By Eric Smith
March, April and May should be a time for Nike Inc. to focus on promoting new products and growing North American revenue, a goal the company outlined for shareholders in the company’s last quarterly earnings call.
But this spring the global footwear giant has instead been stumbling over accusations of workplace harassment, which has led to a host of high-profile executive departures and calls for a cultural change (see below for the full list).
Bad press has plagued the Beaverton, OR-based company for the last two months, but how much that plays into Nike’s financial performance remains to be seen. Revenue has grown steadily in recent years, and even its stock has climbed since the leadership exodus began.
But some fallout has happened. On April 20, following the first wave of senior-level departures after the inappropriate workplace behavior allegations started to surface, Susquehanna International Group lowered the price target for Nike shares to $59 from $62 due to heightened risks at the company.
Research analysts like Susquehanna’s Sam Poser—who wrote the firm’s note about that lowered price target—said Nike is being watched very closely as the company works to move past this rather large bump in the road.
“I think it’s too early to tell, but with the kind of changes they’ve had in the C-suite or close by the C-suite, for any company—especially given one with the big, lofty targets they have over the next few years—it could be disruptive,” Poser told SGB.
Spring began with such promise for Nike. On a conference call with analysts on March 23, Mark Parker, the company’s chairman, president and CEO, said the end of the third quarter “marks a significant turn in North America where we expect a reversal of trend in Q4. We’ve secured some great early wins here through new Nike consumer experiences and differentiated retail across both our direct and partner channels.”
Such momentum would help Nike move closer toward the $50 billion annual revenue goal the company laid out in 2015, but losing talent at the top of the organizational chart could dampen those plans.
“Prior to any of these departures, I’ve been concerned because they need to see significant growth over the next few years to get the $50 billion target that they have,” Poser said. “In North America specifically, they need to get to a mid-single-digit growth off of a mature base. And I’m not saying it’s impossible, but the part of the problem is that [youth footwear trends] are changing so fast—what they like today, they don’t like tomorrow and so on—that Nike needs to balance scale and scarcity.
“I was still not convinced that they could balance the scale and scarcity prior to any of these departures,” Poser said. “On the edges, am I a little more apprehensive now than I was before? Certainly.”
As a multibillion-dollar company, Nike has plenty of talent in the company’s ranks and is able to recruit the best and brightest, but even with product, technology and marketing stars moving up the ladder to replace the departed, any kind of leadership transition poses problems.
“There’s going to be a huge learning curve, and that’s the kind of stuff that concerns me,” Poser said. “I think they have an excellent bench at Nike, but if these people were ready for those big jobs today my guess is they would’ve been at the jobs.”
What happens this quarter won’t be known until next month when Nike reports fiscal fourth-quarter and 2018 earnings, but the company might be fielding a fair number of questions from analysts related to executive behavior rather than product performance or the 2019 outlook.
Either way, perhaps “cleaning house” is the right path forward for Nike, which has addressed the issues recently. In addition to Parker apologizing to the company (see link in timeline below), the company’s chairman emeritus and co-founder, Phil Knight, told CBS in a recent report that he is “proud” of the way his company has handled recent allegations of sexual harassment and discrimination.
“Sales and earnings are growing, but we did have a shock within the last couple of months that a certain number of managers were bullying employees, and it was a shock to me personally and to a lot of the upper management,” Knight told the network. “And it’s disappointing as well as a shock. It’s very disappointing, but I am proud of the company and the way it responded to the problems that it saw, and it’s basically cleaning house for those people.”
Here’s a reverse chronological timeline of Nike’s recent problems, including executive departures, the company’s handling of the mess and the marketplace’s response:
May 8 – Five senior managers at Nike Inc.—Steve Lesnard, Helen Kim, Simon Pestridge, Tommy Kain and Ibrahem Hasan—left the company, according to a report in the New York Times.
May 3 – Mark Parker, CEO of Nike Inc., held a company-wide staff meeting at the company’s headquarters to apologize for allowing a culture where staff members were excluded and workplace complaints of inappropriate behavior were dismissed, according to The Wall Street Journal.
April 30 – Amy Montagne became the new VP, GM of global categories, replacing Jayme Martin, who was among the first executives to leave Nike after allegations of inappropriate workplace behavior surfaced.
April 20 – Susquehanna International Group lowered price target for Nike shares to $59 from $62 due to heightened risks at the company following the senior-level departures in recent weeks after allegations of inappropriate workplace behavior arrived.
April 19 – Nike’s vice president of footwear, Greg Thompson, left the company, a Nike spokesman confirmed to Reuters.
April 17 – Vikrant Singh, Nike’s senior brand director for basketball in North America, and Daniel Tawiah, Nike’s VP of global brand digital-marketing innovation, left the company, sources told the Wall Street Journal.
April 16 – Antoine Andrews, Nike’s VP, diversity and inclusion, has left the company, according to Bloomberg.
April 5 – Nike “has failed to gain traction” in hiring and promoting more women and minorities to senior-level positions, according to a memo sent internally to Nike’s employees from Monique Matheson, EVP, global human resources.
March 19 – Jayme Martin, vice president and general manager of global categories for Nike, has been ousted from the company. His departure came one day after Nike President Trevor Edwards resigned amid complaints about poor workplace conduct.
March 16 – Nike President Trevor Edwards resigned from his position following an internal probe of inappropriate workplace behavior. Mark Parker announced that he plans to stay on as chairman, president and CEO beyond 2020.
Photo courtesy Nike