A Member of Pat McKeough’s Inner Circle recently asked for his advice on the world’s dominant athletic footwear and apparel designer.
Pat likes the firm’s unparalleled brand equity and its innovation initiatives. However, he notes the share price performance has been poor as revenue continues to decline. What’s more, the company now has to grapple with significant tariff issues.
Nike Inc. (Symbol NKE on New York; www.nikeinc.com) is the largest seller of athletic footwear and apparel in the world.
Founded in 1967, the company designs, develops, markets, and sells athletic footwear, apparel, equipment, accessories, and services. It sells its products through Nike Direct operations, which consist of company-owned retail stores and digital platforms, and through wholesale accounts.
Nearly all footwear and apparel products are made by independent contractors outside the U.S. Equipment products are made in the U.S. and abroad.
As well as offering its own Nike products, the company designs products for the Converse brand. Converse, a wholly owned subsidiary of Nike, sells casual sneakers, apparel and accessories under the Converse, Chuck Taylor, All Star, and other trademarks.
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In the U.S., the Nike brand and Converse sales made up 41.7% of total revenues in fiscal 2024 (fiscal year ends May 31). The company’s wholesale accounts in the U.S. include a mix of footwear stores, sporting goods stores, athletic specialty stores, department stores, and skate, tennis, and golf shops. Nike also operates 377 of its own U.S. retail stores.
International markets made up 58.3% of the company’s sales in fiscal 2024. Nike’s geographical footprint includes North America, Europe, the Middle East, Africa, Greater China, and the Asia Pacific and Latin America regions. International wholesale accounts consist of a mix of independent distributors, licensees, and sales representatives. The company also operates 668 non-U.S. retail stores.
Nike aims to reverse its share-price decline
In the three months ended February 28, 2025, Nike’s revenue fell 9.3% to $11.3 billion from $12.4 billion a year earlier. Revenue was lower due to a number of challenges—including increased competition, slower sales in China, and lower consumer confidence.
Nike earned $794 million, or $0.54 a share, in the latest quarter. That was down 32.3% from $1.17 billion, or $0.77 a share.
The company raised its quarterly dividend by 8.1% with the January 2025 payment, to $0.40 a share from $0.37. The stock currently yields 2.6%.
The company is in the midst of shakeup to reverse its share price decline. That’s partly because it continues to struggle against a slowdown in consumer spending and rising competition from other brands such as Hoka and On. At the same time, sales have slowed in China.
Nike also needs to improve its relationships with wholesalers. The company’s current distribution strategy has struggled. In recent years, it has reduced the sales of its products to traditional retailers. Instead, it hoped to move customers to its own stores and online platforms. That’s because these platforms are more profitable. But the strategy has hurt Nike’s sales in recent quarters.
Meanwhile, Vietnam is Nike’s largest manufacturing hub—and it needs a resolution of the Vietnam tariff situation (duties up to 46%).
To spearhead the turnaround, the company appointed a new CEO, Elliott Hill, effective October 14, 2024. He’s a 32-year veteran of Nike and has held leadership positions across the company’s European and North American operations.
Nike’s long-term outlook is positive, but in the near term it needs to successfully regain the ground it lost to rivals in its highly competitive markets. It competes with many big firms that also have diversified lines of footwear and apparel products. These include Adidas, lululemon athletica, New Balance, and more.
The new CEO should be a good fit. He has considerable experience at Nike and is known for his marketing skills. He should also spur the company to accelerate the widening of its pipeline of innovative new products. Those include AlphyFly runners and basketball sneakers such as GT and Sabrina 1. Growth there is key to competing with new rivals like Hoka and On.
Recommendation in Pat’s Inner Circle: Nike Inc. is okay to hold.
