• Investing Insights & Exclusive Offers → Get Our FREE “Market Brief”
    Sign-up for our free weekly newsletter. Get unparalleled investing insights and exclusive Summer Sale discounts on Hedgeye research.

    Disclaimer: By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails. Use of Hedgeye and any other products available through hedgeye.com are subject to our Terms Of Service and Privacy Policy

Below is a complimentary research note written by our Retail analyst Brian McGough. If you are an institutional investor interested in getting full research access email sales@hedgeye.com.

Here's My Take On the Nike News | $NKE - znik

The same day Kevin Plank gave up the CEO title at Under Armour, Nike announced that Mark Parker will be stepping down as CEO in 2020. I’m not surprised by the announcement. I thought Parker would be gone a year ago.

He turned 64 years old yesterday and has been CEO since 2006. There’s an unwritten rule at Nike where the age of the executive suite can’t be too far in excess of the age of the core customer. Mid-60s is about as much time as you get running that company.

What did surprise me is that the company named a 59-year old Board member – John Donohoe – to be the next CEO. Hardly a youngster. More importantly, though he’s been on the Board for five years, the reality is that he is an outsider. Outsiders rarely work out at Nike.

The company’s first experiment there with Bill Perez in 2005 flamed out within 12-months. The guy was given too long a leash -- just enough to make enemies virtually everywhere on the org chart. Earning the trust and respect of the leaders inside Nike is a near-impossible task. I hope he’s up to it -- though Parker's continued presence on campus will be a major crutch.

The only person I worry about as it relates to flight-risk is Eric Sprunk – COO. He’s critical to the operation of the business, and he was clearly passed over. The previous heir-apparent – Trevor Edwards – shot himself in the foot and got fired last year in Nike’s #metoo mess.

I also think that the timing of the announcement is suspect. Why now? Why not closer to the end of the company’s FY in May? I don’t think this has anything to do with the ‘Salazar-gate’ doping scandal. Parker steered clear of getting his hands dirty there. Donohoe is currently president and CEO of ServiceNow – a cloud-based service provider. Yes, he has the benefit of having been on the Board for 5-years, and he has the blessing of Parker, Tim Cooke, Alan Graff and the other high-profile Board members Nike has acquired in recent years. But he’s not a ‘shoe guy.’ Not in his DNA.

Is Nike announcing this because it’s about to flub the quarter? No way. Business is fine, and Nike is likely doing this from a position of strength.

My sense is that Parker, who becomes Executive Chairman with this change, will still show up to the office everyday for at least two years to drive the innovation agenda of the company. That’s what Phil Knight did when he handed over the reigns – but in driving the athlete endorsement side of the organization.

Ultimately Nike won’t miss a beat with this transition. So all in, the announcement does not surprise me, but the individual they chose makes me raise an eyebrow. He’s got Shaq-sized shoes to fill. Stay tuned… Still a Best Idea Long. Buy on weakness -- if there is any.