A class action lawsuit was filed against Nike, Inc. (NKE) by Levi & Korsinsky on June 20, 2024. The plaintiffs (shareholders) alleged that they bought Nike stock at artificially inflated prices between March 19, 2021, and March 21, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Nike stock during that period can click here to learn about joining the lawsuit.
Don't Miss our Black Friday Offers:
- Unlock your investing potential with TipRanks Premium - Now At 40% OFF!
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
Nike is an athletic footwear and apparel manufacturer that owns brands such as Nike, Jordan, and Converse. Nike sells and markets its products through several channels, including company-owned retail stores, digital platforms, wholesale partners, distributors, and licensees.
Nike’s Misleading Claims
According to the lawsuit, Nike and two of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about certain business strategies and ancillary matters from SEC filings and related material.
For instance, during the earnings calls earlier in the Class Period, the defendants repeatedly highlighted Nike’s competitive advantages and continued momentum for its footwear worldwide.
During the Q4 FY23 earnings call on June 29, 2023, Nike’s CFO (defendant) discussed the outlook for the company’s full-year Fiscal 2024 financials. He stated that revenue is expected to grow by mid-single digits, fueled by the Nike Direct channel, a customer-focused digital sales channel. The company was transitioning to a direct-to-consumer (DTC)-focused business model and was happy with its progress. Furthermore, Nike forecasted gross margins to expand by 140 to 160 basis points over Fiscal 2023.
Management also cited Nike’s continued product innovation, solid consumer demand, healthy inventory levels, and normalized supply flow as the reasons for the robust Fiscal 2024 outlook.
Plaintiffs’ Arguments
The plaintiffs maintain that Nike and the Defendants deceived investors by lying and withholding important information about the company’s business practices and prospects during the Class Period.
The information became clear in a series of events that took place between June 27, 2022, and March 21, 2024. Specifically, on March 21, 2024, when the company released its Q3 FY24 results, Nike reported a 3% year-over-year decline in revenue from both its EMEA (Europe, Middle East, and Africa) and NIKE Digital segments. Meanwhile, the NIKE Direct segment posted a modest revenue growth of 0.4% year-over-year.
On the earnings call following the results, the CEO made contradictory statements about its DTC strategy compared to the commentary in the previous calls. He noted that Nike had decided to reduce its dependence on the DTC strategy and instead focus on its wholesale partners to grow its brand and total marketplace.
Overall, Nike is accused of misleading investors about its DTC market strategy, which did not achieve the desired results for the company. The reduced sales from the division forced Nike to return back to its wholesale partners, with whom it had disengaged earlier.
Nike’s misleading claims about the opportunity from its DTC business failed, causing NKE stock to lose over 55% in the last three years.
