NIKE, Inc. (NYSE: NKE) Securities Fraud Class Action

LEAD PLAINTIFF DEADLINE IS AUGUST 19, 2024.

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Case Background:

Class action lawsuits have been filed on behalf of those who purchased or acquired NIKE, Inc. (“NIKE”) (NYSE: NKE) Class B common stock between March 19, 2021 and June 27, 2024, both dates inclusive (the “Class Period”).

NIKE is an Oregon corporation with its principal executive offices in Beaverton, Oregon.  NIKE is a global athletic footwear and apparel company which designs, markets, and sells products for its NIKE, Jordan, and Converse brands.  NIKE branded products are sold through the Company’s retail stores, NIKE Brand Digital platforms (“NIKE Digital”), wholesale partners, distributors, and licensees.  NIKE Digital includes Nike.com and the Company’s digital application, Nike+. 

In 2017, NIKE began implementing its “Consumer Direct Offense” strategy, which focused on increasing innovation and direct connections with consumers.  Consumer Direct Offense also emphasized NIKE’s digital presence as a means of directly connecting with consumers by “add[ing] greater digital expertise and control in the markets where consumer connections happen.”  In fact, the Company began reporting the financial metrics from NIKE Digital and the Company’s retail stores as “NIKE Direct.”  In connection with NIKE’s direct-to-consumer strategy, the Company dropped nearly one-third of its sales partners by late 2020, and significantly reduced sales to other major retail clients in order to shift the Company’s focus to direct-to-consumer sales.  

The Class Period begins on March 19, 2021, to coincide with NIKE’s announcement of its financial results for the third quarter of fiscal year 2021, and NIKE’s related investor earnings call, after the market closed the prior evening.  In connection with these results, Defendant John J. Donahoe II (the Company’s President and Chief Executive Officer) touted that “NIKE continues to deeply connect with consumers all over the world driven by our strong competitive advantages” and that “[o]ur strategy is working, as we accelerate innovation and create the seamless, premium marketplace of the future.”  Defendant Matthew Friend (the Company’s Executive Vice President and Chief Financial Officer) similarly assured investors that “NIKE’s brand momentum is as strong as ever and we are driving focused growth against our largest opportunities.”  On the related investor earnings call, Defendant Donahoe emphasized NIKE’s “tremendous success in digital” and that “NIKE’s digital transformation remains a unique advantage.”

Throughout the Class Period, Defendants repeatedly touted the purported strength of NIKE’s business model, and in particular, the claimed success of its digital and direct-to-consumer strategies to produce sustainable growth, while downplaying the significant competitive pressures facing the Company.  

Investors began to learn the truth about NIKE’s inability to generate sustainable revenue growth on June 27, 2022, when the Company announced its fourth quarter and full year 2022 financial results after market close.  NIKE announced that quarterly revenues declined 1% year-over-year and quarterly wholesale revenues declined 7% year-over-year.  However, Defendant Donahoe reassured investors that NIKE’s “strategy is working” by creating value through its “competitive advantages, including [its] pipeline of innovative product[s] and expanding digital leadership.”  He further asserted that NIKE’s investments in digital and other areas prompted Defendants to be “very confident in our long-term strategy and our growth outlook.”  On this news, the price of NIKE Class B common stock declined $7.72 per share, or nearly 7%, from a close of $110.50 per share on June 27, 2022, to close at $102.78 per share on June 28, 2022.  

Three months later, on September 29, 2022, investors learned more when NIKE reported its first quarter fiscal year 2023 financial earnings after market close.  In spite of modest revenue growth, NIKE reported that its net income declined 22% year-over-year and that diluted earnings per share similarly declined 20% year-over-year.  NIKE also reported a significant reduction in gross margin (down 220 basis points year-over-year) driven by the disposal of excess inventory—which was 44% higher than in the first quarter of 2022.  On this news, the price of NIKE Class B common stock declined $12.21 per share, or nearly 13%, from a close of $95.33 per share on September 29, 2022, to close at $83.12 per share on September 30, 2022.  

Notwithstanding the Company’s struggles with NIKE Direct and its direct-to-consumer strategy, Defendants continued to tout the purported strength of NIKE’s business model over the next year, telling investors that NIKE’s “competitive advantages continue to fuel our momentum” and that NIKE is primed to “leverage our competitive advantages to not only gain share but also grow the market.”  

On December 21, 2023, however, investors learned more about the competitive pressures facing NIKE when the Company issued its second quarter fiscal year 2024 financial results and held its related investor earnings call after market close.  Defendant Friend admitted that NIKE’s “total retail sales across the marketplace fell short of our expectations,” and that NIKE’s digital platforms lost consumer traffic to competitors because of “higher promotional activity across the marketplace.”  Given these challenges, Defendant Friend revealed that NIKE was “adjusting [its] channel growth plans for the remainder of the year” and “identifying opportunities across the company to deliver up to $2 billion in cumulative cost savings over the next 3 years.”  On this news, the price of NIKE Class B common stock declined $14.49 per share, or nearly 12%, from a close of $122.53 per share on December 21, 2023, to close at $108.04 per share on December 22, 2023.  

On March 21, 2024, NIKE announced its third quarter fiscal year 2024 financial results after market close, revealing a 3% year-over-year decline in revenue in its Europe, Middle East, and Africa (“EMEA”) segment, a 3% year-over-year decline in NIKE Digital revenue, and scant quarterly revenue growth of approximately 0.4% year-over-year in NIKE Direct.  On the related investor earnings call held that same day, Defendant Donahoe admitted that “NIKE is not performing [to its] potential” even though moments earlier he claimed that “Q3 performed in line with our expectations.”  Moreover, Defendant Donahoe revealed the Company’s decision to reduce reliance on its direct-to-consumer strategy and “lean in with our wholesale partners to elevate our brand and grow the total marketplace.”  According to Defendant Donahoe, NIKE made a “reinvestment with our wholesale partners, so we bring a more holistic offense that grows the market and gets in the path of our consumer.”  Furthermore, Defendant Friend revealed that NIKE was “prudently planning for revenue in the first half of the fiscal year [2025] to be down low single digits” as Defendants “shift our product portfolio toward newness and innovation.”  On this news, the price of NIKE Class B common stock declined $6.96 per share, or nearly 7%, from a close of $100.82 per share on March 21, 2024, to close at $93.86 per share on March 22, 2024.  

Finally, on June 27, 2024, NIKE announced its fourth quarter and full year 2024 financial results.  The Company revealed a 2% year-over-year quarterly revenue decrease, including, inter alia, an 8% year-over-year quarterly revenue decline in NIKE Direct and a 10% year-over-year quarterly revenue decline in NIKE Digital.  Defendant Donahoe later explained to investors that Defendants are taking “strategic shifts . . . including leadership and organization changes” to “position [NIKE] to compete and win.”  Nevertheless, Defendant Friend disclosed that NIKE was expected to face significant headwinds through fiscal year 2025 which would cause NIKE’s full year 2025 revenue “to be down mid-single digits with the first half down high single digits.”  Critically, Defendants further retreated from NIKE’s direct-to-consumer strategy by “reducing what we’re offering to consumers through our digital channel.” Neil Saunders, the managing director at GlobalData, expressed an unsettled view of the Company, noting that NIKE’s “[m]anagement has tried to sell a story of improvement to investors, but is not prepared to back it up with positive forecasts.”  On this news, the price of NIKE Class B common stock declined $18.82 per share, or approximately 20%, from a close of $94.19 per share on June 27, 2024, to close at $75.37 per share on June 28, 2024.  This stock drop represented the largest decline in the price of NIKE Class B common stock since 2001. 

This Complaint alleges that, throughout the Class Period, Defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts, about the Company’s business and operations.  Specifically, Defendants misrepresented and/or failed to disclose that: (1) NIKE’s direct-to-consumer strategy was unable to generate sustainable revenue growth; (2) NIKE’s purported competitive advantages were unable to protect the Company from intense competitive pressures after NIKE largely disengaged from many of its wholesale and retail partners to focus on the Company’s direct-to-consumer strategy; and (3) as a result, Defendants’ representations about the Company’s business, operations, and prospects were materially false and misleading and/or lacked a reasonable basis.

What is a Lead Plaintiff?

A lead plaintiff is a representative party that acts on behalf of other class members in directing the litigation. In order to be appointed lead plaintiff, the Court must determine that the class member’s claim is typical of the claims of other class members, and that the class member will adequately represent the class. Your ability to share in any recovery is not, however, affected by the decision whether or not to serve as a lead plaintiff. Filling out the online form above or communicating with any counsel is not necessary to participate or share in any recovery achieved in this case.  Any member of the purported class may move the court to serve as a lead plaintiff through counsel of his/her choice, or may choose to do nothing and remain an inactive class member.