An iconic brand that had gone stale is beginning to show signs of revival. On Wall Street, large investment firms managed by money managers are required to disclose their trades on a quarterly basis. Recently, the firm Pershing Square, led by billionaire investor Bill Ackman, revealed its trades for the fourth quarter of 2024. Among these trades was the continued investment in Nike, the sneaker and sporting apparel giant, which has seen its value drop by more than 50% from its peak since late 2021.
Nike currently ranks as the fifth-largest holding in Pershing Square’s 10-stock portfolio, comprising just over 11% of the total. Although investors should not blindly follow such trades, Ackman’s ongoing investment suggests a strong belief in the company from one of the market’s most well-known figures.
Nike may now be on the path to a comeback. The company has recently made a significant strategic announcement that aligns with the hopes of Ackman and other shareholders.
The lengthy decline of Nike can be attributed to strategic missteps after the height of the COVID-19 pandemic. The company shifted its focus from its established wholesale relationships to a direct-to-consumer sales model, which did not succeed as planned. Competitors such as On Holding and Deckers Outdoor’s Hoka brand capitalized on the void left by Nike’s strategic pivot in the retail space. Furthermore, Nike acknowledged that the logistics of direct-to-consumer sales impaired its business momentum.
In response, the company made leadership changes late last year, appointing former executive Elliott Hill as CEO to spearhead its resurgence. In the quarter ending November 30, 2024, Nike reported an 8% decline in companywide sales compared to the previous year, alongside a 10% drop in gross profit, as it attempted to clear the slate and make room for new products and ideas. During the earnings call, management shared progress on initiatives such as price reductions to move old inventory, engaging with retail partners, and refreshing the product pipeline.
Nike’s journey to recovery will require time. Ackman, who has not publicly commented much on Pershing Square’s stake since initiating the position in the second quarter of 2024, appears to be encouraged by the company’s recent developments, as indicated by continued purchasing. He previously held Nike stock briefly between late 2017 and early 2018, resulting in a profit of around $100 million.
Nike is now reentering a more offensive strategy, having aired a commercial during the National Football League’s championship game in February for the first time in 27 years. Recently, Nike unveiled a pivotal new partnership with SKIMS, a rapidly growing shapewear and clothing brand co-founded by Kim Kardashian in late 2019. SKIMS, which initially started online, has expanded to around $1 billion in annual sales and began opening permanent storefronts last year.
SKIMS has thrived by offering a broad range of products in inclusive sizes, supported by publicity from Kim Kardashian and other influencers. This collaboration presents a potential significant opportunity for Nike, which has long competed in the clothing sector against brands like Lululemon.
The initial NikeSKIMS product line will debut in the spring, with its impact on Nike’s long-term prospects expected to become clearer over the following quarters.
Despite declining sales and profits, Nike remains a strong financial entity. Trading at a price-to-sales (P/S) ratio of 2.3, its lowest in at least a decade, the market may be overestimating the company’s downturn. Nike is still the world’s largest sneaker and sports apparel company by a significant margin. It boasts sponsorships with iconic athletes across major sports and maintains licensing deals with most professional sports organizations. Additionally, Nike possesses a robust balance sheet with $9.7 billion in cash, exceeding its $9 billion debt.
The iconic status of the Swoosh logo endures, and the partnership with an emerging brand like SKIMS indicates Nike’s willingness to innovate and broaden its current strategy. Should these efforts prove successful, there is potential for substantial gains, considering the stock’s historical average P/S ratio of 3.6 over the past decade.
The reporter Justin Pope has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Deckers Outdoor, Lululemon Athletica, and Nike, and also recommends On Holding.
