s tight knit inner circle who over his 17-year tenure occupied roles including chief financial officer, chief operating officer and most recently director of strategic business ventures, will leave next month for a role in higher education. Robin Green, most recently global vice president of men’s running and fitness, left Nike after 17 years to join rival Hoka as its new president in February.

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These high-profile executive departures — of which there has been a steady stream since 2020 — have served to further isolate Nike leadership and are compounded by swathes of senior managers and regional directors leaving the business due to their frustration at the “new Nike,” characterised by looming layoffs, uninspired product and marketing and a stifling of creativity by the centralised and data-led decision-making which has characterised the Donahoe era.

“Today, it appears as if consultants, rather than Nike experts are leading strategy decisions, senior leaders are too dogmatic, and do not welcome all opinions,” wrote equity analyst Sam Poser of Williams Trading, which downgraded Nike to “Sell” ahead of earnings this week. “Financial goals are leading merchandising decisions, and many of those driving the direction of the company are using spreadsheets, rather than the educated gut, with strict parameters that led Nike to become a $50 billion company.”

Adidas Rising

Just a year-and-a-half ago, it seemed Nike’s long-term dominance of the sportswear market was assured, as its largest rival Adidas lurched from profit warning to profit warning, reeling from the loss of its Yeezy deal. Yet the pair’s fortunes have reversed in a remarkably short period of time.

Nike has outpaced Adidas in terms of revenue growth since 2018, but some analysts expect that the brands are at the beginning of a three to five year period which will see Adidas revenues grow faster than those of its American counterpart.

“We expect this to be an important inflection point for Adidas and could set it up for a multi-year run, supported by a strong lifestyle product pipeline and a focussed approach on strategic performance lines,” wrote RBC analyst Piral Dadhania on Wednesday.

It’s important to note that Nike still dwarfs Adidas: the former’s annual revenue of $51 billion is more than double its German counterpart’s €21.4 billion ($23.3 billion). But investors favour Adidas, whose shares are up 40 percent in the past year. So too do consumers, who in recent years have flocked to get their hands on the brand’s booming retro sneaker franchises including the Gazelle, Samba and Campus — a trend that has eclipsed the appeal of Nike’s chunky basketball sneakers such as Jordans, Air Forces and Dunks.

Nike has also suffered from a distinct lack of innovation, failing to bring newness to its sneaker category, both in terms of technological innovation and releases which aren’t simply just updated iterations of old school basketball sneakers.

The brand has billed its Air Max Dn lifestyle shoe, launching March 26, as an example of its latest technology to date. Donahoe said Thursday that Air represents Nike’s greatest innovation and will play a key role in its presence at the summer Olympics.

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But many sneakerheads are less bullish on the upcoming sneaker, noting that it looks like yet another iteration of the Air Max silhouette. “Retailers with whom we’ve spoken say it is unlikely to perform well,” said Poser of Williams Trading.

On the performance product side, Adidas is also making inroads in sports like basketball, which Nike and Jordan typically enjoy a stronghold over. Anthony Edward’s signature sneaker with Adidas, the AE 1, is now widely regarded as the best performance basketball sneaker on the market. The brand is also increasingly growing bolder in taking on Nike in its marketing efforts. The AE 1 launch campaign took thinly veiled shots at several of Nike’s performance basketball models, while CEO Bjørn Gulden also recently unveiled the Adidas’ new three word slogan: “You Got This” — clearly a take on their rivals world famous “Just Do It”.

Nike has remained vague on details of the “multi-year product innovation cycle that will introduce new franchises, concepts and platforms” slated for the second half of 2024, which Donahoe promised investors back in December. He said Thursday Nike’s full Olympics innovation lineup will be unveiled in two weeks at an event in Paris.

“Nike is losing time,” said Jessica Ramirez, senior research analyst at Jane Hali and Associates. “In the time that it could have been readying the market and getting people excited about what is to come, its rivals have all ramped up their playbooks, released new products and laid out plans around moments like the Olympics.”

Further Reading

How Nike Ran Off Course

Nike is experiencing its worst slump in a decade, even as its competitors thrive. Insiders, athletes and fans pin the blame on changes made over the last few years that led to stalling innovation, disruptive restructurings and uninspired marketing.

The Sneaker Resale Market Is Broken

Oversupply of once-hyped sneakers like Jordans has caused resale prices to plummet, pushing smaller platforms out of the market and sending the bigger players scrambling to adapt.

Nike’s Latest Sports Headache, Explained

FC Barcelona may take its on-field kit and fan merchandise in-house after falling out with Nike. Football industry executives and rival sportswear brands will be watching its next moves closely.

About the authors
Daniel-Yaw  Miller
Daniel-Yaw Miller

Daniel-Yaw Miller is Senior Editorial Associate at The Business of Fashion. He is based in London and covers menswear, streetwear and sport.

Cathaleen Chen
Cathaleen Chen

Cathaleen Chen is Retail Correspondent at The Business of Fashion. She is based in New York and drives BoF’s coverage of the retail and direct-to-consumer sectors.

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