Nike CEO changeup has investors optimistic as it returns to its product roots (Video)

Nike (NKE) investors are running with the idea of ​​32-year insider Elliott Hill returning the sneaker giant to glory as CEO and cleaning up the messes of his outgoing tech-focused chief executive.

Nike stock is up over 7% in premarket trading on Friday following the announcement late Thursday that current CEO John Donahoe plans to retire, effective Oct. 13. He will stay on as an adviser until January 2025.

This comes as Nike’s board — which includes founder Phil Knight, former longtime CEO Mark Parker, and Apple CEO Tim Cook — sees fit to refocus on improved products and reestablishing relationships cast aside by Donahoe, such as that with Foot Locker (FL).

The move also arrives ahead of a key Nov. 19 investor day for Nike, where many on the Street now expect the company to reset financial guidance as Hill assesses operations.

Hill, 61, will have one month in the role before that gathering.

“The Board concluded it was clear Elliott’s global expertise, leadership style, and deep understanding of our industry and partners, paired with his passion for sport, our brands, products, consumers, athletes, and employees, make him the right person to lead Nike’s “next stage of growth,” Parker said in a press release.

A stronger stock price for Nike wouldn’t hurt, either.

Shares have fallen 20% between January 13, 2020 — when Donahoe joined as CEO — and September 19’s market close, per Yahoo Finance data.

In Hill, Nike gets a true insider who could use his intimate knowledge of the company to move quickly to enact change.

Hill started as an intern and apparel sales representative in 1988 in Memphis, the year the iconic ‘Just Do It’ slogan was created. Nike’s revenue was roughly $1 billion at the time.

Hill has said the competitive Nike culture is the reason he stuck with the global sneaker giant and even moved with the company to seven different cities, including Amsterdam. The journey saw him work closely on the Jordan brand, among others.

He ultimately retired in 2020 after leading Nike’s consumer and marketplace business as president. Some believed Hill was positioned to take over as CEO from Parker, but Knight interjected and was able to push through his longtime friend, board member, and former eBay CEO Donahoe as its next leader.

Donahoe managed the business through the COVID-19 pandemic but cast aside important relationships with key vendors such as Foot Locker. His consulting-centric management style — honed at Bain — also rubbed folks inside Nike the wrong way.

Hill is the right pick at the right time for Nike, said Bernstein analyst Aneesha Sherman.

“He’s a product guy. He’s (run) retail in EMEA (Europe, Middle East, and Africa), in North America, he knows the company and the product very well,” Sherman told Yahoo Finance (video above), plus “he’s also very liked at Nike.”

Sherman has an Outperform rating on Nike stock.

That expands beyond internal connections, per BMO Capital Markets’ Simeon Siegel. Hill is “known-and-liked internally and with retail partners, potentially driving an immediate morale boost,” Siegel told clients in a note.

Siegel has an Outperform rating on Nike as well.

Nike is up against it, so to speak, in jump-starting its financials.

The company’s net profits dropped to $6.5 billion in its most recent fiscal year, down from $6.9 billion two years ago. Operating profit margins during this time decreased to 12.7% from 14.7%.

Wall Street pros point to the proliferation of On Holding (ONON), Skechers (SKX), and Hoka (DECK) sneakers as a key reason for Nike’s stumbles. Donahoe’s focus on expanding Nike’s own stores at the expense of long-held distribution agreements has also been weighed on performance.

Four items Hill needs to tackle on day one include regaining investor optimism after the company lost focus of its product and marketing roots, streamlining product innovation, rebuilding relationships with its distribution partners, and clawing back lost market share.

“After four years away, Hill will face the challenge of adapting to significant changes in the market, including heightened competition, evolving distribution and brand-building channels, and most critically, shifts in product innovation. While his deep understanding of the company is an asset, his ability to navigate these shifts will help determine Nike’s future success,” Jefferies analyst Randy Konik wrote in a note to clients.

All of this makes the Nov. 19 investor day a must-watch for beleaguered Nike investors.

He needs to “set some targets, give investors a sense of where this company is headed and what kind of numbers to expect, what kind of algorithm to expect for growth and earnings growth. That will set the course of investor expectations and probably stabilize the “stock a little bit, and then he needs to do more work,” Sherman said.

Added Sherman, “If the targets sound reasonable, the goals sound reasonable and will give him a pass for the next six months to a year to fix the ship before it starts working again.”

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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @Brooke DiPalma or email her at [email protected].

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