Converse Restructuring Shows Nike Isn't Ready for Investment Yet
Nike makes changes as Converse revenues face sharp decline.
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Growing up in a working-class Philadelphia neighborhood, the Bobos taunt was the last thing you wanted to hear. Bobos were cheap knockoff sneakers from K-Mart or a similar discount store.
Wearing Bobos signified that you couldn’t afford the only socially acceptable footwear, Converse All-Stars. All-Stars were also called "Chucks" after Chuck Taylor, a semi-professional basketball player in the 1920s.
When Nike (NKE) purchased Converse in 2003, the name still had cache, and a new generation of kids were sporting Chucks.
30% Decline in Revenue
Those days may be over. Earlier this week, Nike’s Converse employees were told to work from home, as the company prepares for a restructuring that will likely include substantial layoffs.
Converse revenues have dropped from $2.43 billion in fiscal-year 2023, to $1.7 billion in fiscal-year 2025, a decline of 30%.
Fashion is fickle. Today, Nike and Converse are competing with names like Cole Haan, Hoka and On Cloud.
What About Those Stock Purchases?
Nike made headlines in December thanks to stock purchases by company officers and board members. CEO Elliot Hill purchased $1 million worth of shares, and Apple (AAPL) CEO Tim Cook bought $3 million. Other board members also made purchases last year.
But how significant were those purchases? Cook has been a member of Nike’s board since 2005. He reportedly has a net worth of over $2.5 billion, according to Forbes. This puts his $3 million dollar purchase in perspective.
A number of company officers purchased shares within a brief window of time. Did they buy because they all believed the stock was a bargain, or was it a concerted effort to generate interest among shareholders and potential investors?
Four-Year Downtrend
Nike has been trending lower since November 2021. Over the past five years, Nike shares have lost 57% of their value.
Zooming in on the chart below, there is some support due to a rising trend line that has been intact for nine months. Support for Nike comes in near $58.25 (point A).
The stock seems unable to stay above its 50-day (blue) and 200-day (red) moving averages, a sign of weakness.
Bottom Line
I’ve been negative on this stock for some time now, and that hasn’t changed. While stock purchases by company officials did generate some excitement, Nike is still underperforming the broader market. Year-to-date, Nike is down 3.45%, while the S&P 500 has lost just 0.37%.
Eventually, Nike will become a name to own again. However, as we see with the pending restructuring of Converse, that time hasn’t come yet. I’ll continue to avoid the stock for now.
At the time of publication, Ponsi had no positions in any securities mentioned.
