Nike‘s turnaround plan is showing early signs of progress, but it will “take a while” for the company to return to profitable growth, CEO Elliott Hill said in an interview with CNBC’s Sara Eisen aired Monday.
“When we come to work we think about three brands, and then multiple sports under each brand and then 190 countries that roll up to our four geographies,” Hill said in a sit-down interview from the company’s headquarters in Beaverton, Oregon. “Each brand times sport, and each [geography] times country, they’re at different stages of the evolution.”
When asked when investors can expect Nike to get back to mid-to-high single digit revenue growth with strong margins, Hill acknowledged that “it’ll take time.” But he said the company has “the path” to get there.
“It’s gonna take a while,” said Hill. “It’s not linear. But it is a portfolio, and ultimately the goal is to have the entire portfolio all working together to drive the revenue and the profit that we hope to deliver for all of our investors.”
The comments come nearly a year into Hill’s tenure as CEO. Investors are looking for more clarity into how well his strategy to turn around the company is working as quarterly sales and profits have declined for much of the last year.
Elliott Hill, CEO of Nike, speaking with CNBC.
CNBC
The struggles have shown in Nike’s stock, which has fallen about 12% in the last year. While Wall Street knows how Hill plans to fix the company, it is still unclear how long it will take.
Since Hill took over last October, he’s worked to reverse many of the strategies implemented by his predecessor, former eBay CEO John Donahoe, who tried to sell more shoes and apparel directly to shoppers. Instead of focusing on sales only through Nike’s website and stores, Hill is moving back to wholesalers and working to win back shelf space that competitors have taken over.
During his interview with Eisen, Hill said Donahoe’s focus on digital sales made sense during the Covid pandemic, but that changed when the world started to open up again.
“When Covid hit, supply got constrained, demand goes up and I think the team did what I think anybody would do. Shift product over to digital commerce and all of a sudden that takes off. Double revenue, double margins and it’s a winning strategy,” said Hill.
“Then of course everything normalized,” he said. “Physical retail started to open back up and we continued on with that strategy … and I think over time it ended up hurting the brand because there’s a certain set of consumers that want to shop choice, and they want to shop across each of the different channels of distribution.”
Hill said the company has made strides toward taking back the shelf space it lost. Nike is also trying fresh partners, such as Aritiza, to win over new, female shoppers.
Hill is also changing the way the business is segmented and returning it to its historical roots. Instead of dividing the company into women’s, men’s and kid’s, Donahoe’s strategy to drive lifestyle sales, Hill is reworking the corporate structure so the company’s departments are focused on individual sports.
“They have small cross-functional teams in each of those segments, if you will, of business and the idea is that the consumers in each of those segments and the competition in each of those segments is different and so by having these small cross-functional teams… that’s really helped us get sharp in a couple of areas,” said Hill.
Under Donahoe, Nike faced criticism for falling behind on innovation and losing market share because it was so focused on driving sales of classic styles, like the Air Force 1 and Nike Dunks. Changing the company structure is one of the ways Hill plans to reignite innovation because the teams will be squarely focused on the individual needs of different athletes, allowing them to create and deliver better products for those consumers.
Many industry insiders expect Nike to make a complete recovery, but larger macroeconomic challenges will make a tough turnaround that much harder.
When reporting fiscal first-quarter earnings last week, Nike warned that it now expects tariffs to cost it $1.5 billion in its current fiscal year, up from the $1 billion it projected in June. Those costs are expected to impact its gross margin by 1.2 percentage points in its current fiscal year, up from the 0.75 percentage points it originally forecast.
Hill told Eisen the company is working to offset the cost of tariffs by leaning on its suppliers, factories and retail partners. Nike also recently implemented certain price increases, which could help blunt the impact of the new duties.
