CEO change at Nike makes investors optimistic as the company returns to its product roots

Nike (NKE) investors are currently speculating on the idea that 32-year insider Elliott Hill could restore the sneaker giant to its former strength as CEO and clean up the mess left by the outgoing technology-focused CEO.

Nike shares rose more than 7 percent in premarket trading on Friday after announcing late Thursday that current CEO John Donahoe plans to retire effective Oct. 13. He will stay with the company as an advisor until January 2025.

This comes as Nike's board of directors – which includes founder Phil Knight, longtime former CEO Mark Parker and Apple CEO Tim Cook – sees fit to refocus on improved products and restore business relationships abandoned by Donahoe, such as the one with Foot Locker (FL).

The move also comes ahead of a key investor day for Nike on Nov. 19, when many market participants now expect the company to adjust its financial guidance while Hill assesses the business.

Before that meeting, Hill, 61, will hold that role for a month.

“The Board concluded that Elliott's global expertise, leadership style and deep understanding of our industry and partners, coupled with his passion for sports, our brands, products, consumers, athletes and employees, make him the right person to lead Nike's next phase of growth,” Parker said in a press release.

A higher share price wouldn't hurt Nike either.

According to data from Yahoo Finance, shares fell 20% between January 13, 2020 – when Donahoe took over as CEO – and the close on September 19.

With Hill, Nike gets a true insider who can use his in-depth knowledge of the company to bring about rapid change.

Hill started as an intern and clothing salesman in Memphis in 1988, the year the iconic slogan “Just Do It” was created. Nike's sales at the time were around a billion dollars.

Hill said the competitive culture at Nike is the reason he has stayed loyal to the global sneaker giant and even moved with the company to seven different cities, including Amsterdam. During that journey, he worked closely with the Jordan brand, among others.

He eventually retired in 2020 after leading Nike's consumer and marketplace business as president. Some believed Hill was ready to succeed Parker as CEO, but Knight intervened and was able to push through his longtime friend, board member and former eBay CEO Donahoe as the next leader.

Donahoe led the company through the COVID-19 pandemic, but abandoned important relationships with key suppliers like Foot Locker in the process. His consultative management style – which he perfected at Bain – also annoyed Nike employees.

For Nike, Hill is the right choice at the right time, said Bernstein analyst Aneesha Sherman.

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“He is a product type. He is [run] Retail in EMEA [Europe, Middle East, and Africa]in North America, he knows the company and the product very well,” Sherman told Yahoo Finance (video above), and “he is also very well liked at Nike.”

Sherman has given Nike shares an “outperform” rating.

According to Simeon Siegel of BMO Capital Markets, that goes beyond internal connections. Hill is “well-known and well-liked internally and among retail partners, potentially resulting in an immediate boost in morale,” Siegel told clients in a note.

Siegel also gave Nike an “outperform” rating.

Nike is having a hard time getting its finances back on track, so to speak.

The company's net income fell to $6.5 billion in the last fiscal year, compared to $6.9 billion two years ago. The operating profit margin fell from 14.7 percent to 12.7 percent during the period.

Wall Street experts see the proliferation of On Holding (ONON), Skechers (SKX) and Hoka (DECK) sneakers as a major reason for Nike's stumbling. Donahoe's focus on expanding Nike's own businesses at the expense of long-standing distribution contracts has also weighed on performance.

On day one, Hill must tackle four things: regain investor optimism after the company lost sight of its product and marketing roots, streamline product innovation, rebuild relationships with its channel partners, and regain lost market share.

“After four years away, Hill will be challenged to adapt to significant changes in the market, including increased competition, evolving distribution and brand-building channels and, most importantly, changes in product innovation. While his deep understanding of the business is an asset, his ability to navigate these changes will help determine Nike's future success,” Jefferies analyst Randy Konik wrote in a note to clients.

For all these reasons, the Investor Day on November 19 is a must-attend event for beleaguered Nike investors.

He needs to “set some targets, give investors a sense of where the company is going and what numbers they can expect, what algorithm they can expect for growth and earnings growth. That will set the direction of investor expectations and probably stabilize the stock a little bit, and then he'll have to do some more work,” Sherman said.

Sherman added: “If the targets sound reasonable, then the goals sound reasonable and give him the next six months to a year to repair the ship before it becomes operational again.”

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Brooke DiPalma is a senior reporter at Yahoo Finance. Follow her on Twitter at @Subscribe or email her at [email protected].

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