Nike, one of the most iconic brands in global sportswear, has been facing a challenging period marked by operational missteps and a significant decline in financial performance. As the company struggles through what can only be described as a turnaround story, investor Bill Ackman has stepped in, betting that Nike can reclaim its dominant position in the market. Here’s a look at Ackman’s outlook on Nike, the challenges the company faces, and the strategy he is employing to capitalize on the potential for a major rebound.
Nike’s Current Struggles: A Deep Dive into the Turnaround
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Nike’s recent financial performance has been less than stellar, sparking the need for a strategic overhaul. Since May 2024, the company has experienced a sharp decline in top-line revenue growth, a critical concern for any business striving to maintain growth in a competitive industry. More worrying are the falling margins—gross margin dropped from 45% to 41%, operating margin fell from 15% to 7%, and net profit margin decreased from 12% to 7%.
A significant part of Nike’s challenges stems from operational misjudgments under previous leadership. The company’s focus on direct-to-consumer (DTC) sales, over-promotion of lifestyle products, and neglect of its traditional wholesale partnerships led to weakened relationships with key retail partners and bloated inventories. These decisions disrupted Nike’s ability to innovate effectively, and its operational structure became increasingly fragmented.
Bill Ackman’s Turnaround Bet on Nike
Despite these issues, Bill Ackman, the founder of Pershing Square Capital Management, saw an opportunity in Nike’s struggles. In Q2 2024, Ackman’s fund initiated a position in Nike, seeing it as a turnaround bet. By Q3 and Q4 2024, Pershing Square had significantly increased its stake in Nike, reaching over $1.4 billion at its peak.
However, as of Q1 2025, Nike was no longer present in Pershing Square’s portfolio filings. But rather than selling his position, Ackman took a different approach: he converted his entire stake into deep in-the-money call options. This strategy allows Ackman’s fund to maintain exposure to the upside potential while unlocking capital for other investments. In essence, the call options provide built-in leverage by controlling the upside with significantly less upfront capital than outright ownership of Nike shares.
“This structure allows us to maintain exposure to the upside potential of owning the stock outright, while unlocking capital for new investments… In a successful turnaround, the option payoffs should be more than double the returns from owning the common stock.” explained in Pershing Square Capital Disclosure
This options strategy, however, carries notable risks. Expiration dates represent a major challenge; if the turnaround does not materialize by the options’ 3 years expiration date, Ackman could lose the entire investment. Additionally, the downside is magnified, meaning a moderate decline in Nike’s stock could result in a total loss of the premium paid for the options. Furthermore, these options come with no shareholder privileges such as voting rights or dividends. Despite these risks, Ackman’s strategy allows for significant potential returns if the turnaround story plays out beautifully.
Elliott Hill: The Right Leader for the Turnaround
Ackman’s investment strategy gained additional credibility with the appointment of Elliott Hill as Nike’s new CEO. Hill, a long-time Nike veteran, was brought out of retirement in October 2024 to lead the company through its turnaround. With extensive experience at Nike, Hill is seen as the right insider to spearhead the company’s recovery.
Hill’s turnaround plan centers around returning Nike to its roots, focusing on high-performance sportswear, product innovation, and rebuilding strong wholesale partnerships. In his plan, Hill aims to scale back Nike’s overextended lifestyle segment and refocus on core athletic categories that have historically driven the company’s success. Rebuilding relationships with key retail partners and reassessing the company’s reliance on Nike Digital are also top priorities, aiming for a more balanced distribution strategy.
The Messiness and Challenges of Nike’s Turnaround
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Nike’s turnaround is not expected to be smooth sailing. Turnarounds are messy, and Nike’s recovery will likely be volatile and uncertain in the near term. Expectations are that revenue will not snap back in a single quarter, and the company will need to clean out excess inventories and reset pricing expectations—all of which will likely put pressure on margins in the short term.
Investors should still brace for pessimism around the stock in the “painful part of the process.” The path to recovery is fraught with volatility, and investors need to be prepared for a few quarters of uncertainty. However, Ackman believes that despite these short-term difficulties, Nike’s dominant position in the athletic footwear market, combined with long-term trends in health and wellness, makes the company well-positioned for a strong recovery.
Bill Ackman’s Bullish Outlook on Nike: A Potential Large-Cap Consumer Turnaround
Ackman remains bullish on Nike, seeing it as one of the "great large-cap consumer turnarounds" in the making. He believes that Nike’s market dominance and the ongoing trends in health and wellness, particularly the rise of fitness-conscious consumers, offer significant upside potential if the company can successfully navigate the current challenges.
The success of this turnaround hinges on execution. While Elliott Hill’s leadership is viewed as a positive step forward, Ackman acknowledges that this is still a turnaround story. Nike’s future success is far from guaranteed, and investors need to recognize that the recovery is a “big if.” Nike will need to demonstrate consistent performance and regain investor confidence over the coming quarters to prove that its turnaround efforts are on track.
A High-Risk, High-Reward Bet
Bill Ackman’s bullish outlook on Nike is a high-risk, high-reward bet. While the company faces several hurdles, Ackman believes that with the right leadership and a focused strategy, Nike has the potential to regain its former glory. His use of deep in-the-money call options provides significant upside potential, but the risks particularly the expiration dates and downside magnification are substantial.
The story of Nike’s turnaround is far from over, and while Ackman is confident, he and other investors must keep their eyes open for the uncertainty that lies ahead.
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