Nike outlines $2-billion cost savings plan, misses sales estimates on weak demand
2023.12.21 18:08
© Reuters. FILE PHOTO: A bicyclist wearing Nike shoes rides along the Charles River in Cambridge, Massachusetts, U.S., March 18, 2019. REUTERS/Brian Snyder/File Photo
By Deborah Mary Sophia
(Reuters) -Nike said it was seeking $2 billion in savings over the next three years through steps including cutting supply of key product franchises as weak demand in North America and China drove downbeat quarterly sales and sent its shares down 7%.
The company will also reduce management layers, increase the use of automation and improve its supply chain to shave costs, CFO Matthew Friend said on a post-earnings earnings call on Thursday.
Nike (NYSE:)’s wholesale business has been under persistent pressure as retailers keep a tight lid on product stocks and cut back on orders, as consumers become increasingly price-sensitive and forego discretionary purchases.
“We are seeing indications of more cautious consumer behavior around the world,” Friend said, adding that despite traffic growth in stores, the company was still seeing higher levels of promotional activity in its digital business.
Nike’s wholesale revenue fell 2% to $7.1 billion in the second quarter.
“Nike’s talking about reducing the number of products … perhaps the company feels there are too many products that are not high-margin and not really generating significant sales,” David Swartz, senior equity analyst at Morningstar, said.
“It does kind of indicate that the sales growth is not going to be what Nike originally expected.”
As part of the streamlining, Nike expects about $400 million to $450 million in pre-tax restructuring charges, primarily associated with employee severance costs, in the third quarter.
Sales in Greater China rose 4% in the second quarter, slowing slightly from the 5% increase seen in the first quarter, signaling that demand was yet to stabilize in the market.
Still, lower freight charges and a cleaner inventory helped boost Nike’s gross profit margins by 170 basis points to 44.6% in the three months ended Nov. 30.
The company posted total revenue of $13.39 billion in the quarter, missing LSEG estimates of $13.43 billion.
