Nike Digs in a Firm Market Foothold

While former Nike (NKE Quote) CEO William Perez flew one fateful day last November aboard the company's twin-jet Gulfstream V at an altitude of 20,000 feet, traders on the ground watched TV footage of the aircraft's malfunctioning landing gear and sold shares as the plane circled in the air for six hours.

Nike's stock dropped 1.4% before Perez eventually landed safely. The shares recovered the next day after Perez declared he was ready to fly again. But just two months later, Perez's employer made clear that his days of traveling on Nike's private jet had come to an end. This time, the stock has yet to stabilize.

The Beaverton, Ore., sneaker giant announced last week that Perez would be replaced after just one year on the job by Nike veteran Mark Parker. Nike's founder, Phil Knight, changed his mind about bringing in an outsider to succeed him, citing leadership differences.

Since then, Nike shares have dropped 3.6%, while German sportswear company Adidas officially completed its $3.8 billion acquisition of Reebok. Is Nike malfunctioning while a newly formed rival takes flight in the athletic footwear market?

"There's going to be a significant battle waged between Nike and the combined Adidas-Reebok company over retail shelf space in the U.S. market," says John Shanley, an analyst with Susquehanna Financial Group. "Investors are concerned about the threat posed to Nike, and last week's news about Perez has people wondering whether Nike has a succession plan in place to deal with the threat."

Shanley concedes that a larger No. 2 player in the sneaker market could hurt Nike's profit margins as both companies ramp up advertising and marketing efforts. He says, though, that the market is overreacting to Nike's challenges, making the stock cheap.