When hearing the iconic phrase “Just Do It,” it’s hard not to immediately associate it with Nike (NKE), the renowned athletic footwear and apparel giant. Coined by Dan Wieden in a 1988 ad campaign, this slogan has become synonymous with the brand’s identity and ethos. Recognized as one of the top five ad slogans of the 20th century by Advertising Age, “Just Do It” encapsulates Nike’s spirit of victory and determination.
Despite its long-standing success, Nike has faced challenges in recent times. Originally founded as “Blue Ribbon Sports” on January 25, 1964, the company has undergone significant changes. In response to evolving market dynamics, Nike made the difficult decision to reduce its workforce by approximately 2%, amounting to around 1,600 job cuts. Nike’s Chief Executive John Donahoe addressed these layoffs in a memo obtained by The Wall Street Journal, emphasizing the need for strategic focus and capacity reallocation to remain competitive.
Donahoe acknowledged the layoffs as a “painful reality” and underscored the accountability of himself and other executives for the company’s recent performance. In the competitive landscape of athletic apparel and footwear, Nike continues to adapt and evolve, striving to maintain its position as the world’s largest shoe company and the most valuable apparel brand, according to Brand Finance’s 2023 Annual Apparel 50 Report.
CEO: ‘We must be faster.’
During Nike’s fiscal-second-quarter-earnings call on December 21, Chief Financial Officer Matthew Friend hinted at significant changes ahead for the company as it aimed to achieve $2 billion in cost savings. Friend emphasized the need to accelerate innovation, enhance marketplace experiences, optimize storytelling impact, and improve speed and responsiveness to consumer needs. Nike anticipated a restructuring charge of $400 million to $450 million in the second half, primarily related to severance costs, with recognition largely in the third quarter.
CEO John Donahoe echoed the urgency for speed and innovation, emphasizing the need to increase the pace of market-to-consumer operations and organizational agility. To facilitate this, Nike planned a significant savings plan, targeting areas such as product portfolio simplification, automation, organizational streamlining, and leveraging scale for greater efficiency.
On March 8, Nike secured a new 364-day unsecured revolving credit facility of up to $1 billion, expandable to $1.5 billion, with Bank of America and other financial services firms. This facility would support working capital and general corporate purposes.
Nike is scheduled to announce its third-quarter results on March 21. Analysts surveyed by FactSet anticipated earnings of 75 cents per share on sales of $12.27 billion. This compared to earnings of 79 cents per share on sales of $12.39 billion in the same period a year ago.
Analyst confident in execution
On March 12, some analysts adjusted their price targets for Nike in anticipation of the company’s upcoming earnings report.
RBC Capital, maintaining an outperform rating, reduced its price target by $1. Despite recognizing intensifying competitive dynamics and Nike’s product range transition, the firm expressed confidence in Nike’s execution, gross margin improvements, and robust marketing capabilities. RBC Capital anticipated third-quarter revenue of $12.17 billion, with the Asia Pacific and Latin America region showing the strongest growth, followed by greater China. Other regions were expected to experience either flat or negative revenue trends.
Morgan Stanley analyst Alex Straton lowered the firm’s price target on Nike to $124 from $125 while maintaining an overweight rating. Straton believed there was potential for upside in third-quarter and fiscal-year earnings per share, given the low bar set in the previous quarter. However, he cautioned that sustained equity appreciation would likely hinge on increased visibility into Nike’s long-term growth and profitability targets, which might not materialize until the fourth quarter or the first half of fiscal 2025. Despite perceiving seemingly pessimistic sentiment, Straton suggested that the third-quarter earnings report might not significantly alter the stock’s narrative.