What Happened:

Shares of athletic apparel brand Nike (NYSE:NKE) jumped 10.5% in the morning session after the company announced the appointment of Elliott Hill as President and Chief Executive Officer, effective October 14, 2024. 

He will replace John Donahoe, who is retiring from his role as President and Chief Executive Officer and from the Nike Board effective October 13, 2024. 

Hill is a seasoned veteran in the footwear industry and at Nike. Before retiring in 2020, he spent 32 years at the company (Nike), starting as an Apparel Sales Intern; he gradually ascended the ranks and held varying leadership roles across Europe and North America, helping grow the business to more than $39 billion. Also, Hill is considered well-liked at Nike, and his experience suggests he has intimate knowledge of the culture, unlike the outgoing CEO, Donahoe. 

The transition follows a period of underperformance under Donahoe's leadership, with Nike's most recent earnings falling short of Wall Street expectations. At the same time, the company also lowered its sales outlook for the fiscal year 2025, which is never a good sign. 

Under Donahoe, the company juggled a direct-to-consumer push (which was tricky because it meant alienating some important retail partners) and may have lost track of product innovation. 

The stock's reaction suggests markets are optimistic about Hill's return, with investors hopeful for a turnaround after the company's recent struggles.

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What is the market telling us:

Nike’s shares are not very volatile than the market average and over the last year have had only 6 moves greater than 5%. Moves this big are very rare for Nike and that is indicating to us that this news had a significant impact on the market’s perception of the business. 

The biggest move we wrote about over the last year was 3 months ago, when the stock dropped 19.6% on the news that the company reported second-quarter earnings results. Unfortunately, its constant currency revenue missed. The company recorded weaknesses in its Lifestyle brand, especially in the Digital channel. Notably, digital channel sales declined 10% due to softer traffic, higher promotions, and lower sales of certain classic footwear franchises. Management cited these issues, in addition to macro headwinds (especially in China) and unfavorable FX, as the reasons for revising FY'25 guidance. Nike now expects fiscal 2025 sales to be down mid-single digits. Sales in the first half (1H'25) are expected to be down high single digits (vs. previous guidance for low single digits decline). Precisely, revenue is expected to be down 10% in Q1'25, given most of the challenges called out during the earnings call. Overall, this was a bad quarter for Nike.

Nike is down 19.2% since the beginning of the year, and at $86.27 per share it is trading 29.7% below its 52-week high of $122.64 from December 2023. Investors who bought $1,000 worth of Nike’s shares 5 years ago would now be looking at an investment worth $995.10.

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