Nike Announces More Job Cuts and Restructuring as Revenue Forecast Falls
Nike's Restructuring Efforts and Financial Outlook
By Danielle Kaye and Angela Christy M
Overview of the Announcement
Oct 1 (Reuters) - Nike deepened its restructuring under CEO Elliott Hill on Thursday, announcing a plan to cut more jobs and shake up its global business divisions after the struggling sportswear giant projected a surprisingly steep drop in full-year revenue.
The company has been working to revive growth during the first two years of Hill's tenure by refocusing on key sports such as running and by rebuilding relationships with wholesale retailers.
Investor Concerns and Market Reaction
But the weaker-than-expected forecast underscored that Nike's challenges will likely persistent for at least several more quarters — especially in China, where sales tumbled 26% on a constant-currency basis in the first quarter — adding to investor unease about the pace of Hill's turnaround.
Nike's woes have in large part stemmed from a failure to release enough new, compelling products, analysts have said, leading to an uptick in promotions and discounts. Its shares fell 4% in extended trading.
Details of the Restructuring Plan
The company, which also missed analysts' expectations for first-quarter revenue, unveiled changes to its operating model, including job cuts and a move to three geographic regions — Americas, Asia Pacific and Greater China, and EMEA — instead of four. It plans to open a new campus in India "with strong capabilities and access to talent."
Job Cuts and Employee Impact
Nike said the company does not yet know the number or roles that will be cut under the restructuring. Its will begin notifying employees in 2027.
Cost Savings and Revenue Forecast
The program, building on its previously announced restructuring push, which also included job cuts, is expected to deliver about $2.5 billion in savings through fiscal 2031.
Nike expects its revenue to decline in high-single digits in fiscal 2027. The company earlier forecast revenue to decline by a low-to-mid-single-digit percentage in the first half of fiscal 2027.
China Sales Plummet, Again
Weakness in the Chinese Market
China, historically a profit-driver for Nike, has shown particular weakness in recent quarters as international rivals and domestic sportswear groups gain traction, fueling investor concerns about the company's turnaround progress.
The region accounts for about 15% of Nike's annual revenue and is its third-largest market after North America and Europe, the Middle East and Africa.
Sales in China have fallen for nine consecutive quarters.
Strategic Moves in China
The company recently said starting in January, it would pull online sales rights from some of its biggest retail partners in China — a high-stakes bet that tighter control over pricing and distribution can revive its fortunes.
But analysts have questioned whether the abrupt measures, though likely to help Nike address rampant discounting, will convince Chinese consumers that they want what Nike is selling.
"Nike does not have a channel problem in China, but rather a product problem," BNP Paribas senior analyst Laurent Vasilescu has said in a research note, adding that he was surprised by the company's short timeframe to shut down online wholesale in China.
Market Index Changes and Financial Performance
S&P Dow Jones Indices removed Nike from the S&P 100 in September as part of a quarterly rebalancing, after 18 years in the index of blue-chip companies.
The sportswear giant posted sales of $11.2 billion for the first quarter, compared with analysts' average estimate of $11.32 billion, according to data compiled by LSEG.
Its gross margin, however, rose 60 basis points to 42.8% in the quarter ended August 31, helped by lower warehousing and logistics costs.
(Reporting by Angela Christy in Bengaluru and Danielle Kaye in New York; Editing by Shilpi Majumdar)