A Nike, Inc. shareholder has filed a securities class action in the District of Oregon’s Portland division, claiming the company misled investors about the financial effects of prioritizing direct-to-consumer sales.
The lawsuit, filed on June 20 in The U.S. District Court of Oregon, alleges that Nike, its CEO John Donahoe and its CFO Matthew Friend, did not properly disclose certain aspects of its DTC strategy and, as a result, “participated in a scheme to defraud” its shareholders, according to the Portland Business Journal.
“Defendants misrepresented and/or failed to disclose that…Nike’s direct-to-consumer strategy was unable to generate sustainable revenue growth; Nike’s…competitive advantages were unable to protect the company…after (it) largely disengaged from many of its wholesale and retail partners to focus on the company’s direct-to-consumer strategy,” the lawsuit states.
The shareholder proposes a class of those who purchased Nike Class B stock between March 2021, when Nike announced its third-quarter financial results, and March 2024, when Nike announced it would be scaling back on its DTC strategy, according to law.com.
Nike has yet to respond to requests for comment.
According to the lawsuit, Nike established the DTC strategy as the Consumer Direct Offensive initiative in 2017 under then-CEO Mark Parker, who, at the time, said that Nike was looking at “getting even more aggressive in the digital marketplace, targeting key markets and delivering products faster than ever.”
Upon becoming CEO in 2020, Donahoe accelerated the push by replacing the strategy with Nike’s Consumer Direct Acceleration program that, he said, would “put even greater emphasis on getting products to market quickly and through direct sales channels, such as Nike’s apps and stores.”
The lawsuit alleges that the strategy led Nike to reduce nearly one-third of its retail partners by the end of 2020. During its third quarter 2022 earnings call, Friend said Nike had reduced its retailer partner base in half over the prior four years.
The lawsuit alleges that even though Donahoe and Friend touted the DTC push’s success to the investment community, its earnings and sales missed plan, impacting Nike’s shares. The suit alleges that Donahoe and Friend “downplayed any concerns” about the company’s performance on several analyst calls over the last three years, resulting in shareholders suffering “economic loss.”
The lawsuit further alleges that Nike’s “safe harbor“ warnings about forward-looking statements “were ineffective to shield those statements from liability“ and questions whether Nike’s Class B common stock was “artificially inflated“ or violated the Securities Exchange Act.
Plaintiffs are seeking class-action status, an unspecified amount in damages and a jury trial.
Three firms filed the lawsuit, led by Stoll Berne from Portland, OR.
