Nike sinks 10% after it slashes sales outlook, unveils $2 billion in cost cuts

Nike
on
Thursday
unveiled
plans
to
cut
costs
by
about
$2
billion
over
the
next
three
years
as
it
lowered
its
sales
outlook.

The
stock
fell
about
10%
after
hours.
Nike
shares
were
up
4.7%
so
far
this
year
through
Thursday’s
close,
lagging
far
behind
the
S&P
500’s
gains
for
the
year.
Retailer


Foot
Locker,
which
has
leaned
heavily
on
Nike
products,
fell
about
7%
after
hours.

Nike
now
expects
full-year
reported
revenue
to
grow
approximately
1%,
compared
to
a
prior
outlook
of
up
mid-single
digits.
In
the
current
quarter,
which
includes
the
second
half
of
the
holiday
shopping
season,
Nike
expects
reported
revenue
to
be
slightly
negative
as
it
laps
tough
prior
year
comparisons,
and
sales
to
be
up
low
single
digits
in
the
fourth
quarter.

“Last
quarter
as
I
provided
guidance,
I
highlighted
a
number
of
risks
in
our
operating
environment,
including
the
effects
of
a
stronger
U.S.
dollar
on
foreign
currency
translation,
consumer
demand
over
the
holiday
season
and
our
second
half
wholesale
order
books.
Looking
forward,
the
impact
of
these
risks
is
becoming
clearer,”
finance
chief
Matthew
Friend
said
on
a
call
with
analysts.

“This
new
outlook
reflects
increased
macro
headwinds,
particularly
in
Greater
China
and
EMEA.
Adjusted
digital
growth
plans
are
based
on
recent
digital
traffic
softness
and
higher
marketplace
promotions,
life
cycle
management
of
key
product
franchises
and
a
stronger
U.S.
dollar
that
has
negatively
impacted
second-half
reported
revenue
versus
90
days
ago.”

The
company
still
expects
gross
margins
to
expand
between
1.4
and
1.6
percentage
points.
Excluding
restructuring
charges,
it
expects
to
deliver
on
its
full-year
earnings
outlook.

As
part
of
its
plan
to
cut
costs,
Nike
said
it’s
looking
to
simplify
its
product
assortment,
increase
automation
and
its
use
of
technology,
streamline
the
overall
organization
by
reducing
management
layers
and
leverage
its
scale
“to
drive
greater
efficiency.”

It
plans
to
reinvest
the
savings
it
gets
from
those
initiatives
into
fueling
future
growth,
accelerating
innovation
and
driving
long-term
profitability.

“As
we
look
ahead
to
a
softer
second-half
revenue
outlook,
we
remain
focused
on
strong
gross
margin
execution
and
disciplined
cost
management,“
Friend
said
in
a
press
release.

The
plan
will
cost
the
company
between
$400
million
and
$450
million
in
pretax
restructuring
charges
that
will
largely
come
to
fruition
in
Nike’s
current
quarter.
Those
costs
are
mostly
related
to
employee
severance
costs,
Nike
said.

Earlier
this
month, The
Oregonian
reported that
Nike
had
been
quietly
laying
off
employees
over
the
past
several
weeks
and
had
signaled
that
it
was
planning
for
a
broader
restructuring.
A
series
of
divisions
saw
cuts,
including
recruitment,
sourcing,
brand,
engineering,
human
resources
and
innovation,
the
outlet
reported.

The
company
didn’t
immediately
respond
to
CNBC’s
request
for
comment
on
The
Oregonian’s
report.

During
Nike’s
fiscal
second
quarter,
it
posted
a
strong
earnings
beat,
indicating
its
cost-savings
initiatives
were
already
underway.
But,
for
the
second
quarter
in
a
row,
it
fell
short
of
sales
estimates,
which
is
the
first
time
Nike
has
seen
consecutive
quarters
of
revenue
misses
since
2016.

Here’s
how
the
sneaker
giant
performed
compared
to
what
Wall
Street
was
anticipating,
based
on
a
survey
of
analysts
by
LSEG,
formerly
known
as
Refinitiv:

• 
  Earnings
  per
  share:
  $1.03
  vs.
  85
  cents
  expected
• 
  Revenue:
  $13.39
  billion
  vs.
  $13.43
  billion
  expected

The
company
reported
net
income
for
the
three-month
period
that
ended
Nov.
30
was
$1.58
billion,
or
$1.03
per
share,
compared
to
$1.33
billion,
or
85
cents
per
share,
a
year
earlier.

Sales
rose
about
1%
to
$13.39
billion,
from
$13.32
billion
a
year
earlier.

Nike
is
considered
a
leader
among
industry
peers
such
as


Lululemon,


Adidas
and


Under
Armour,
but
its
profits
have
been
under
pressure
and
it
has
been
in
the
middle
of
a
strategy
shift
that
has
seen
it
rekindle
its
relationships
with
wholesalers
including


Macy’s
and


Designer
Brands,
the
parent
company
of
DSW.

For
the
past
six
quarters,
Nike’s
gross
margin
has
declined
compared
to
the
prior-year
period,
but
the
story
turned
around
on
Thursday.
Nike’s
gross
margin
increased
1.7
percentage
points
to
44.6%,
slightly
ahead
of
estimates,
according
to
StreetAccount.

This
time
last
year,
Nike’s
inventories
were
up
a
staggering
43%
and
the
retailer
was
in
the
middle
of
an

aggressive
liquidation
strategy
to
clear
out
old
styles
and
make
way
for
new
ones,
which
weighed
heavily
on
its
margins.
Several
quarters
later,
however,
Nike
is
in
a
far
better
inventory
position,
which
is
a
boon
for
margins.

During
the
quarter,
inventories
were
down
14%
to
$8
billion.

Nike’s
gross
margin
turnaround
came
as
the
retail
environment
overall
has
been

flooded
with
steep
promotions
and
discounts
as
retailers
struggle
to
convince
inflation-weary
consumers
to
pay
full
price.
In
September
when
Nike
reported
fiscal
first-quarter
earnings,
finance
chief
Friend
said
Nike
was
“cautiously
planning
for
modest
markdown
improvements”
given
the
overall
promotional
environment.

While
the
company
repeatedly
pointed
out
the
overall
promotional
environment,
it
said
the
average
sales
price
of
footwear
and
apparel
were
up
during
the
quarter
and
the
average
selling
price
grew
across
channels
with
higher-priced
products
proving
particularly
“resilient.”

The
company
attributed
the
gross
margin
uptick
to
“strategic
pricing
actions
and
lower
ocean
freight
rates,”
saying
it
was
partially
offset
by
unfavorable
foreign
exchange
rates
and
higher
product
input
costs.

As
one
of
the
last
retailers
to
report
earnings
before
the
December
holidays,
investors
are
eager
to
hear
good
news
when
it
comes
to
Nike’s
expectations
for
the
crucial
shopping
season.
When
many
retailers
issued
holiday-quarter
guidance
in
November,
the
commentary
was
largely

tepid
and
cautious
as
companies
looked
to
under
promise
and
over
deliver
in
an
increasingly
uncertain
macro
environment.

Nike
struck
a
note
that
hit
somewhere
in
the
middle.
Its
sales
miss
and
focus
on
cost
cuts
signal
larger
demand
issues,
but
CEO
John
Donahoe
was
upbeat
when
discussing
Black
Friday
week
sales.

“We
outpaced
the
industry,
driving
growth
of
close
to
10%,
Nike
digital
had
its
strongest
Black
Friday
week
ever
and
a
record
number
of
consumers
shopped
in
our
stores
over
the
long
Thanksgiving
weekend,”
said
Donahoe.

China
is
another
key
part
of
the
Nike
story.
As
the
region
emerges
from
the
Covid-19
pandemic
and
widespread
lockdowns,
China’s
economic
recovery
has
so
far
been
a
mixed
bag.
In
November,
retail
sales

climbed
10.1%
in
the
region.

It
was
the
fastest
pace
of
growth
since
May,
but
those
numbers
were
up
against
easy
comparisons
and
the
growth
was
largely
driven
by
car
sales
and
restaurants,
according
to
a
research
note
from
Goldman
Sachs.

During
the
quarter,
China
sales
came
in
at
$1.86
billion,
which
fell
short
of
the
$1.95
billion
analysts
had
expected,
according
to
StreetAccount.
Sales
in
Europe,
the
Middle
East
and
Africa
also
fell
short
of
estimates,
but
revenue
came
in
ahead
in
the
North
America,
Asia-Pacific
and
Latin
America
markets,
according
to
StreetAccount.

Read
the
full
earnings
release

here.

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