Nike eyes $2 billion in cost cuts in effort to ‘streamline’ amid softer outlook
Nike Inc. on Thursday said it was looking for ways to save $2 billion over the next three years, in an effort to “streamline” the company following what it said was a “softer second-half revenue outlook.”
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said that the savings could come from simplifying its product selection and using more automation and technology. But the athletic-gear giant has also reportedly begun to lay workers off, and said it expected to book pre-tax restructuring charges of around $400 million to $450 million, much of it in the company’s fiscal third quarter, “primarily associated with employee-severance costs.”
Nike did not immediately respond to questions about job cuts at the company, or how many staff have been or could be laid off.
Nike Chief Financial Officer Matthew Friend said the company’s fiscal second quarter marked “a turning point in driving more profitable growth.”
The company reported net income of $1.58 billion, or $1.03 a share, in the period, compared with $1.33 billion, or 85 cents a share, in the same quarter last year. Revenue rose 1% year over year, to $13.4 billion.
Analysts polled by FactSet expected adjusted earnings per share of 84 cents, on sales of $13.39 billion.
Gross margin rose to 44.6%, helped by price increases and lower costs for ocean-freight shipping.
Nike shares fell 5.3% in after-hours trading.
Nike reported the results as clothing and shoe brands try to steer through weaker demand overall and a broader price-cutting battle in retail stores for inflation-battered customers. Those customers have had to set aside more money to cover the costs of essential goods, at the expense of things like sports jerseys and sneakers, amid inflationary conditions.
Outlooks this year from athletic-gear retailers like Foot Locker Inc.
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and Dick’s Sporting Goods Inc.
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have been cautious, and Nike has faced competition from the likes of Adidas
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and On Running
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Nike management in September also said they could also do more to attract women and running-shoe customers.
However, Nike executives also said at that time that they were “cautiously planning for modest markdown improvements for the balance of the year,” as the company tightens up its supplies of sneakers and clothing in stock. Nike in September said that demand for its products remained solid.
Ahead of the results, Wedbush analyst Tom Nikic said recent conversations with investors about Nike have “skewed surprisingly bullish,” as many are excited about the company’s opportunities to accelerate revenue growth in 2024 because of leaner sales-channel inventories.
He also said investors believe profit margins will get a boost from lower freight expenses, less discounting and recent cost cuts.
“While we agree with this viewpoint for the most part, and think that [Nike] is a compelling 2024 investment story, we think it’s also important to keep in mind that [Nike] is not yet firing on all cylinders,” Nikic wrote in a recent note to clients.
He noted that the brand was more aggressive on cutting prices than last year during Black Friday week, and that recent sell-through trends for the Jordan brand have been “choppy.”
Given this backdrop, Nikic said it’s tough to envision Nike raising its full-year sales guidance. And after the stock’s recent strong performance, “we’re not sure that a simple reiteration of guidance is ‘enough,’” Nikic wrote.
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