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Nike Shares Tank 10% After Revealing $2 Billion Savings Plan
December 25, 2023
The sports footwear maker Nike has announced plans to lower costs by $2 billion over the next three years as it shrinks its sales prospects.
Hours after this announcement, the brand’s share price dropped by 10%. This year its share price was up by 4.7%, but after revealing its future plans, it is now far behind the S&P 500’s gains for the year, reports CNBC.
Nike has reset its expectations due to softer demand, and now the company anticipates its full-year revenue to grow by around 1% in comparison to mid-single digits the year before. In this final quarter of 2023, Nike expects revenue to be on the negative side as it has been a tough year compared to last year for the company.
According to CNBC, Chief Financial Officer Matthew Friend said on a call with analysts, “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.”
“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,” he added.
The brand has also said that it plans to reduce costs by streamlining its product range and increasing automation and its use of technology to simplify the workflow, ultimately reducing management layers and leveraging its scale “to drive greater efficiency.”
The company’s bigger picture plan is to reinvest the savings made from the execution of this strategy toward aiding growth in the future by ramping up innovation and driving long-term turnover, according to The Financial Times.
Friend said in a press release, “As we look ahead to a softer second-half revenue outlook, we remain focused on strong gross margin execution and disciplined cost management.”
Within the latest quarter, Nike said it saw a rise in foot traffic at its physical retail stores and a decline in online sales demand. Friend added that Nike would reduce the supply of some of its popular products in order to focus more attention on fresh launches.
Giving examples of the demand for new products, CEO John Donahoe said this can be seen in the basketball category with iconic shoes for professional athletes such as LeBron James of the Los Angeles Lakers and Sabrina Ionescu of the New York Liberty. Also in the mix with this strategic plan is the idea of offering new editions of existing products at different price marks.
Nike’s shift has also seen it start to rekindle relationships with wholesalers like Macy’s and Designer Brands, DSW’s parent company, amidst profit pressures.
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