Nike unveiled plans to reduce costs by approximately $2 billion over the next three years, leading to a 10% drop in its stock after hours. The company adjusted its full-year reported revenue outlook to grow around 1%, compared to the previous mid-single digits estimate. Nike cited increased macro headwinds, especially in Greater China and EMEA, as factors influencing the change in outlook. The company plans to simplify its product assortment, increase automation, streamline the organization, and leverage its scale to enhance efficiency as part of its cost-cutting strategy. The restructuring plan is expected to cost between $400 million and $450 million in pretax charges, primarily related to employee severance costs. Nike’s gross margins are expected to expand between 1.4 and 1.6 percentage points, and it remains committed to its full-year earnings outlook.
Despite the cost-cutting measures, Nike faced challenges in its sales estimates for consecutive quarters, a trend not seen since 2016. The company reported net income of $1.58 billion for the quarter ending Nov. 30, with sales increasing about 1% to $13.39 billion. Nike’s gross margin increased by 1.7 percentage points to 44.6%, ahead of estimates, driven by strategic pricing actions and lower ocean freight rates. The company’s inventory position improved, with inventories down 14% to $8 billion.
The announcement of cost-cutting initiatives comes amid a broader industry shift for Nike, which has been rekindling relationships with wholesalers and focusing on margin improvement. The retail environment’s overall promotional nature, driven by steep discounts, has led Nike to cautiously plan for modest markdown improvements. China remains a key part of Nike’s story, with mixed results as the region emerges from the pandemic. The company’s sales in China fell short of analyst expectations at $1.86 billion. Nike’s CEO, John Donahoe, expressed optimism about Black Friday week sales, noting growth of close to 10%, the strongest digital performance, and record in-store visits.
