Will Nike Sell Converse? One Analyst Thinks So.

Core Viewpoint - Speculation arises regarding Nike's potential sale of the Converse brand due to its precarious underlying health, as indicated by recent financial challenges [1]. Financial Performance - Converse experienced a 28 percent decline in revenues in Q1, followed by a further 31 percent drop in Q2, resulting in negative EBIT for the second quarter [2]. - The gross margin for Converse deteriorated from a decline of 620 basis points in Q1 to 700 basis points in Q2, attributed to lower average selling prices and higher product costs [3]. Demand and Marketing - Demand creation expenses for Converse declined by 44 percent year-over-year, a significant drop compared to a 6 percent decline in Q1, raising concerns about the brand's market presence [3][4]. - The reduction in demand creation suggests that Nike may be evaluating strategic alternatives for Converse, including a potential divestiture [4]. Strategic Implications - A divestiture of Converse would mark the completion of Nike's divestiture of all acquired brands, highlighting the challenges associated with brand acquisitions [4]. - The potential sale could represent a 3 percent headwind to Nike's top line for fiscal year 2027, although the exact implications are difficult to quantify due to dis-synergies [4]. Earnings Outlook - The expectation for Converse to achieve $3 in earnings per share by fiscal 2028 appears increasingly unlikely, reflecting ongoing challenges within the brand [5].