Nike outlines US$2 billion cost savings plan, misses sales estimates on weak demand
NIKE said on Thursday (Dec 21) it was seeking US$2 billion in savings over the next three years by streamlining operations, after it missed quarterly sales estimates due to a weak North American wholesale business and feeble recovery in China.
Nike CFO Matthew Friend said the sportswear giant was looking ahead “to a softer second-half revenue outlook”, sending the company’s shares down about 6 per cent after the bell.
The company’s wholesale business has been under persistent pressure as retailers keep a tight lid on product stocks and cut back on orders, hurting sales, despite strength in the brand’s own stores and online business.
Nike’s wholesale revenue fell 2 per cent to US$7.1 billion in the second quarter.
The company is also undertaking a restructuring aimed at delivering up to US$2 billion in cost savings over the next three years, including simplifying its product assortment, increasing automation and streamlining its organisation.
“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.
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“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 US$400 million to US$450 million in pre-tax restructuring charges, primarily associated with employee severance costs, in the third quarter.
Sales in Greater China rose 4 per cent in the second quarter, slowing slightly from the 5 per cent increase seen in the first quarter, signalling that demand was yet to stabilise in the market.
Still, limited promotions, lower freight charges and a cleaner inventory helped boost Nike’s gross profit margins by 170 basis points to 44.6 per cent in the three months ended Nov 30.
The company posted total revenue of US$13.39 billion in the quarter, missing analysts’ estimates of US$13.43 billion, according to LSEG data. REUTERS
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