Nike’s new CEO is boosting stock as the brand grows. Is it worth investing?

This is how Elliott Hill will want to change the face of the company.

Geoffrey Seiler
| A motley fool

Nike shares (NYSE:NKE) rose after the company announced its CEO was stepping down and bringing back its former longtime CEO to lead the company.

Outgoing CEO John Donahoe’s tenure at the company has not been smooth sailing since he took the helm in January 2020, with the company’s shares falling by approximately 20% between the time he took over and the announcement of his dismissal. Donahoe didn’t have much brand experience before taking the job, having previously served as CEO of ServiceNow and eBay, which may have been why the company struggled so badly during his tenure.

He will be replaced by long-time Nike vet Elliott Hill, who will take up his position on October 14.

Can a new CEO help Nike turn things around?

Hill returns as a Nike executive after leaving the company in 2020 when Donahoe took it over. He worked at Nike for 32 years in various leadership positions, most recently as the company’s president of consumer and markets from 2018 to 2020. He started working for the company as an intern in 1988 and worked his way up the corporate ladder.

In his last role at Nike, Hill was responsible for helping grow the Nike and Jordan brands. The company performed well in Hill’s last year in his leadership role, with revenue growing a solid 7% and Nike brand revenue growing 11% in fiscal 2019.

By hiring Hill, Nike isn’t getting a young executive looking to shake things up – instead, it’s a sign that the company wants to get back to its roots. Although Donahoe had no experience with the brand, Hill had witnessed Nike’s ups and downs over the years while working in various positions at the company. Even though he hasn’t worked with Nike for several years, probably no one knows the company better than he does.

Nike’s return to its roots is probably the best cure for recent problems. The company has built one of the most recognizable brands in the world and created brand equity that cannot be easily replicated. This was achieved through a combination of product innovation and marketing savvy, things that were clearly lacking under the management that would soon be taken over by the company.

I expected Hill to help Nike return to the formula that has made the apparel and footwear company successful for many years. Now, this will take time because things like product innovations and new marketing campaigns won’t come to fruition and change the brand overnight. However, Hill knows Nike’s success inside and out and I am convinced that he can help the company return to its former glory.

Is it too late to buy shares?

Nike’s share price surge certainly wasn’t the same as the reaction Starbucks stock received when a new CEO was named, and Hill certainly isn’t enjoying the same fanfare because he’s never been the CEO of a major company. However, his announcement to take over as CEO comes at an interesting time.

Nike is scheduled to report its earnings results on October 1. Typically, companies will post CEO change announcements along with other important news such as earnings; why Nike didn’t wait to make the announcement is a bit of a head scratcher.

If Nike was going to bomb its earnings and/or lower its full-year guidance, it would seem a better time to make a CEO announcement on the same day as the earnings announcement to perhaps soften the blow or at least ask him to step in as the company’s stock they will fall. even lower price.

Nike’s fiscal first-quarter guidance, calling for a 10% sales decline despite Olympic pressures this quarter, seems a bit cautious. The change of the CEO after better-than-expected results may be perceived negatively and perhaps the company performed decently this quarter. Quite often, however, companies like to set the bar low when a new CEO takes over. Since Hill isn’t expected to officially take over until two weeks after the results are announced, Nike could still go this route.

Given this, I would probably wait to buy the stock until it makes profits. I believe that, long term, Nike has great potential to rebound if it simply returns to its roots, and Hill seems to be the right leader to do so.

Meanwhile, the company’s stock is trading at one of the lowest P/E ratios seen in the last five years – around 23 – making it an intriguing long-term rebound candidate worth considering by investors.

Geoffrey Seiler has no position in any of the companies mentioned. The Motley Fool covers and recommends Nike, ServiceNow and Starbucks. The Motley Fool recommends eBay. The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

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