• by Sarah Mahoney  @mahoney_sarah, June 24, 2024

Nike misrepresented its prospects to investors, misleading them by talking up the strengths and successes of its direct-to-consumer strategy, alleges a shareholder lawsuit.

Kessler Topaz Meltzer & Check, based in Radnor, Pennsylvania, filed a suit representing the City Pension Fund for Firefighters and Police Officers, in the City of Pembroke Pines, Florida, alleging fraud and misconduct.

The suit targets John Donahoe, Nike’s president and chief executive officer, and Matthew Friend, chief financial officer, and charges that the executives “misrepresented and/or failed to disclose that Nike’s direct-to-consumer strategy was unable to generate sustainable revenue growth.” As a result, Nike’s claims about its potential revenues “were materially false and misleading and/or lacked a reasonable basis.”

In 2020, Nike introduced its Consumer Direct Acceleration, a transformation initiative launched in 2020. It called for a shift to Nike’s direct channels, including digital sales, its retail stores, and mobile apps. Those sales are typically more profitable than wholesale partnerships.

The lawsuit focuses on remarks made on a series of earnings calls,  calling out executives' comments beginning in March 2021, asserting that its D2C strategy was a hit.

The suit was filed in the U.S. District Court in Oregon, where Nike is headquartered.

“Nike continues to deeply connect with consumers all over the world driven by our strong competitive advantages,” Donahoe said in that call. “Our strategy is working as we accelerate innovation and create the seamless, premium marketplace of the future.”

“Nike’s brand momentum is as strong as ever,” added Friend in that webcast. “We are driving focused growth against our largest opportunities.”

However, as the financial quarters ticked by, Nike’s growth cooled, and in June of 2022, Nike revealed a 1% decline in fourth-quarter revenues, with quarterly wholesale revenues dipping 7%. Donohoe again expressed confidence in the company’s strategy.

In December 2023, Nike conceded it was adjusting its direct and digital strategy amid further stumbles and announced it would look for $2 billion in cost savings. And by March of this year, it announced a pivot back to wholesale, admitting that “Nike is not performing up to its potential,” said Donahoe.

The new plan called for Nike to “lean in with our wholesale partners to elevate our brand and grow the total marketplace,” with a return to a more “holistic offense.”

Nike shares peaked in value in November 2021 at $178 per share and currently trade at about $97.

Marketing Daily reached out to Nike and the law firm for additional comment, but so far has not received an answer.