Nike is to cut hundreds of jobs, simplify its product ranges and increase its use of automation as part of attempts to save $2bn (£1.6bn) in costs over the next three years amid poor sales.
The US sportswear brand said it was “taking steps to streamline the organisation” and would be spending up to $450m on the changes, mainly on payoffs for employees.
The announcement comes after Nike said sales rose only 1% to $13.4bn in the three months to 30 November – or down 1% once the impact of currency exchange rates was stripped out. Profit margins were up, however, so earnings rose 19% to $1.6bn.
Sales rose in China but fell in Europe and the US, with global sales of the group’s Converse brand down 11%, while Nike brand sales were up 1%.
Shares in the group sank more than 10% in after-hours trading as the company warned that sales for the year were likely to rise by only 1%, a more pessimistic view than its previous forecast of mid-single-digit percentage growth.
The problems also dragged down the share price of JD Sports, whose stock was down 5% on Friday morning, and Frasers Group, the owner of Sports Direct, where shares were down 1% as investors noted the weak trading for such a big global brand.
Analysts at Jefferies said Nike Inc’s results gave “indications of more cautious consumer behaviour” and suggested greater need for discounts to clear stock was offsetting savings from a fall in the cost of freight transport.
However, they suggested it was not yet clear if it was Nike had become less attractive as a brand or that consumers were generally holding back. “The extent to which this may reflect shifting relative sales momentum and brand heat will be a key point of debate,” analysts said.
John Donahoe, the chief executive of Nike Inc, said: “Our Q2 results demonstrated how we are getting back on our front foot in our key areas of innovation and growth.”
Matthew Friend, Nike’s chief financial officer, said: “Nike’s second-quarter financial performance was a turning point in driving more profitable growth. As we look ahead to a softer second-half revenue outlook, we remain focused on strong gross margin execution and disciplined cost management.”
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He said areas for potential savings included “streamlining our organisation” – a reference to cutting jobs. The group did not make clear where the jobs would go but said visitors to stores were up and online sales had suffered, reflecting wider patterns in the retail market as the Covid pandemic subsided and shoppers returned to high streets.
Nike is also simplifying product ranges to concentrate on newer launches, which are proving more profitable than old favourites, and increasing the use of automation and other technology as part of a drive towards “leveraging our scale to drive greater efficiency”.
Most of the savings will be invested in stepping up the speed of innovation.
