Nike's Comeback: Bill Ackman's Big Bet on the Sportswear Giant

Nike (NKE) has been through a challenging period, with revenue declining for three consecutive quarters and market share eroding. The sportswear giant's stock has plummeted by 57% from its peak in 2021, ceding ground to upstart rivals like On Holding and Deckers' Hoka brand. However, billionaire investor Bill Ackman is betting big on Nike's comeback, purchasing 13.2 million shares in the third quarter, bringing his total holdings to 16.3 million shares worth approximately $1.25 billion. This article explores the reasons behind Ackman's bullish stance and whether Nike is indeed ready for a resurgence.

Nike's recent struggles can be attributed to a combination of factors, including a shift in marketing strategy under former CEO John Donahoe, supply chain disruptions, and a contentious wholesale strategy. Donahoe's focus on digital marketing over traditional brand-building campaigns led to a loss of mindshare and market share. Supply chain issues, exacerbated by geopolitical tensions and pandemic-related closures, resulted in production delays and increased costs. Meanwhile, Nike's wholesale strategy, which involved abandoning valuable partners and focusing on direct-to-consumer sales, further eroded its market share.

However, new CEO Elliott Hill has implemented several initiatives to address these challenges. Unlike Donahoe, Hill aims to return sport to the center of the company's strategy, focusing on the athlete first before catering to consumers. He plans to accelerate innovation, design, product creation, and storytelling, while also recapturing Nike's premium status by reducing promotional activities and liquidating excess inventory in less profitable channels. Hill's relationships with key stakeholders, including retail partners, sports leagues, sponsor athletes, and other key stakeholders, will be crucial in executing this turnaround strategy.

Nike's wholesale relationships have been strained in recent years, but Hill is taking steps to improve them. He aims to return sport to the center of the company and accelerate innovation, design, product creation, and storytelling. Hill's focus on rebuilding wholesale partnerships and prioritizing sport in the company's strategy could help Nike regain its lost shelf space and premium branding.

Nike's brand image and pricing strategy have also been key factors in its recent struggles. The company's aggressive discounting and promotional tactics have eroded its premium status, leading to a loss of market share and mindshare to competitors. Hill plans to recapture the brand's premium positioning by reducing promotional activity and focusing on full-price sales. This strategy aims to return Nike to a "pull market," where customer demand drives the business rather than aggressive marketing.



Nike's latest round of results indicates that the business is still headed in the wrong direction, with revenue in the fiscal second quarter down 8% to $12.3 billion and net income falling 26% to $1.16 billion. However, Hill's turnaround strategy is expected to take time, and results in the fiscal second half of the year will be weak. For the third quarter, Nike is targeting a revenue decline in the low double-digits and gross margin compression of 300 to 350 basis points, which will lead to a substantial decline in profits.

Despite the near-term challenges, Nike's long-term prospects remain promising. The company's strong brand, global reach, and extensive product portfolio position it well for a comeback. Moreover, Hill's turnaround strategy, which focuses on recapturing the company's premium status, strengthening wholesale partnerships, and prioritizing sport in the company's strategy, could help Nike regain its lost market share and mindshare.



In conclusion, Nike's recent struggles have presented investors with a classic dilemma: whether to buy this blue-chip stock on the dip or avoid it while it attempts to revamp its business. Ackman's big bet on Nike suggests that he believes the company is undervalued and poised for a comeback. While near-term results may be challenging, Nike's long-term prospects remain promising, and the company's turnaround strategy under Hill could help it regain its lost market share and mindshare. Investors should monitor Nike's progress closely and consider the potential upside if the company can execute Hill's strategy successfully.