The new year is kicking off with new speculation about the storied Converse brand.
In a new research note issued on Monday, BNP Paribas Equity Research senior analyst Laurent Vasilescu suggested that Nike may be considering a sale of its Converse brand – indicating that the “underlying health” of the brand is “more precarious” than first thought.
To justify this potential move, the analyst pointed to challenges Converse has seen of late, including a 28 percent decline in revenues in the first quarter and with sales dropping another 31 percent in Q2 – leading to EBIT (Earnings Before Interest and Taxes) of Converse “dipping into the negative territory” for the second quarter.
“The Converse gross margin continues to deteriorate from down 620 basis points in Q1 to now down 700 basis points in Q2,” Vasilescu noted. “Interestingly lower average selling prices and higher product costs are called out as culprits with no specific mention of tariffs. We think the underlying health of Converse is more precarious as the average selling price pressure would suggest sell in into off-price and therefore sell in into key accounts could be down more than 30 percent.”
The analyst further noted that the firm is “really surprised” that demand creation (which typically includes expenses related to marketing a brand) declined 44 percent year-over-year versus down 6 percent year-over-year in the first quarter.
“We’ve never seen a 44 percent decline in demand creation for a brand,” Vasilescu wrote. “With Nike pulling back on so much demand creation, Nike may be evaluating strategic alternatives for Converse. A potential divestiture would not be Nike’s first. Rather, it would cap off a long history of divestitures from Cole Haan, Umbro, Starter, Bauer and Hurley. A divestiture of Converse would finalize the divestiture of Nike’s all acquired brands, a further testament that brand acquisition is hard to pull off.”
Vasilescu added that a Converse divestiture would represent a 3 percent top line headwind to fiscal year 2027, but implications are “hard to calculate” as there are dis-synergies to consider.
“The hope for $3 in earnings per share by fiscal 2028 continues to look increasingly unlikely,” the analyst added.
FN has reached out to Nike for comment.
The speculation comes as Nike Inc. chief executive officer Elliott Hill pointed to Converse and Nike’s Greater China business as two pain points in the company’s turnaround efforts.
While details on the company’s efforts to overhaul Converse were not disclosed on Nike’s Q2 earnings call last month, management made it a point to disclose that it is “resetting the marketplace with new leadership” – referring to 21-year Nike veteran Aaron Cain taking on the Converse chief executive officer role in July, succeeding Jared Carver.
Nike noted in its earnings release that it is expecting Converse to experience continued headwinds for the balance of the fiscal year as revenues for the brand were $300 million in Q2, down 30 percent on a reported basis, due to declines across all territories.
