Nike Readies First Earnings Report After Management Shake-Up Scandal — What Analysts Are Saying

Top management at Nike Inc. are preparing to face investors tomorrow to report third-quarter results after what have been a contentious few days for the firm.

The athletic behemoth last week announced the resignation of Nike brand president Trevor Edwards and the exit of Jayme Martin, VP and GM of global categories.

The firm has yet to provide details on the departures, but the news came at the same time that an internal memo from Nike CEO Mark Parker reportedly revealed that the company is conducting an investigation into alleged misconduct in the workplace, in addition to a review of human resources practices and its system of reporting complaints.

While the announcements have been followed by a wave of public speculation and debate across mainstream media — besides some banter about the impact of Edwards’ departure on Nike’s succession planning — Wall Street analysts have been fairly quiet on how the controversy could impact Nike’s business and investor sentiment.

In a Nike earnings preview note this week, Canaccord Genuity Inc. analyst Camilo Lyon did not address the departures but focused on the strength — or lack thereof — of the firm’s business as the brand seeks to get its stride back in North America amid intensifying competition from Adidas.

“Brand Jordan is still not on a recovery path, nor has the pace of launches slowed, and the breadth of promotions at retail partners like Foot Locker has not moderated,” Lyon wrote, listing a series of reasons he maintains a hold rating on the stock. “Adidas continues to drive impressive share gains in North America as evidenced by its growth of 29 percent in Q4 … tax reform is [also a] headwind going forward.”

Susquehanna Financial Group analyst Sam Poser was also sidelined on the company in a March 16 note, citing a desire for “improved visibility at the firm.”

“We believe Nike is evolving its business into a more nimble, digitally focused, customer-centric and innovative organization,” Poser wrote. “However, reaching fiscal year 2022 $50 billion revenue goal requires Nike to add over $4 billion in North America business, which will require a deft balance of scale and scarcity. Nike’s intentions are good, but the end result may be difficult to come by.”

Poser addressed at least one departure at the athletic giant — writing “the abrupt departure of Edwards and subsequent restructuring of senior management are concerning.”

Still, insight from the Wall Street side on how Nike’s management shakeup could harm the brand’s public perception and eventually its profits — should consumers find reports of internal misconduct issues hard to ignore and/or forgive — has been scarce compared with the public interest and chatter.

In the #MeToo era, brushing internal misconduct challenges under the rug has become increasingly less acceptable for companies. Meanwhile the link between profits and internal challenges has become stronger, with social-media-powered consumer boycotts now posing a significant financial risk to firms.

When Nike reports Q3 earnings after market close tomorrow, analysts predict a year-over-year decline in profits to 53 cents per share, from 68 cents.

Sales are expected to advance 5 percent year over year to $8.9 billion.

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