By Jack Hough
Nike stepped in something, and it stinks. After decades of stellar sales and stock performance, the company has slipped into decline, and shares, which peaked above $175 just over three years ago, have collapsed to $77.
Brand heat is a difficult thing to measure, but thanks to the rise of sneakerhead culture, secondary pricing data from trading websites offers a clue. " Nike's second derivative deterioration is a negative," writes UBS analyst Jay Sole. That's analystese for the downturn is picking up speed, and it's a problem. Secondary prices across all Nike-branded products fell 8% in November, versus a 4% decline in October. For Nike's Jordan brand, results were even worse.
Later today, Nike will host its first earnings call since longtime executive Elliott Hill returned as CEO in October. Words are likely to matter more than numbers. "We think market focus is on Hill commentary--not fundamentals," writes Morgan Stanley analyst Alex Straton. But what if Nike's troubles have mostly to do with the success of other brands?
Start with the world's third-largest footwear brand behind Nike and Adidas. "Skechers Are Cool," I declared in this column five years ago. "And the Stock Compares Well With Nike."
What has followed is a stock-market boom driven by semiconductors and artificial intelligence, not shoes. So while Skechers USA has returned 66%, it has lagged behind the S&P 500 index by 36 points -- but outpaced Nike by 82 points. As for the rest of my thesis, I don't know. I recently asked my teenage daughter whether Skechers are cool. "No," she said. "Although for you..."
This is a problem, because I just bought my first Skechers -- a sub-$100, machine-washable, sneakerloafer model that slips on but looks laced-up -- and troublingly, they're an immediate favorite. I can't believe I've been reaching for shoestrings like a sucker all these years. But now every trip outside of the house starts with an internal conflict over whether the people I'm likely to run into are brand-conscious enough to warrant tying my Hokas or New Balances, or whether Skechers can do. Over time, the plan is to make less-discerning friends.
The point is that Skechers is cleaning up in casual wear. And in performance running shoes, it's all about Hoka and On, which I wrote about here 16 months ago. Since then, shares of Hoka parent Decker Outdoor are up 116%, and On Holding, 81%, easily beating the market and trouncing Nike. These shoes are marshmallowy affairs that gained popularity with dedicated runners, and are now worn by marshmallowy people whose main cardio consists of, I don't know, scrambling through the smoky Diamond District that separates Grand Central's 47th Street exit from News Corp headquarters on 48th and 6th. That two-block walk, by the way, passes Hoka's first U.S. flagship store.
I was a longtime New Balance man before Hoka curiosity led me to stray to something more fashionable -- or so I thought. In my brief absence, dad brand NB has suddenly gone from "dorky to desirable," and a "streetwear icon," according to an article this year in trade publication Brand Vision. Along the way, there have been collaborations with flourishing niche clothing brands, like one called A Bathing Ape, or Bape, and timely endorsements, like from pro basketball star Kawhi Leonard and top college recruit Cooper Flagg. Anyhow, thanks for turning cool right after I left, NB -- and you'll be panicked to know that I just bought a fresh pair.
The rise or resurgence of these brands coincided with a choice by Nike to shift sales efforts toward its own retail channels rather than store partners, and the result has been lasting damage to wholesale relationships and shelf space. But direct sales have been soft, too, and the company has used discounting to clear inventory.
Advertising can help. But Nike's recent "Winning Isn't for Everyone" campaign didn't feel like a rallying cry. One commercial titled "Am I a Bad Person?" featured Willem Defoe's most maniacal voice work since the Green Goblin. "I have no empathy. I don't respect you," he cackle-growls. "I want to take what's yours and never give it back." I hope he's not talking about my Skechers.
Nike has made other tactical missteps. One is to lean too heavily for growth on three styles, called Air Jordan 1, Dunk, and Air Force 1, according to Jefferies analyst Randal Konik. These are lifestyle shoes, and by tilting the business too far in that direction, Nike opened itself to more competition from lifestyle heavyweight Adidas, while neglecting the performance side of its business, opening the door to Hoka and On.
Konik cites other concerns, like shoppers in China shifting to local brands, and Nike needing to shift from cost-cutting to investing in a turnaround. The backdrop is a stock that's both down a lot and still not obviously cheap. Nike sells for 29 times projected earnings for its fiscal year ending May 2025.
"Just Do It," Nike famously began encouraging customers in the 1980s. Investors who are thinking about taking that advice on the stock should consider the slogan's less-famous origin. The ad executive behind it once said it was inspired by the last words a decade before of a Utah murderer facing a firing squad.
Maybe just do nothing, until the new CEO can string together a couple of better quarters.
ReplyReply allForward
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 19, 2024 10:40 ET (15:40 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
Comments