Nike suffers its largest drop in 23 years, as Wall Street downgrades flood in! The leader faces questioning and harsh criticism

Nike's leader is now in a difficult position.

On Thursday, sportswear giant Nike saw its stock price plummet over 12% due to lower-than-expected fourth-quarter revenue and a downward revision of its full-year performance guidance. Furthermore, the day after the quarterly report was released on Friday, Nike's stock price plunged over 20% again, with its market value dropping below $114 billion.

Since taking over Nike in January 2020, CEO John Donahoe has seen the company's stock price fall by 25%, significantly underperforming the S&P 500 and retail industry ETF XRT, which rose by 69% and 67% respectively during the same period. Faced with the gloomy performance outlook from the global sports goods giant, major financial institutions on Wall Street have downgraded Nike's stock.

Analysts from Morgan Stanley and Stifel were blunt, suggesting that the company's management capabilities and strategies may be in question. Currently, the pressure is mounting on the former eBay executive and current Nike leader, with his leadership skills being heavily scrutinized by Wall Street analysts and investors.

How is Wall Street viewing this?

Nike CEO Donahoe has positioned this fiscal year as a "transformational year" for the brand business, marking the beginning of a long-term cycle of new product launches. The company is focusing on speeding up the product launch process to better meet consumer demands.

In response, Evercore analyst Michael Binetti and his team anticipate:

"Nike's truly transformative products will not achieve scale until the fall of 2025."

However, market observer Saunders believes that Nike's executives must show results quickly:

"The company is not aimlessly drifting with the tide, but it needs to demonstrate some clear progress and sustained performance improvement in the new fiscal year."

One of the current challenges facing Nike is that loyal customers on its official website are showing less interest in the brand's core shoe models, including Air Force 1s, Air Jordan 1s, and Dunks. In recent years, Nike has overly emphasized its direct sales strategy, somewhat neglecting product innovation, leading to competitors like On Running and Hoka rapidly gaining market share by offering innovative and diverse products, causing Nike to lose market share in the running shoe segment.

Media analyst Poonam Goyal commented:

"The underperformance of Nike's own sales channels is surprising and concerning. This sportswear giant may have alienated its core consumers due to a lack of product innovation."

Industry analysts also believe that the dominance of these classic series in Nike's product line has made consumers feel fatigued, prompting them to turn to emerging brands that offer novel designs and innovative concepts. With consumers increasingly demanding functionality and design aesthetics in sports shoes, Nike must innovate continuously to meet market demands, regain consumer favor, especially re-attracting Nike's key customer group—runners Stifel analyst Jim Duffy expressed concerns about Nike's future growth prospects in his analysis report:

"The performance guidance for the fiscal year 2025 delays the prospect of a growth inflection point to 2025, requiring investors to be optimistic about the success of unconfirmed new styles, and to see clearly the uncertain non-essential consumer goods market background in the second half of 2024, until the momentum strengthens again in the second half of 2025. The credibility of the management has been severely challenged, and the possibility of executive turnover adds more uncertainty to the company's future development."

Jessica Ramírez, Senior Research Analyst at Jane Hali & Associates, told the media:

"At the end of the conference call, they talked about running being an important sport widely participated by consumers, which is almost ridiculous. We have known this for a long time, we know that consumers' attitudes have changed after the pandemic, they have become more active. Nike urgently needs a change in management."

"After the lockdown, we found that consumers are becoming enthusiastic about running and taking it very seriously, the number of daily runners is also increasing, but Nike has not effectively responded to this market change. I believe that when your management misses a key shift in consumer behavior, your company has a problem... The market has changed, and they have not caught up with it."

Kevin McCarthy, Senior Research Analyst at Neuberger Berman, emphasized the urgent need for change in Nike's management and mentioned that the employment contract of CEO John Donahoe may be nearing its end. McCarthy analyzed:

"All the company's issues you pointed out seem to be traceable to execution and management problems. Nike currently has several very capable internal candidates, and some former senior executives who have left Nike are also under consideration, as well as candidates from other competing companies. But I do believe that there will be changes in Nike's leadership in the next six months."

Looking back in history, Donahoe faced the outbreak of the COVID-19 pandemic in the first two months of his tenure, having to deal with store closures, employees transitioning to remote work, and the complex situation of changing consumer preferences and purchasing power. Despite fluctuations in Nike's stock price, under Donahoe's leadership, the company's annual sales have achieved significant growth, increasing from $37.4 billion in the fiscal year 2020 to $51.36 billion in the fiscal year 2024, representing a growth of approximately 37%.

When asked about his views on Donahoe, 86-year-old Nike co-founder and honorary chairman Phil Knight expressed his firm support for him:

"I have seen Nike's future plans and wholeheartedly believe in them. I am confident in Nike's future, I am confident in Donahoe, and I fully support him."