Nike is warning it can’t keep up the pace for the rest of its fiscal year, and investors are spooked. The company’s shares are down almost 12% in after-hours trading, after Nike trimmed its annual sales forecast and unveiled a plan to cut $2 billion in costs.
On Thursday, Nike announced that it now projects just 1% in revenue growth for its fiscal year, which ends May 31, 2024. The company previously forecast mid-single-digit percentage growth in sales. Chief financial officer Matthew Friend blamed the drop on “increased macro headwinds particularly in Greater China and EMEA.”
Nike’s Greater China sales rose 4% year on year in the latest quarter, still coming below expectations. Sales in Europe, the Middle East, and Africa rose 2%, which was also lower than expected. Revenue in North America, Nike’s biggest market, is down 4% compared with a year ago.
Nike reported total revenue of $13.4 billion for the quarter ended Nov. 30, up 1% from a year ago. Its net income was $1.58 billion, a 19% increase from the same period a year ago. The company’s gross margin increased to 44.6%, which was higher than analyst estimates. Friend called the quarter a “turning point in driving more profitable growth” for Nike.
Nike pointed to strong sales around big shopping events like Black Friday and China’s Singles’ Day, yet the company warned of “indications of more cautious consumer behavior around the world in an uneven macro environment,” and admitted that broadly sales “fell short of our expectations.”
China’s retail sales rose 10.1% in November year on year, up also from the 7.6% increase logged in October, yet still below analysts’ expectations. China’s consumers are looking for more value from their goods and services, leading to a slower-than-hoped-for recovery for companies banking on the country’s shoppers.
Cost cuts
Nike also announced $2 billion in cost cuts over the next three years, by simplifying its product lineup and increasing automation. The company expects the plan to cost between $400 million and $450 million pretax in the current quarter owing to employee severances. Nike has been slashing employee numbers since 2020.
Friend said Nike will focus on “strong gross margin execution and disciplined cost management” against the backdrop of its softer revenue outlook for the second half of the year.
Nike is still a major force in the sports apparel industry, but it’s facing increasing competition from brands like Lululemon, which offers similar activewear products and is also investing heavily in global markets like China.
Friend said on the call that Nike is accelerating its product innovation cycle in recognition of the need to offer something “new” to entice consumers.
“In an environment like this, where the consumer is cautious, and we’re seeing higher levels of promotional activity, it’s newness and innovation, which really creates brand distinction in this environment,” he said.