Nike reacts to Simone Biles' departure as pressure mounts on brand

Reggie Wade

Under pressure at home and abroad, Nike is grappling with the end of two major endorsement deals, at a time when Wall Street is losing faith in the stock.

On Friday morning, the Swoosh Brand suffered another blow on Friday when the Wall Street Journal reported that Olympic Gold Medalist Simone Biles had ended her six-year relationship with Nike, and will now partner with Gap-owned (GPS) Athleta on an apparel deal. The departure dovetailed with news this week that Kobe Bryant's widow, Vanessa Bryant, would not renew a deal with Nike out of reported "frustration" with the company.

Biles told The Journal that Athleta was a more supportive partner, "not just as an athlete, but just as an individual outside of the gym and the change that I want to create, which is so refreshing."

In a statement given to Yahoo Finance by Nike, the company wished Biles the best, as well as highlighting the brand’s commitment to female athletes.

“We’ve always taken great pride in our leadership in supporting women in sport at all levels for close to 50 years as individual athletes, through their universities, national teams, or their competitive leagues," the statement read. "We will continue to champion and celebrate all athletes.”

Rick Helfenbein, former CEO of American Apparel & Footwear Association, told Yahoo Finance recently that the Swoosh Brand's negative publicity could be a sign of things to come.

"With Nike in the news on a near-daily basis of late, some people are starting to wonder if a dark cloud is forming over corporate headquarters or whether the forecast is partly sunny or partly cloudy,” he said.

Wall Street's wary eye

Bangkok / Thailand - June 2020 : Nike is opening the new shop that located at Siam Center shopping mall. The new shop is reprensenred as the Biggest flagship store in ASEAN region.
Bangkok / Thailand - June 2020 : Nike is opening the new shop that located at Siam Center shopping mall. The new shop is reprensenred as the Biggest flagship store in ASEAN region. (Thank you for your assistant via Getty Images)

Although the stock rallied by 1% in intraday trading on Friday, the world's premier athletic brand is enduring Wall Street's version of a no-confidence vote, as key analysts downgrade their views.

This week, UBS (UBS) lowered its price target for Nike (NKE) from $183 to $175, following a Chinese-led boycott of the brand for past statements criticizing China for alleged human rights abuses against Uyghurs in the northern province of Xinjiang.

The Chinese government has built a network of internment camps for the Muslim minority group, forcing them to work in textile and other hard-labor manufacturing jobs, according to human rights groups.

“The pushback from China on Xinjiang has at least one analyst on edge, and their over-emphasis on e-commerce makes others wonder, 'What will happen when retail reverts to more normal times?'" Helfenbein asked.

"Meanwhile, the small- and medium-size retailers who helped build the brand are being pushed to the sidelines. Taking all this into consideration and, of course, the loss of the Kobe Bryant contract, there are some Nikeheads who just want a pause, or in sports terminology – a 'time-out,'" he added.

In a note to investors, UBS said it believes the troubles for Nike across greater China will be short-term. Pressure on the stock will dissipate as pressure on the brand "will lessen significantly" in the months to come as Nike moves to "craft a coordinated marketing message response to its various audiences in a way that significantly reduces tensions."

UBS added: "We agree the most likely outcome is the issue fades away over the next month or two. Plus, we continue to believe Nike’s execution elsewhere remains very strong. Thus we continue to believe the stock will outperform over the next twelve months.”

Separately, Citigroup (C) also recently lowered its rating and price target based on similar concerns.

UBS also noted that key catalysts are approaching, in particular how well the brand fares in the month of June. The sixth month of the year is a key shopping month in greater China, with “Children’s Day” on June 1st and the “6/18 Festival” on June 18th. UBS believes that Nike sales will rebound during the month.

“Nike sales last June were 160% higher than sales in May. Our current forecast assumes sales rebound by June. If sales don’t improve by then, we may revisit our view.”

Reggie Wade is a writer for Yahoo Finance. Follow him on Twitter at @ReggieWade.

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