(Bloomberg) -- Nike Inc. said it's looking for as much as $2 billion in cost savings by dismissing workers and simplifying the sneaker company's product assortment amid a weaker sales outlook.
The shares deepened post-market declines after management gave an updated look at the second half of the company's fiscal year. The sportswear giant sees full-year revenue rising about 1% after declines in the current quarter and a modest increase in the subsequent one.
Chief Financial Officer Matt Friend said on the company's conference call that the new outlook reflects a challenging environment — “particularly in Greater China and EMEA,” referring to Europe, the Middle East and Africa. He added there are “indications of more cautious consumer behavior around the world.”
The shares fell 11% in late trading at 6:33 p.m. in New York. The stock has gained 4.7% in 2023 through Thursday's close, short of the S&P 500 Index's 24% gain.
“We've taken a more prudent approach to our planning for the balance of the year,” Chief Executive Officer John Donohoe said on the call, adding that Nike is seeing lower levels of growth from e-commerce.
In its statement, Nike said it expects to incur restructuring charges of $400 million to $450 million in the current quarter, “primarily associated with employee severance costs.” Friend said that the company is looking to eliminate layers of management.
Revenue in the quarter was $13.4 billion, roughly in line with average analyst estimate compiled by Bloomberg. Sales in the key Greater China region came in lower than expected, while earnings per share surpassed Wall Street's estimate.
Nike is looking for savings by simplifying its product lines while increasing automation and boosting technology. “We know in an environment like this, when the consumer's under pressure and the promotional activity is higher, that it's newness and it's innovation which causes the consumer to act,” Friend said.
Investor concerns about China are a key focus for the sportswear company amid fears of a pullback in consumer spending there. As recently as the conference call after the last quarterly report, in late September, Donohoe said Nike had “great confidence about the future and the Chinese consumer in our segment.” The latest results may foster more doubts about a recovery.
Donahoe reiterated Nike's confidence in China, which has seen slower consumption amid growing unease about the nation's economic prospects.
What Bloomberg Intelligence Says
“Nike's move to cut up to $2 billion in costs in the next three years may bring more efficiency and higher margin yet could weigh on near-term results. Reducing inventory 14% could continue to aid gross margin, but revenue may stay in flux amid an uncertain economy.”
— Poonam Goyal, senior consumer analyst
Click here to read the research.
“We feel very good about our position in China and our ability to compete, and that has not changed from 90 days ago,” he said.
In one important area, Nike reported an improvement: Gross margin in the quarter was 44.6%, higher than analysts' estimates.
Management has spent much of the year cleaning up inventory after a glut of merchandise kept new product from hitting store shelves. Inventories fell 14%.
--With assistance from Kim Bhasin.
(Updates share trading and adds comment from CFO in seventh paragraph.)
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