As Nike writes about its comeback, repairing its China operations will be a crucial chapter on the path to returning its overall business and stock price to full strength. The storied brand has struggled globally to rebound after a failed post-pandemic direct-to-consumer strategy led by former CEO John Donahoe, who was ousted last year. Elliott Hill, a former longtime Nike executive, replaced Donahoe and took over as CEO in mid-October 2024. Hill, 61, was brought in to turn around the company’s fortunes. He started at Nike as an intern in 1988 and rose through the ranks to become president of consumer and marketplace before his brief retirement in 2020. Since his return, Hill has centered his plans to relaunch Nike around the love of sports in the United States and around the world. This isn’t going to be easy. Nike shares have been in the doghouse since their record close of $171.51 each in early November 2021. Turnarounds don’t happen overnight. By his own admission, Hill told CNBC in an interview broadcast Monday that it would “take a while.” Speaking to CNBC’s Sara Eisen at the company’s headquarters in Beaverton, Oregon, Hill made it clear that China is high on her to-do list. “The difference between the Chinese market and the U.S. market, for example, is that it’s a single-brand store. Physical retail is all about Nike, and I think we’re too focused on sportswear and not enough on sports. Now we’re re-evaluating the concepts that we have in China,” Hill said. The master plan is to refocus on Nike’s ties to sports around the world, including in China, the world’s second-largest economy, home to more than 1.4 billion people. Nike’s new direction is sports-themed stores. “We have a running-focused store that’s starting to sell really well (there) because it’s rooted in sports. It has a point of view around sports. There are 5,000 (Nike stores in China), so it’s going to take us time to roll out those concepts, but we’re happy with the consumer-led sports concepts there,” Hill told Eisen. Last week, after Nike reported promising quarterly results indicating progress in Hill’s turnaround, Jim Cramer acknowledged that Nike stock was on the right track. But he added that the next step up depends on China: “We won’t get to $90 unless it solves the China conundrum.” Nike’s sales in Greater China fell more than 9% to $1.51 billion in the latest quarter, but beat expectations. Sales in China during the quarter accounted for nearly 18% of Nike’s total revenue. On the post-earnings conference call, Hill attributed the drop in sales in China to “structural challenges in the market.” Another obstacle for Nike in China is tariffs imposed by the United States, which make it more expensive to import products made there. Nike expects related costs of approximately $1.5 billion for fiscal 2026, up from $1 billion estimated three months earlier. “We now expect net headwinds in fiscal 2026 to increase from approximately 75 basis points to 120 basis points of gross margin,” CFO Matt Friend said on last week’s earnings call. Last June, Friend outlined steps Nike was taking to ease profitability pressures from tariffs, including optimizing sourcing and production differently in different countries; work with suppliers and retail partners to reduce costs; and implement a “surgical price increase in the United States.” In recent sessions, Nike stock has fallen back to around $70 after jumping 4.5% on October 1 following the release of results the day before. However, as a sign of confidence, we purchased an additional 460 shares of Nike following this post-earnings rebound after starting a position with 540 shares on September 26. Club has an $80 price target on Nike and a Buy rating of 1. NKE 5Y mountain Nike’s 5-year performance During the Covid era, Nike shares have soared, benefiting from Donahoe’s digital-forward vision that prioritized DTC sales over wholesale partnerships. In 2020, the first year of Donahoe’s tenure as CEO, Nike shares rose 44%. A year later, he was breaking records. But from then on, inventory gradually dwindled as Donahoe’s plan backfired once the pandemic stabilized and shoppers returned to shopping in-store. It’s now been almost a year since Hill took the reins of Nike, and Wall Street is more optimistic. KeyBanc upgraded the stock last week to buy from hold. “There is enough visibility to feel comfortable in the broader turnaround story,” said the analysts, who set a $90 price target for Nike shares. They didn’t have PT before. “While we recognize there remains (near-term) disruption from tariffs, digital and China, we believe the sports offense, innovation pipeline and market reset will continue to better position Nike for a return to sustainable growth/margin recovery.” Jim agrees. “This guy Elliott Hill. He’s interested in sports. He’s competitive,” Jim said this week on “Squawk on the Street.” “He won’t lose because he has a very big brand and they can make a comeback.” While Hill stressed that Nike’s takeover won’t be a boost, the club is prepared to sit through the journey. We are confident in Hill’s actions, which include senior management changes, a restoration of retail partnerships and the launch of its sports-focused “Win Now” strategy. (Jim Cramer’s Charitable Trust is long NKE. See here for a complete list of stocks.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charity’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, AS WELL AS OUR DISCLAIMER. NO OBLIGATION OR FIDUCIARY OBLIGATION EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
Nike’s comeback depends on China – how CEO Elliott Hill plans to fix a key market
Related Posts
