Prediction: This Bill Ackman company will replace its CEO by the end of the year. Here’s why.

The consumer discretionary sector has been one of the worst performers so far in 2024. Within this broader segment, the apparel retail industry generated just a 0.2% return, while the footwear and accessories market declined 9.8% so far this year.

With that data in mind, it’s not entirely surprising to see that the footwear and apparel company’s stock NIKE (NKE 0.77%) increased by over 20% in 2024.

While this might scare off many investors, Pershing Square Capital Management CEO Bill Ackman sees opportunity. According to his latest 13F filing, the famed hedge fund manager gained 3 million shares of Nike stock in the second quarter. With nearly a quarter of a billion dollars at stake, I believe Ackman has intentions of turning things around at Nike.

Let’s dig into what’s going on with the struggling sneaker brand and assess why an executive shakeup could be the right move for Nike long-term.

Nike’s battle with fickle consumers

Nike is one of the most recognizable brands on the planet. However, over the past two years, the company’s growth has started to decline. While some of these problems can be attributed to a challenging macroeconomic environment, Nike’s problems are a bit more pernicious.

During the company’s recent earnings call, management hinted that Nike is experiencing some inconsistencies in consumer engagement. In other words, consumers have migrated to competing footwear companies such as Crocs or Birkenstocks amid sour popularity at Nike.

Image source: Getty Images.

Why Bill Ackman might be interested in Nike

The current CEO of Nike is John Donahoe. Prior to Nike, Donahoe was CEO of the e-commerce marketplace eBay between 2008 and 2015. Following his tenure at eBay, Donahoe became CEO of the IT company Service Now in 2017 — a role he kept until becoming CEO of Nike in January 2020.

Given the above corporate history, I believe it is a fair position that Donahoe has built a strong reputation in the technology sector in particular. However, success in one industry does not necessarily correlate with the skill set needed to succeed elsewhere. Since Donahoe took the reins at Nike on January 13, 2020, the stock has returned 18.5% negative.

NKE data by YCharts

Clearly, this is not the best track record. While Ackman may see Nike’s current low price action as simply a value opportunity, I think his intentions may go a little deeper. Ackman is an activist investor. Activist investors work closely with a company’s board of directors to try to identify new ways to spark growth in troubled businesses.

A classic example of inspiring change in a company is the hiring of a new CEO. Another high-profile brand that Ackman has invested in is Chipotle Mexican Grill. Ackman originally invested in Chipotle in 2016 when the company was in the midst of a turnaround — similar to the current situation at Nike.

By 2018, Chipotle had replaced its CEO with food industry veteran Brian Niccol. Of note, Niccol just resigned from Chipotle after six years at the helm and will be joining Starbucks as its new CEO.

The combination of a historically low valuation and the potential to influence change makes Nike an intriguing case study for Ackman.

Should you invest in Nike stock right now?

I think investing in Nike right now involves too much risk. The company’s outlook isn’t bright right now, and the specifics of Ackman’s investment thesis are still being worked out.

Furthermore, while I predict Nike will replace its CEO, that’s not reason enough to buy the stock. Rather, investors should consider what kind of CEO Nike needs. In my opinion, he is not a technology-oriented leader like Donahoe.

Given how quickly consumer preferences can change (especially in an area like fashion), I think Nike’s best move is to hit the reset button and tap into a leader who is an expert in understanding the demographics of consumers at a deep level and know how to do it best. reaches the consumer through various marketing channels.

Perfecting the intersection of data analytics and marketing campaigns could really help Nike better understand why some of its competitors are successful right now, despite seemingly lower brand recognition.

In turn, these techniques can help rehabilitate Nike’s brand identity and strengthen customer loyalty over time. I think the best thing investors can do right now is to keep an eye out for any major announcements coming from Nike and be on the lookout for any exclusive interviews Ackman may give in the near future.