Michelle ThompsonA US sportswear company has announced job cutbacks and a reduction in product lines as part of its’streamlining’ of operations.
Nike plans to reduce hundreds of positions, simplify its product lines, and enhance its use of automation in order to save $2 billion (£1.6 billion) in costs over the next three years due to low sales.
The US sportswear company claimed it was “taking steps to streamline the organization” and will spend up to $450 million on the modifications, primarily on employee payoffs.
Nike’s announcement comes after the company reported a 1% increase in revenue to $13.4 billion in the three months ending November 30 – or a 1% decrease when currency exchange rates were factored in. However, profit margins increased, resulting in a 19% increase in earnings to $1.6 billion.
Sales increased in China but declined in Europe and the United States, with global Converse brand sales falling 11% while Nike brand sales increased 1%.
In after-hours trading, the group’s shares fell more than 10% as the business cautioned that sales for the year were expected to rise by only 1%, a more negative outlook than its earlier prediction of mid-single-digit percentage growth.
The issues also knocked down the share price of JD Sports, which was down 5% on Friday morning, and Frasers Group, which owns Sports Direct, which was down 1% as investors highlighted the poor trading for such a large worldwide brand.
According to Jefferies analysts, Nike Inc’s results showed “indications of more cautious consumer behavior” and suggested that a stronger need for discounts to clear stock was offsetting savings from a decrease in freight transport costs.
However, they argued that it was unclear if Nike had grown less appealing as a brand or if buyers were generally holding back. “A key point of discussion will be the extent to which this may reflect shifting relative sales momentum and brand heat.”
Nike Inc. CEO John Donahoe stated, “Our Q2 results demonstrated how we are getting back on the front foot in our key areas of innovation and growth.”
Nike’s chief financial officer, Matthew Friend, stated, “Nike’s second-quarter financial performance was a turning point in driving more profitable growth.” We remain focused on solid gross margin execution and strict cost management as we face a weaker second-half revenue projection.”
He stated that avenues for potential savings included “streamlining our organization,” a reference to employment cuts. The group did not say where the positions will go, but said store visits were up and online sales were down, reflecting broader retail market trends as the Covid epidemic receded and people returned to high streets.
Nike is also reducing product lines to focus on recent launches, which are more profitable than old favorites, and boosting its use of automation and other technologies as part of a push to “leverage our scale to drive greater efficiency.”
The majority of the savings will be used to accelerate innovation.
