Surprise CEO Shakeup: Nike is bringing back its former Jordan brand president to shake up the business

On June 27, NIKE (NKE 0.62%) CEO John Donahoe kicked off the fiscal 2024 fourth quarter earnings call by saying fiscal 2025 will be a “transition year.” He couldn’t have known at the time that Nike would pass from him to a new CEO.

In hindsight, maybe investors should have seen this coming. Nike shares are down about 10% since Donahoe became CEO in January 2020. To be fair, the business has grown during his tenure. But in its fourth-quarter earnings call, management acknowledged it needs to focus on “regaining market share.”

How did sportswear brand Nike lose market share? Many analysts believe Donahoe — an e-commerce veteran from eBay — pushed Nike too far into direct-to-consumer online sales. On the surface, it wasn’t a bad idea. After all, selling direct to the consumer allows companies to charge full price and make better profit margins.

However, it turns out that people still like to go to the store and try on shoes before they buy. And when Nike gave up shelf space to focus on e-commerce, emerging shoe companies were able to gain better exposure and steal market share.

Most investors have given up hope on Nike. For evidence, consider that the stock is currently trading at its cheapest valuation in 10 years. But there were still some who obviously believed the company could regain lost ground. Among them is billionaire Bill Ackman, a well-known value investor. His hedge fund, Pershing Square, recently made an investment of about $275 million in Nike stock.

On September 19, Nike announced that Elliott Hill would be the new CEO effective October 14. What can investors expect now with this surprising change in management?

What will change now at Nike?

Elliott Hill began his career at Nike in 1988 as an intern. From there, he became corporate president, overseeing marketing and commercial operations for Nike and the Jordan brand. Hill retired in 2020, but is now back as CEO of the entire company.

Nike is scheduled to report financial results for the first fiscal quarter of 2025 on October 1. Unfortunately, Hill doesn’t start until October 14th. So investors likely won’t hear anything specific from Hill about his vision for the company until a later date.

Meanwhile, investors can only speculate what having Hill at the helm could mean for Nike.

I think the biggest factor for investors is that it looks like Nike is making a strategic shift here. When he hired Donahoe, he went with a company outsider and an executive with no experience in the shoe industry. In contrast, Hill is a longtime Nike insider who is directly responsible for much of the brand’s past success.

In other words, it feels like Nike is going back to its roots with Hill. That could help topple him.

What does this mean for Nike stock?

Earlier this year, Nike shares traded below 20 times earnings for the first time in over a decade. It trades at a price-to-earnings (P/E) ratio of 23 now, so it’s not as cheap as it was, but it’s still well below where the stock has typically traded.

NKE PE report data by YCharts.

That valuation is why an investor like Ackman would be attracted to Nike stock. What’s important to investors is that Hill doesn’t necessarily have to do anything spectacular here. Modest earnings growth, along with continued dividend payments and share buybacks, could boost Nike stock’s above-average returns for S&P 500.

But to be clear, that earnings growth is crucial for Nike and probably won’t come this year. Remember, when Donahoe called fiscal 2025 a transition year for Nike, he wasn’t referring to senior management. He was referring to the business as it resets inventory and tries to improve marketing. Therefore, the company expects a short-term decline in sales and a larger decline in profits.

Hill hasn’t even started at Nike yet. So any ideas he has for improving the business will take time to implement. Therefore, investors should not expect positive signs of a recovery for some time yet. That said, Nike is making an intriguing move by hiring a new CEO who is a longtime company insider. It could be the move that brings Nike back in the long run.