Billionaire Bill Ackman Is Betting Big on Nike. Down 57%, Is the Sportswear Stock Ready for a Comeback?

Core View - Nike is undergoing a challenging period with declining revenue and profits, but new leadership under Elliott Hill aims to restore the company's focus on sports, innovation, and premium branding [1][4][16] - The company's turnaround strategy includes reducing promotional activities, liquidating excess inventory, and scaling back orders to regain its premium status [16] - Despite the current struggles, there is potential for significant upside if the new strategy is successfully executed, given the stock's 57% decline from its peak [8][18] Financial Performance - Nike's fiscal second-quarter revenue declined 8% to $12.3 billion, with net income falling 26$1.16 billion [13] - The company expects a low double-digit revenue decline in the third quarter and gross margin compression of 300 to 350 basis points, leading to a substantial profit decline [3] - Revenue has fallen for three consecutive quarters, with a 10% decline in the summer of 2023, marking the lowest point in a seven-quarter deceleration trend [4] Leadership and Strategy - Elliott Hill, a longtime Nike veteran, has taken over as CEO with a focus on returning the company to a "pull market" driven by customer demand rather than aggressive marketing [1][7] - Hill aims to prioritize athletes and sports, emphasizing innovation, design, and storytelling to restore Nike's leadership position in the industry [1][11] - The company plans to reduce reliance on discounting and focus on charging full price for its products to recapture its premium status [16] Market Position and Competition - Nike has lost significant market share and mindshare to emerging competitors like On Holding and Deckers' Hoka brand [9] - The company needs to reclaim lost shelf space and premium branding to regain its competitive edge [17] Investor Sentiment - Bill Ackman, a billionaire investor, has increased his stake in Nike, purchasing 13.2 million shares in the third quarter, bringing his total holdings to 16.3 million shares worth approximately $1.25 billion [14][15] - Ackman's investment aligns with his contrarian strategy of betting on distressed consumer brands with potential for recovery [15] Turnaround Outlook - The turnaround is expected to take time, with weak results anticipated in the fiscal second half of the year [3] - If successful, the stock could potentially double or more over the next few years as the turnaround strategy unfolds [18]