By: Scott Murphy

When you think of athletic brands, Nike (NKE) is likely the first name that comes to mind. Nike is known for its iconic “swoosh”, and it is one of the most recognized brand names in the world. While Nike has long been synonymous with innovation and cultural relevance, in the past few years it has suffered a few stumbles.

This past fall, Tufton initiated positions in Nike because we perceived a good buying opportunity. Missteps in vendor relationships and a slowdown in China, one of Nike’s largest markets, caused the stock to trade at a discount. Nike has underperformed 70% since 2021, and the perfect investment opportunity emerged.

During the Covid-19 shutdowns in 2019-20, Nike pivoted to a direct-to-consumer model bypassing traditional outlets like Dick’s Sporting Goods and Foot Locker. This strategy was an initial success. However, when these stores reopened, Nike found that their direct-to-consumer strategy had backfired, and they suffered strained relations with their partners which led to inventory buildups and margin pressures. There was also a slowdown in product innovation which let companies like HOKA and ON make small but significant inroads into Nike’s market share.

Nike recognized these problems and decided to make a change in leadership. They brought back Elliott Hill as CEO. Hill, a seasoned thirty year employee and former President of Consumer and Marketplace, might be the ideal person to right the ship. He is a well-respected leader who is extremely qualified to address inventory issues, mend vendor relationships, refocus on innovation and bring Nike back to its former glory.

Despite its recent challenges, Nike remains the undisputed leader in athletic footwear. As of 2024, Nike held a commanding 16.4% global market share, far outpacing Adidas (9%) and Puma (3%). New entrants into the footwear market like HOKA and ON have garnered some attention, but their market shares remain below 3% globally. Nike also has maintained the “cool” factor among teenagers with 59% of them naming Nike as their favorite footwear brand. For perspective, Adidas comes in at 7% in that teenage survey.

While Wall Street is cautious as the company navigates these transitions, we at Tufton see it as an opportunity to accumulate shares of a proven market leader at a discounted price. Nike’s market leadership and commitment to innovation tie in with our focus on long-term value creation. Under new and experienced leadership, Nike should capitalize on the turnaround and reap the rewards as it regains its stride. We believe that Nike will make a meaningful recovery, and it will be a winning stock for the patient investor. Taking some of Nike’s advice, we will “just do it”.