Can Nike Be Great Again?

By Douglas A. McIntyre Published May 28, 6:50AM EDT

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Nike Inc. (NYSE: NKE | NKE Price Prediction) used to be a growth company but isn’t anymore.
Down 16% this year, its stock has not rallied at all.

Nike Inc. (NYSE: NKE) has a lot going for it as the world’s largest athletic apparel company. It has Air Jordans, clothes, and shoes for virtually every sport, each for men, women, and children. It also has competitors like Adidas, Puma, and other athletic shoe and apparel brands. There is worry that these keep chipping away at the leader.

The stock is down 16% this year, while the S&P 500 is 11% higher.

The Trouble With Nike

Poor performance in a crowded marketplace.

Nike has turned to layoffs. Early in the year, it cut 1,600 people. That is not a lot of people for a company with over 80,000. However, Wall Street and the media noticed. It was a sign of the company’s struggle.

The Wall Street Journal reported that Nike wanted to sell more products directly to consumers and cut out retailers. On paper, that should drive larger margins. Investors do not agree. The stock has not rallied at all.

A look at Amazon shows Nike is in a crowded online market. Its e-commerce competition includes more than Adidas and Puma. There are dozens of niche brands, including Under Armour, New Balance, Reebok, and Gap. None of the product lines is as broad as Nike’s. However, New Balance has a strong line of athletic shoes, and Under Armour has a range of athletic apparel. All these companies want a part of Nike’s market share, even if that share is modest.

Nike’s revenue depends on its namesake brand. In the most recent quarter, Nike brand sales were $11.9 billion of the company’s $12.4 billion total, barely up from the same quarter the year before. Net income slipped from $1.24 billion to $1.17 billion. Revenue fell in the European Union, Middle East, and Africa, an Adidas stronghold. Nike’s revenue in that region dropped 3% to $3.14 billion. The Converse brand was a disaster, down 19% to $495 million.

CEO John Donahoe did not have much to say: “We’re encouraged by the progress we’ve seen, as we build a multiyear cycle of new innovation, sharpen our brand storytelling and work with our wholesale partners to elevate and grow the marketplace.” Whatever that means.

Nike’s problems boil down to one thing. It used to be a growth company, but it isn’t anymore.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.